by Brandon Smith from Alt-Market
Recently I was asked to give a presentation on the current state of the global economy to a local group of concerned citizens here in Northwest Montana. I was happy to oblige but when composing my bullet points I realized that, in truth, there were no legitimate economic numbers to examine anymore. You see, financial analysts have traditionally used multiple indicators of employment, profit, savings, credit, supply, and demand in their efforts to divine the often obscured facts of our financial system. The problem is, nearly every index we used in the past, every measure of capital flow and industry, is absolutely useless today.
We now live in an entirely fabricated fiscal environment. Every aspect of it is filtered, muddled, molded, and manipulated before our eyes ever get to study the stats. The metaphor may be overused, but our economic system has become an absolute “matrix”. All that we see and hear has been homogenized and all truth has been sterilized away. There is nothing to investigate anymore. It is like awaking in the middle of a vast and hallucinatory live action theater production, complete with performers, props, and sound effects, all designed to confuse us and do us harm. In the end, trying to make sense of the illusion is a waste of time. All we can do is look for the exits…
There is some tangible reality out there, but it is difficult to find, and there are few if any mainstream numbers to verify. One has to remember always that the fundamental world of money and trade revolves around real people and real circumstances. No matter how corrupt our economic system is, as long as there are human beings, there will always be supply and demand that cannot be hidden. We have to look past the “official numbers” and look at the roots of trade. Where has demand fallen? Where has supply diminished? Where are the tangible goods and needs and how have they changed?
Let’s first start with the mainstream version of our system, looking at each aspect of the economy that no longer represents the truth of our situation…
Employment, Savings, And Debt
Much of this information is old news to those of us in the Liberty Movement, who tracked the progress of the global collapse long before the general public even knew of its existence. However, it is useful to take a step back and look at the basic picture every once in a while.
According to numbers issued by the Department of Labor, weekly unemployment reports have dropped to a five year low, and the overall employment rate is holding at 7.9%. This would seem to be a vast improvement over the dreadful bloodletting in the system only a few years ago. Has the private Federal Reserve and the Obama Administration really done it? Have they turned back the tide on the greatest fiscal crisis the U.S. has seen since the Depression?
No. They haven’t.
They have only changed how the data is disseminated to the public. In order to understand how the employment statistics con is being engineered, it is important to understand the difference between “Adjusted” and “Unadjusted” numbers.
Labor Department data is “seasonally adjusted”, using a series of statistical assumptions including something called “Trend Cycle Analysis”. Trend Cycle Analysis is, basically, a sham, but a sham put together in a very complex and confusing manner. If you ask a mainstream economist what it is, you’ll likely get a three hour long dissertation filled with financial babble and very little concrete explanation. So let me break it down as simply as I can…
Imagine that you are going to estimate how much profit you plan to make in a particular month, but you don’t just consider your current pay rate and pop it into a calculator; you also throw in the possibility of a few pay raises, an inheritance from a grandma who might kick the bucket, and, your exaggerated expectations of the entire year’s profit on top of that. You may also take into account future bad weather, a mugging, a nuclear war….whatever. All hypothetical situations not based in reality. Basically, you decide that a particular trend in your income is inevitable, then, mold your statistical analysis around that assumption.
When your real profit numbers come in (the unadjusted numbers) and they do not meet your expectations, you simply change them according to what you believe SHOULD have happened. If you insist that your profits are going to go up for the year, and they go down for a couple months instead, you change the variables you use to calculate the statistical average so that the results match your expectations, assuming that it will all balance out in the end.
Now, this sounds utterly insane for the common person out there trying to make a living. If you ran your household this way, without accepting the cold hard unadjusted numbers in front of you, you’d find yourself broke and on the street in no time. Unfortunately this is EXACTLY how our government handles most financial data; by coming to a final conclusion before hand, and then forcing the numbers to fit that conclusion.
This is why in February of 2013, “adjusted” first week unemployment rate was reported at 366,000 – a 5000 person drop from the week before. A seeming improvement in the trend. But, unadjusted numbers came in at 386,176 – a 16,000 person spike from the week before. When one examines real unemployment numbers, he finds that the divergence between the adjusted and unadjusted statistics is growing larger with each passing quarter. That is to say, the contradiction is becoming so blatant between the hard numbers and the Labor Department’s fantasy numbers that one must question whether or not the government is lying to us outright about the state of the economy (hint – they are lying).
