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  #1  
Old 11-24-2007, 01:24 AM
Borodog Borodog is offline
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Default Hiding a Recession

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.
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  #2  
Old 11-24-2007, 01:33 AM
JayTee JayTee is offline
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Default Re: Hiding a Recession

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

[/ QUOTE ]
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  #3  
Old 11-24-2007, 02:05 AM
maxtower maxtower is offline
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Default Re: Hiding a Recession

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.
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  #4  
Old 11-24-2007, 02:06 AM
Zygote Zygote is offline
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Default Re: Hiding a Recession

[ QUOTE ]
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.

[/ QUOTE ]

interestingly, inflation and the business cycle can occur with prices never rising. If prices were meant to fall but remain stable there is inflation, for example.

Regarding the feds data, they distort almost every statistic they produce. Employment is very controversial as is CPI, to name a couple. I heard Peter Schiff say that if you used the 70's data and applied todays CPI the result would be no more than ~3% inflation throughout.
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  #5  
Old 11-24-2007, 02:16 AM
ConstantineX ConstantineX is offline
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Default Re: Hiding a Recession

Forsooth, Borodog, forsooth. It really makes you wonder why the Federal Reserve had been hiking interest rates in a recessionary period (making it harder to borrow against real goods), why the dollar-yen exchange rate was at historic lows till February of this year, and the Gulf Nations have been committed to dollar peg since the '90s. It only makes sense that foreign private investors, with no responsibility or allegiance to the United States government, would continue to buy and peg to a depreciating currency.
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  #6  
Old 11-24-2007, 12:29 PM
tolbiny tolbiny is offline
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Default Re: Hiding a Recession

[ QUOTE ]

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.

[/ QUOTE ]

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.
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  #7  
Old 11-24-2007, 12:57 PM
Borodog Borodog is offline
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Default Re: Hiding a Recession

[ QUOTE ]
Forsooth, Borodog, forsooth. It really makes you wonder why the Federal Reserve had been hiking interest rates in a recessionary period (making it harder to borrow against real goods), why the dollar-yen exchange rate was at historic lows till February of this year, and the Gulf Nations have been committed to dollar peg since the '90s. It only makes sense that foreign private investors, with no responsibility or allegiance to the United States government, would continue to buy and peg to a depreciating currency.

[/ QUOTE ]

I suppose this is supposed to be sarcasm. No, it doesn't make me wonder why the Fed was hiking interest rates in a recessionary period, since that is what one has to do to avoid hyperinflation. It's not like the Fed increased the target with the purpose of increasing interest rates, either. It's that the market increased the rates and the Fed either had to (a) up the target to not look foolish, or (b) pump more and more money in to try and maintain the lower target. For a while there they chose the former route, but with the recession becoming more and more obvious, they have chosen the latter; lower the target and pump money like mad to paper it over through the end of the administration. I doubt they will make it.

Your $-yen ex. rate point makes little sense to me. I don't have data past 5 years back at my fingertips, but it looks like the low in the $-yen ex. rate was in late 2004. I'm not sure how a single exchange rate would negate my point about the general international weakness of the dollar, which I don't see as being disputable, especially versus the yen of all currencies, seeing as Japanese monetary policy has been FUBAR for the better part of twenty years.

I also don't understand your point about "private investors, with no responsibility or allegience to the United States government, would continue to buy and peg to a depreciating currency." A) private investors don't do the pegging, foreign governments and central banks do, and they do have some responsibility and allegiance to the US government, at least when it comes to monetary policy. And B) the currency didn't start to rapidly depreciate until recently, and lo and behold, those vary nations are either dropping or threatening to drop their pegs left and right around the world.

So, I don't get your point.
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  #8  
Old 11-24-2007, 01:09 PM
zasterguava zasterguava is offline
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Default Re: Hiding a Recession

Do you mention your wife in every post? LOL, just asking; seems like it (=@
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  #9  
Old 11-24-2007, 01:10 PM
Borodog Borodog is offline
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Default Re: Hiding a Recession

[ QUOTE ]
The Jr. Bacon Cheeseburger is still 99 cents,

[/ QUOTE ]

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

[ QUOTE ]
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.

[/ QUOTE ]

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:

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  #10  
Old 11-24-2007, 01:33 PM
Phil153 Phil153 is offline
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Default Re: Hiding a Recession

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.
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