Hiding a Recession

[Borodog]

I've been wondering for a while if the final frontier of government economic management would not be to simply fudge away recessions via statistical hocus pocus. After all, the government is the organization that gathers and reports the statistics. How hard could it be? Manipulation of the CPI has become more intense for the past twenty-odd years, to the point where I find the number to be completely ridiculous. Until recently I thought it was being under-reported to the tune of maybe 50%. Now I believe it may be much worse. Consumer price inflation is probably hovering near double digits, as anyone who has been shopping for the past four or five years can attest to.

Intermission: My wife is watching a youtube video where some [censored] just said that lewrockwell.com is "totally in bed with the islamofascists." Ahahahahaha! And now back to our OP.

What is the significance of a 10% CPI? Well, the CPI is used to "deflate" GDP, which we are told was nearly 4% last quarter. Uh, what? How is this absurd number arrived at? Well, they only deflated the nominal GDP by 0.8%. That's right. You read that right. In calculating GDP last quarter, the government assumed price inflation was 0.8%. That's the lowest since the Eisenhower administration.

So let me get this straight. "Consumer confidence" is in the toilet. 92% of people say they are spending less on the holidays than last year. Oil is $100/barrel, Gold is almost $850/ounce, the dollar is at an all time low versus yak turds and every other currency in the world, the Fed just cut rates (twice) and is printing money (it's a figure of speech, Barron) like there's no tomorrow, and price inflation is supposed to be at its lowest point in 50 years?

My point is, that some people (iron81 comes to mind, bless his heart) have previously stated on these boards that they buy into the idea that Fed control of the money supply has led to a "smoothing out" of the business cycle, as evidenced by the last twenty years. I say, no. The last twenty years are evidence of ever better manipulation of economic data and hiding of the business cycle.

In fact, here is my claim:

The last recession has never ended. The US economy has been contracting for some 7 years, give or take a couple of quarters, and this has been hidden by truly heroic inflation of the money supply, running at something like 15% per year, which has itself been hidden by, among other things, massive manipulation of government economic statistics.

Flame on.

[JayTee]

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This post has been reported to the Department of Homeland Security.

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[maxtower]

The Jr. Bacon Cheeseburger is still 99 cents, but I did notice some strange guy the other day tipping a stripper $2. The nerve of that guy... He's going to drive prices up for the rest of us.

Seriously though, I think inflation is probably higher than the government reports, but I don't know if we've been in a recession the last 7 years. I don't know too many people having a rough go of it. Give the housing bust a couple more quarters and that could change.

[tolbiny]

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Seriously though, I think inflation is probably higher than the government reports, but I don't know if we've been in a recession the last 7 years. I don't know too many people having a rough go of it.

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A recession can occur without people having a rough time on the surface for quite a while. If you look at the past few years the savings rate has continued to fall, if the standard of living isn't increasing with the increased spending rates then we are essentially in a recession as we are paying more for the same lifestyle.

[Borodog]

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The Jr. Bacon Cheeseburger is still 99 cents,

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But the weight and quality of the ingredients has probably declined.

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but I did notice some strange guy the other day tipping a stripper $2. The nerve of that guy... He's going to drive prices up for the rest of us.

Seriously though, I think inflation is probably higher than the government reports, but I don't know if we've been in a recession the last 7 years. I don't know too many people having a rough go of it. Give the housing bust a couple more quarters and that could change.

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A recession in its technical meaning doesn't necessarily require anyone to have a rough go of it, if it's hidden. It simply means two or more consecutive quarters of negative GDP growth. This can be hidden by manipulation of economic data, and we can all merrily go on our way consuming, consuming, consuming. Consuming the capital stock.

Did some digging and found some interesting data, from shadowstats.com.



"The CPI on the Alternate Data Series tab here, reflects the CPI as if it were calculated using the methodologies in place in 1980."

And, the deflated GDP using the original CPI calculation:

[Phil153]

I don't get it. If they're fudging the data why doesn't someone go and buy a basket of goodies and compare it to last year?

edit: graphs didn't load before. Very interesting.

[Borodog]

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I don't get it. If they're fudging the data why doesn't someone go and buy a basket of goodies and compare it to last year?

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Someone has. Perhaps you missed the graphs.

[Misfire]

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The Jr. Bacon Cheeseburger is still 99 cents,

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But the weight and quality of the ingredients has probably declined.

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I had one the other day and it was aboslutely delicious. The quality of service sucked, which I think is a pretty strong indicator of economic conditions. Low-wage employees take their jobs more seriously when they are in fear of not being able to find another.

Re: low dollar vs yak turds - Falling dollar against foreign currency isn't all bad. American exporters should be having a heyday.

[Borodog]

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Re: low dollar vs yak turds - Falling dollar against foreign currency isn't all bad. American exporters should be having a heyday.

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Sure. But what about American consumers who now have to compete with those foreigners buying up American goods? They are getting crunched with higher domestic prices.

[RR]

Since these graphs are out there I am pretty sure there would be some articles written about this. I am packing for a move, so I don't really have the time to do any actual research into what is going on.