These same methods are used by the government to calculate progress in the housing market, disposable income, etc.
The claim of “recovery” in the jobs market simply doesn’t jive with other indicators, like 2012 Christmas retail, which had the worst showing since the crash in 2008 (and these are still mainstream numbers!):
Average household savings continue to scrape the bottom of the barrel, indicating that the public is not spending or withholding cash. They are simply broke:
And the overall GDP of the U.S. contracted in the fourth quarter of 2012 for the first time in three years (again, according to official numbers, meaning the reality is much worse):
The downturn in consumption and industry also seems to be supported by the Baltic Dry Index, a measure of global shipping and rates. The BDI has fallen to near historic lows THREE TIMES in the past year, which to my knowledge, has never happened before. In the past, the BDI has been a strong prophetic indicator of future market volatility. Usually, around a year after a severe decline in the index, a dangerous economic event takes place. The BDI made its first sharp drop to all time lows at the end of January 2012, exactly a year ago.
U.S. household debt was recently reported to have fallen to a 29 year low, but the ratio used by the Federal Reserve applies a statistic for disposable income that is derived from the Trend Cycle boondoggle method. While markets cheer, the truth is, the only reason household debt obligations have fallen at all is because bank lending and credit issuance remains frozen. Consumer debt falls when there is no money to borrow. In fact, the Federal Reserve actually pays large banks NOT to lend to the public; an activity which was exposed by Dennis Kucinich in 2009 on the House Committee on Oversight and Government Reform. An activity that continued through 2012:
Keep in mind, one of the primary arguments the Federal Reserve used when promoting the bailout concept was that it would “free up credit markets” so that lending could pick up again and fuel a recovery, and yet, at the same time, they were paying banks to NOT lend.
Meanwhile, the supposed job recovery has produced an astonishing increase in welfare recipients in the U.S., including a record 46 million Americans on foodstamps (approximately 15% of our population):
If we are to apply any “trend” to our calculations on overall economic health, then we should include the extreme level of government handouts, and poverty levels which are now at all time highs. The facts are undeniable; the number of people who have much less than they did in 2008 has grown. How then could the U.S. be considered “in recovery”?
National Debt And The Fiat Lie
With the Dow Index hovering near highs of 14,000 our system truly looks to be on a rocket ship to pre-2008 money market bliss. In a mere five years we have returned to equity spikes that stagger the mind and the wallet. At least, that’s how it all appears…
What needs to be taken into account, though, is the amount of fiat money being created by the Federal Reserve, and how much of that printed pixie dust currency is fueling our magical flight to Neverland. Since 2008, our official national debt has increased from $10 trillion to $16.4 trillion, and some estimate $17 trillion to $18 trillion by the end of 2013 (unless, of course, a collapse occurs). Which means our national debt, which took decades to reach the $10 trillion mark, will have nearly doubled in only six years!
So, what has a doubling of our national debt in such a short span of time bought us? Well, credit markets remain frozen, property markets remain stagnant, poverty is at historic levels, welfare recipients are at epic highs, and consumer activity and GDP is back at 2008 lows. Where did all that printed money go? Where was it spent? To answer that question, we only need to find what area of the economy has seen the most positive (or fantastical) activity. What sector is seeing a massive boost while the rest tumbles?
I suggest that a large portion of QE1 through QE3 has gone to prop up the stock market, and nothing else. I suggest that American taxpayers are fronting the bill for the equities bonanza we see today. I suggest that the Dow is being used as a Red Herring to distract the populous for as long as possible while real assets are being snapped up and hoarded by international banks and foreign entities. I suggest that we are being leached dry and that the parasites are almost ready to move on…
When will it all end? Perhaps sooner than many people think. The decision by D.C. to delay talks on the so-called “Fiscal Cliff” until March may not be coincidence. Extensive cuts in federal spending are absolutely necessary and cannot be dismissed forever, but, because the last vestiges of our system that still operate do so through government money, such cuts will cause immediate damage to the economy, including possible default and dollar devaluation. Refusal to make cuts will result in credit downgrades, currency inflation, and a loss of the greenback’s world reserve status. There is no “right” way out of this quandary.
