Feb 06
25
Deconstructing Economic Data
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If you have ever wondered how it is that when economic figures on GDP, GNP, unemployment, inflation etc are released they just seem to be out of whack with your own personal reality, you should read this interview with John Williams, an economist with a website called Shadow Government Statistics.. It deconstructs how the US government, over decades, has played with the assumptions to ensure that the figures that are released created a rosy outlook. After all, bad news only sells newspapers, not economic miracles.
Here is a taste of the article:
The point is that you are dealing with people
where someone is going to lose money. Everyone knows it. The question is,
who is going to be left with losses and who is going to be the first to get
out the door? I can’t tell you how it’s going to break, but it’s the type of
thing that could break any time. I mean, it could be three years off or it
could be next week. But once the selling pressure starts, it’s going to be
massive. You’re going to see a lot of dumping of U.S. securities,
particularly Treasuries. To absorb them, you’re going to see a sharp spike
in rates or the Fed will step in and provide liquidity to the market and buy
them. My betting is, especially with Mr. Bernanke, who is a student of what
happened in the Great Depression, now in charge, that he has some ideas
about what is going to happen here. If you look at what happened in the
banking collapse in the early ’30s, it’s widely believed now that the Fed
made a mistake in not pumping liquidity into the system. They let the money
supply collapse as the banking system collapsed and that tended to
accelerate the deflation and the depression; made the depression deeper than
it perhaps had to be. So going forward here, if we have a circumstance where
that mistake could be made again, the effort likely will be in the other
direction, to provide liquidity to the system. You’re not going to see banks
fail. You’re not going to see large financial institutions fail. The Fed
will back the system with every dollar that it can print. But of course all
that would go on top of what is already an uncontrolled federal deficit. The
end result, when it does all come together, will be something akin to a
hyperinflation, but at the same time you’ll have also a very depressed
economy. So there’ll be an inflationary recession, which I think we’re
already beginning to get into, that possibly could evolve into a
hyperinflationary depression, as much as I really hate to use that term. I
am an optimist at heart. I’m not a perennial bear.
where someone is going to lose money. Everyone knows it. The question is,
who is going to be left with losses and who is going to be the first to get
out the door? I can’t tell you how it’s going to break, but it’s the type of
thing that could break any time. I mean, it could be three years off or it
could be next week. But once the selling pressure starts, it’s going to be
massive. You’re going to see a lot of dumping of U.S. securities,
particularly Treasuries. To absorb them, you’re going to see a sharp spike
in rates or the Fed will step in and provide liquidity to the market and buy
them. My betting is, especially with Mr. Bernanke, who is a student of what
happened in the Great Depression, now in charge, that he has some ideas
about what is going to happen here. If you look at what happened in the
banking collapse in the early ’30s, it’s widely believed now that the Fed
made a mistake in not pumping liquidity into the system. They let the money
supply collapse as the banking system collapsed and that tended to
accelerate the deflation and the depression; made the depression deeper than
it perhaps had to be. So going forward here, if we have a circumstance where
that mistake could be made again, the effort likely will be in the other
direction, to provide liquidity to the system. You’re not going to see banks
fail. You’re not going to see large financial institutions fail. The Fed
will back the system with every dollar that it can print. But of course all
that would go on top of what is already an uncontrolled federal deficit. The
end result, when it does all come together, will be something akin to a
hyperinflation, but at the same time you’ll have also a very depressed
economy. So there’ll be an inflationary recession, which I think we’re
already beginning to get into, that possibly could evolve into a
hyperinflationary depression, as much as I really hate to use that term. I
am an optimist at heart. I’m not a perennial bear.