Monday, September 1, 2008

Q2 Gross Domestic Product (GDP) is a Fraud

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I'm sorry, I just have to call out this specific item even more than the normal fraudulent activity from the "number crunchers". Now while it is silly to call a technical recession only if "there are 2 quarters of back to back negative GDP" that is the conventional wisdom so it's in "their" interest to make sure that does not happen. Or at least it does not happen until after an election eh? Certainly we can be in a domestic recession without such "statistics" but let's go with that thesis.

First we believe the inflation data from the Bureau of Labor Statistics is a fabrication in itself - we've pointed this out in stark detail many times in the blog. It's at the point we just mention the "official" number in passing while making snarky comments. We import everything, and our import prices are up 20% year over year but until a few months ago inflation was below 4%? Right.

But let's assume those inflation numbers are anywhere near reality (they are not). Remember, back in Quarter 1 the New York Post [May 1: Is it an Official Recession? NY Post Says it Should Be] called out the fact that the +0.9% GDP figure was faulty because instead of using the Bureau of Labor Statistics data (the "official keeper"), which at the end of Q1 was 4%, the Commerce Department said we're going to use our own number - let's call it 2.6%.

So 4.0% (official) - 2.6% (we pulled this out of our...) = 1.4% understatement in inflation leading to over statement in GDP.

and your first quarter GDP -0.4% (using government inflation figures) turns into +0.9% (using made up inflation figure). Whew! Another quarter we don't need to deal with a potential recession.

Now folks, I believe inflation is north of 8% (easy) so even using 4% is a massive understatement in my book. If you measured inflation the same way the government used to before they made "adjustments" in the 90s/00s (i.e. ways to dampen inflation so we don't have to pay cost of living adjustments in a fair way to our Social Security recipients) it would be approaching 13%.


But the Commerce Department who produces GDP says it was only 2.6% in Q1 2008. And hence you avoid a negative quarter.

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Last week we had a huge rally because of a +3.3% GDP figure in Quarter 2. Now, 3.1% of that 3.3% was exports so the "domestic" economy was only +0.2% (with $160B thrown at it in rebate checks which is a few % of GDP alone). But nevermind that - the fate of Americans is not useful when we need to drive up the market and tell everyone it's ok. As long as multinationals profits are shooting up the "trickle on"... err "trickle down" economics means we all win.

So a reader asked what the inflation rate was in Q2 since the Q1 inflation number was so fudged. I decided to look. Now keep in mind as of June 2008, the Bureau of Labor Statistics (official keeper of inflation data) said inflation is 5.0%. (you can see it on page 3 on the link)

I still think that is low, but let's say it's "valid".

What did the Commerce Department, who creates GDP (but not inflation) say inflation was in the 2nd quarter? Certainly they would not go with that fraudulent 2.6% again right? Not with oil $140s for most of the quarter, not with food inflation ripping higher... no way...

What did the Commerce Department report as inflation? (page 14 of the pdf, GDP price index)

1.2%

Yes, you heard me, according to this department inflation fell more than half from what they stated in Q1 - and a full 3.8% below the 5.0% the Bureau of Labor Statistics reported.

Because, if they had used that 5.0% inflation rate your +3.3% turns into a -0.5%. And if they had used the government's own inflation statistics this quarter and last quarter what would we of had? 2 back to back negative quarters of GDP - a recession by "technical measure". And the government wants the sheep not to think we are in one. The 1.2% rate for Q2 2008 is the lowest inflation figure on the entire table which goes back to 2005. So they are saying inflation is the lowest it's been in at least 4 years.... seriously.

Even more despairing - that 3.3% (really -0.5%) was in a quarter where most of the $160B we borrowed from our grandchildren hit (rebate checks). So we can clap like seals like CNBC pundits. Or we can see the reality under the surface. I honestly cannot believe someone can show their face saying inflation was 1.2% in Q2, but this is how you generate numbers that create an illusion. I'm not a grassy knoll type of guy, but you sometimes cannot believe what exactly is going on behind the curtain.

Folks, I cannot make this stuff up - as they say, sometimes fact is scarier than fiction. Now try to imagine if my figure of 8% inflation or the "government's old data" of 13% is the true cost of inflation.

Enjoy your non recessionary economy folks. And stop the damn whining - the official figures show everything is just fine; I have no idea why the sheep don't understand the good times we are enjoying. This is clearly a mental recession - Phil Gramm.

[May 10: Finally Some Mainstream Reporters are Figuring Out the "Spin" from Government]

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