When this collapse is initiated, it would certainly behoove all parties involved, including central banks, international banks, and criminal politicians, to have a scapegoat handy for the citizenry to direct their rage at.
Event Horizon Economics
An “Event Horizon” in physics is a moment or singularity in spacetime at which a gravitational pull becomes so great that there is no way to escape it. It is a point of no return. I believe America’s economy has reached its own Event Horizon. Our system is now entirely fiat driven, with very little or no true economy left. Without constant injections from the Fed, and perpetually low interest rates, the country would implode tomorrow. This is not recovery. Actually, I’m not sure what to call it.
Today, independent economic analysts cannot look to the numbers to determine future trends. Most are fake, and the rest are ugly, and I’m not sure much else can be said in their regard. Instead, we must now look to events, rather than statistics, because our country has been maneuvered into a position of utmost frailty. Like an avalanche shelf waiting for that perfectly timed disturbance to trigger its roaring collapse. All that is needed is a macro-crisis, and it is no great feat for such a thing to be created in our tension filled global environment.
War in Syria and Iran leading to a tripling of energy prices. Sanctions and strife with North Korea leading to Chinese economic retribution. Conflict between China and Japan, again leading to Chinese economic warfare and perhaps real warfare. An opportune “cyber attack” which could be used as an excuse for a market crash and even an internet shutdown. A “political impasse” between Reps and Dems which leads to a default of U.S. credit. Any one of these catastrophes could easily occur (with a little nudge from some well placed people) and feed a wider global tragedy. The important thing to remember is that while this event will be blamed for the breakdown, it was international banks, the Federal Reserve, and elements of our own government that made the domino effect possible. They put the pieces in place. The act that knocks them over is secondary.
I have spent the past seven years writing about “potential” threats to our overall system, but these dangers were always just beyond our sight. Just around the corner. Today, it is as if the journey is over, and all those threats have materialized right before my eyes as real, and imminent. I am watching that which I warned of come to fruition, and this is certainly not a pleasant thing. What is valuable, though, is what we have all done in the Liberty Movement with the time that we had. From when I began writing for the movement until now, I have seen an overwhelming increase in public awareness. It may not be obvious to newer activists, but it is there all the same. While we still face disparaging odds, and millions upon millions of oblivious bystanders, there is, amidst these darker moments, a steadfast community of free men and women forming. I have full faith in the future. Much more so than I ever did before. Our economy may be detached from reality, but our endeavors as individuals will not be. Our resolve will be the great game changer. Not fiscal calamity.
- ECONOMIC COLLAPSE: The U.S. Economy Is Now Dangerously Detached From Reality (secretsofthefed.com)
- The U.S. Economy Is Now Dangerously Detached From Reality (thedailysheeple.com)
- John Williams: How To Survive The Illusion Of Recovery (etfdailynews.com)
- Obama: Jobs Destroyer (veteranstoday.com)
- Shocking numbers show media lying to you about unemployment (talesfromthelou.wordpress.com)
Excitement continues to run at very high levels, over the rebound in US crude oil production. Coming out of the new, historic low of 4.95 mbpd (million barrel per day) in 2008, the annual average of US production in the first 4 months of 2012 is currently on pace at 6.156 mbpd. This new production has largely been made possible by the price revolution in crude oil, which finally broke through the long-term, $25 ceiling during 2003-2004, and which is now mostly sustaining marginal production around the $90 level. A question: has the US, since its own production peaked near 10 mbpd in 1971, seen this kind of production rebound before? Let’s first take a look at the past decade. | see: US Average Annual Oil Production mbpd 2001 -2012
If maintained, the current rebound would add back a little more than a million barrels a day to US production, compared to the 2008 low. Some analysts fervently believe that, despite ongoing declines from existing US fields, that production will go even higher into the end of this decade. Well, just leaving that issue aside for now, given that so much of this new production depends on sustained high prices, let’s briefly take a look at a previous rebound in US oil production. | see: US Average Annual Oil Production mbpd 1972 -1985
Coming out of the 1976 low, at 8.136 mbpd, US production rebounded over the following 9 years by 800 kbpd–not quite a million barrels per day. However, a volume comparable to the current rebound. Afterwards, the 40 year decline in US production resumed its decline.
The course of US production into 2020 will be more dependent than usual on price. An increasing portion of total global production is crowded into the marginal price band of $80-$100 a barrel, and yet the world economy appears to struggle–on the demand side–at that very same level. Thus, new marginal production in the US and elsewhere is fated to continually pass back and forth, in and out of the domain of economic viability, as the world economy chokes, recovers, and chokes on high oil prices.
Apr 15, 2011 2:59 AM CT By Rich Miller and Simon Kennedy
The global economy is cooling, in a shift that will slow, not stop, the worldwide expansion.
Growth is decelerating in the two largest economies as finance ministers and central bankers gather in Washington for the semi-annual meeting of the International Monetary Fund and World Bank starting today. Higher gasoline prices have sapped consumer spending in the U.S., while tighter monetary policy has curbed demand in China. Japan, the world’s third largest economy, is struggling to right itself in the wake of a record earthquake, while Europe is battling a debt crisis that claimed its third victim — Portugal — last week.
“The headwinds we’ve run into are pretty strong,” said David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York. “The fundamental forces driving the recovery have not been stopped. We’re bending but not breaking.” JPMorgan Chase sees growth of 4.2 percent this year, down from its 4.7 percent forecast in January.
The enduring expansion means that global stock markets are still a buy, even as the world economy “loses some of its acceleration,” said Jim O’Neill, chairman of Goldman Sachs Asset Management in London. “The bull market in equities continues,” he said. He sees the Standard & Poor’s 500 Index rising to between 1,400 and 1,450 by the end of the year from yesterday’s close of 1,314.52.
‘Really Under Way’
The IMF argues that the rebound has become “more self- sustaining” as increasing private-sector demand replaces waning public support in promoting growth, according to its World Economic Outlook issued this week.
“This is not a time for complacency, but the good news is that the recovery is really under way,” IMF Managing Director Dominique Strauss-Kahn said yesterday in an interview on Bloomberg Television’s “InBusiness” with Margaret Brennan. The Washington-based lender forecasts world growth of 4.4 percent this year and 4.5 percent in 2012, after 5 percent in 2010.
Expansion expectations nevertheless fell for a second consecutive month in April, according to a Bank of America Merrill Lynch survey of fund managers published this week. Forty-two percent of investors polled also said they see a period of below-trend growth and above-trend inflation.
In India, Asia’s third-largest economy, the benchmark wholesale-price index rose 8.98 percent in March from a year earlier, the commerce ministry said today. The Reserve Bank of India last month predicted inflation would be 8 percent by the end of March.
‘Rock and Roll’
The global economy is experiencing a “rock and roll recovery,” said Holger Schmieding, chief economist at Joh Berenberg Gossler & Co. in London. “While occasional shocks are rocking the markets, the recovery keeps on rolling.”
The oil shock did hit the U.S. economy hard in the opening months of 2011, as prices for regular gasoline at the pump jumped to the highest since 2008. St. Louis-based Macroeconomic Advisers reckons that gross domestic product declined 0.2 percent in February after dropping 0.4 percent in January. For the quarter as whole, the economic forecasting firm foresees GDP rising at an annual rate of 1.5 percent after increasing 3.1 percent in the fourth quarter.
The $38 billion deal to cut federal spending that lawmakers agreed on last week may trim economic growth, though at most by only a few tenths of a percentage point, said Nariman Behravesh, chief economist in Lexington, Massachusetts, for research group IHS. “Some of the numbers that have been bandied about are smoke and mirrors,” he said.
In Japan, GDP may shrink 3 percent in the April-June period, the most since the aftermath of the 2008 Lehman Brothers Holdings Inc. collapse, as power and supply-chain disruptions reduce production, according to the median of 18 estimates in a Bloomberg News survey in the past week. Growth should rebound next quarter as Prime Minister Naoto Kan’s proposed 4 trillion yen ($48 billion) initial reconstruction package kick-starts a recovery, the survey shows.
Tokyo-based Shiseido Co., the country’s largest cosmetics maker, said this week the quake may have reduced its sales by 3 billion yen. A Shiseido factory that makes products including shampoo was damaged by the temblor.
China’s economy also may be decelerating, although, unlike in the U.S. and Japan, that seems more by design than happenstance. GDP rose 9.7 percent in the first quarter from a year earlier, the statistics bureau said today, down from a 2010 peak of 11.9 percent.
‘Out of Control’
A slowdown in the world’s second-biggest economy would help address inflation that billionaire investor George Soros warned this week is “somewhat out of control” in the aftermath of a record credit boom and higher commodity prices. The People’s Bank of China has raised interest rates four times and boosted banks’ reserve-requirement ratios six times since early October to contain price pressures.
Doubts about the euro area’s economic outlook have also increased after the European Central Bank raised its benchmark interest rate last week for the first time since July 2008, threatening to compound the pain of the continent’s sovereign- debt turmoil. Portugal last week followed Greece and Ireland in seeking an international bailout and is being told to implement a tougher fiscal squeeze to win it. Bonds of Europe’s most- indebted nations fell yesterday on concerns that they will have to restructure their debts.
The moderation in global growth has taken the edge off some commodity prices. The most-active copper contract closed at $4.3035 a pound yesterday, down from a record $4.6575 on Feb. 15, in trading on the Comex in New York. Lumber futures fell 22 percent to $266 per 1,000 board feet yesterday on the Chicago Mercantile Exchange from $340 on Jan. 4, the highest intraday price since May 5, 2006.
The deceleration hasn’t led so far to a repeat of the “double-dip” talk that was prevalent last year when the outbreak of Europe’s debt crisis fanned fears among investors that the world economy was relapsing into recession.
There are good reasons for that, Hensley said. The U.S. labor market is strengthening, with private-sector payrolls rising by 470,000 in the past two months, the biggest such gain in five years. Unemployment fell to 8.8 percent in March from 9.8 percent in November, the sharpest drop since 1983.
Balance sheets are also in better shape. Net worth for households and nonprofit groups rose by $2.1 trillion in the fourth quarter of 2010 as share prices rose and families rebuilt finances tattered by the recession, according to Federal Reserve figures.
The improvement is encouraging some consumers to take on debt again. JPMorgan Chase said this week that its credit-card- services sales volume — the amount of money spent using its branded cards — climbed 11.7 percent in the first quarter from a year earlier. That’s up from 9 percent in the fourth quarter and 4.2 percent in the first quarter of last year.
The increase “does reflect some underlying positive sales trends for consumers in general,” Douglas Braunstein, chief financial officer of the New York-based bank, said in an April 13 conference call with reporters and analysts. The second biggest U.S. bank by assets reported that its profits rose 67 percent in the first quarter to a second consecutive record as provisions for bad mortgages and credit-card loans tumbled.
Corporations also have improved their finances. Profits from current production climbed 29 percent last year, the biggest annual gain since 1948, Commerce Department figures show. And in a sign that industrial production may continue to improve, railroad-shipping volume, excluding coal and grain, increased 7.9 percent in the first quarter, according to data compiled by the Association of American Railroads.
U.S. stock prices have weakened as growth has slowed, with the S&P 500 off 2.1 percent from its 2011 high set on February 18. That pales against the 16 percent mid-year fall the index suffered in 2010 as concern about a double dip took hold.
“We’ve had a little bit of a wobble the past couple of days but we’ve come a long way, in effectively a straight line, since a few months ago, so it’s not surprising,” O’Neill said.
He took encouragement from the recent rise in the Chinese stock market and said it suggests a growing confidence among investors about the country’s ability to engineer a “happy slowdown” of its economy. The Shanghai Composite Index, which tracks the larger of China’s stock exchanges, has climbed 14 percent from its 2011 low set on Jan. 25 and traded at 3,050.53 at 3:32 p.m. in Shanghai.
In Europe, much depends on Germany, the region’s largest economy, which expanded in 2010 at the fastest pace in two decades. The country’s government yesterday raised its forecast for growth this year to 2.6 percent from 2.3 percent. The economy climbed 3.6 percent in 2010.
“There are a larger number of risks out there than is typical at this stage of an expansion,” said Allen Sinai, president of Decision Economics in New York, talking about the global economy. “I don’t think they are show-stoppers.”