Note: please take heed that I’m not interested in the left/right political paradigm (Bush vs. Obama, any past political heads or whatever future candidates are in the picture); I’m just interested in the economic facts as they are currently being represented. I’m not really interested in the politics of this, whose fault it is or what political strategy will best get us out of it. I’m more interested in looking at the bigger picture – the disconnect between economic fantasy and reality.
I guess I’m not really surprised by the false optimism being expressed by the MSM and their economic pundits about the so-called "improving" US economy contrary to what lies underneath the actual economic data. After all, we all want to be optimistic. Corporations that run MSM especially want this optimism to reflect onto the populace so that the populace continues to spend (and accumulate more and more debt). Politicians want this optimism as well so they can bask in the glory of their political accomplishment.
However, society at large can apparently see right through this charade. Though polls indicate optimism is slightly growing, the numbers are still low and don't at all reflect the persistent optimism we've seen in the MSM for the past year or so. And indeed this is something we would expect if we assume the economic recovery really is just a charade, not because of any exceptional knowledge about the economic data the general public has, but because they live and experience the economy firsthand and know the economy has not really been improving.
So why is there this disconnect? If the economy is improving as politicians and MSM economists have been touting for years, then why doesn't the general populace (susceptible to media influence) reflect this optimism? Because here’s what the economic numbers really show (note, we could go into a myriad number of data points that are misrepresented, but I’m just going to cover the three major facets of the economic data that are used to tout a recovery the most, as this is already a very long post as it is):
Unemployment
While everyone looks on the surface of the U3 unemployment number dropping and celebrates this as a positive, in actuality the participation rate has been declining to record lows…
Coupled with this alarmingly declining job market is that a large portion of the jobs that are actually being created are still part time and/or low wage service sector jobs…
We could also very easily speculate here that people are taking multiple part time jobs which would distort the employment report even more than it is. In other words, if Bill needs two part time jobs just to make ends meet, this would count as two jobs created in the data. But that’s admittedly just an aside because it’s purely hypothetical. Nevertheless, the declining U3 number is not what it really seems once what's underneath the surface is exposed.
Stock market record highs
This is not shocking when considering the hundreds of billions of dollars the Federal Reserve has pumped into the financial system. After all, those billions need someplace to go and being that every major economy in the world is on the brink of meltdown (EU, Japan, Russia, even China), both US bonds and the US equity market is really the only "ideal" place in town or the least risky place to park those billions. The problem is that this is a moot point relative to any discussion about a recovery because: a) as mentioned, there's nowhere else to put all that money, thus it doesn't necessarily reflect a good economy, just an economy that appears better relative to other more dire economies; b) it doesn’t in any way shape or form even reflect general public optimism or their own wealth because it’s actually corporations (those that have access to the Federal Reserve easy money printing) buying back their own stocks…
As one could easily figure out, contrary to reflecting any sort of positive aspect of the economy and even distorting one's view of the economy, this creates an overvalued asset market similar to 2008 pre-crash, or as one might also put it – another market bubble.
GDP growth
This is probably one aspect of the economic data being misrepresented that astounds me the most (next to the unemployment data), and one could even make a strong case of actual manipulation, whether intentional or otherwise is not the point here.
I think anyone with any common sense doesn’t need all that much economic knowledge to know that something is amiss if the third quarter GDP can surge to 5% from the outright crash of the first quarter. I mean even if you believe the US economy is doing well, it can’t be doing THAT well. Well, you’d be correct in your suspicion. In short, the surge of GDP in the last two quarters from the crash of the first quarter is primarily based on healthcare. Yes, the government mandate on healthcare has forced consumers to buy a product which has been the major driver in GDP growth.
But not only is it the major cause of the last two quarter surges, but the Bureau of Economic Analysis (BEA) is arguably revising it in a way to cause these dramatic surges (note here that I’m not necessarily suggesting why they’re doing this – whether for nefarious reasons or just standard procedure… I’ll leave that up to you)…
Moreover, this is anything but a reflection of household wealth, as people are apparently being forced to dig into their savings just to make these purchases…
Why we are really in stagnation
Or what I would term as stagflation. Even though hyperinflation hasn’t set in due to the insane amount of money printing as one would expect, we are seeing signs of inflation in certain areas of the economy, particularly food prices, healthcare, tuition, etc (things that naturally don’t reflect the CPI). I don’t think I need to offer any citations here because I’m sure this is more than apparent to anyone that consumes US goods and services.
So I argue, once the facade of the economic data has been exposed, that we are actually experiencing both recession (evident by dropping commodity prices, such as oil) and inflation – or stagflation. But why haven’t we seen consistent hyperinflation? Simply put, the hundreds of billions created by the Fed is not being used as intended, or is not flowing into the main economy outside of the equity and bond market. In short, we have an extremely lopsided economic system here (which has been contributing to the growing wealth gap of late). The hyperinflation is actually evident in both the over-inflated stock market (as I covered earlier) and the US bond market…
In the midst of a recovery facade, there are three major bubbles to keep an eye on: stock market, bond market, and derivative market (exceptionally susceptible to EU troubles and falling oil prices).
I guess I’m not really surprised by the false optimism being expressed by the MSM and their economic pundits about the so-called "improving" US economy contrary to what lies underneath the actual economic data. After all, we all want to be optimistic. Corporations that run MSM especially want this optimism to reflect onto the populace so that the populace continues to spend (and accumulate more and more debt). Politicians want this optimism as well so they can bask in the glory of their political accomplishment.
However, society at large can apparently see right through this charade. Though polls indicate optimism is slightly growing, the numbers are still low and don't at all reflect the persistent optimism we've seen in the MSM for the past year or so. And indeed this is something we would expect if we assume the economic recovery really is just a charade, not because of any exceptional knowledge about the economic data the general public has, but because they live and experience the economy firsthand and know the economy has not really been improving.
So why is there this disconnect? If the economy is improving as politicians and MSM economists have been touting for years, then why doesn't the general populace (susceptible to media influence) reflect this optimism? Because here’s what the economic numbers really show (note, we could go into a myriad number of data points that are misrepresented, but I’m just going to cover the three major facets of the economic data that are used to tout a recovery the most, as this is already a very long post as it is):
Unemployment
While everyone looks on the surface of the U3 unemployment number dropping and celebrates this as a positive, in actuality the participation rate has been declining to record lows…
While by now everyone should know the answer, for those curious why the US unemployment rate just slid once more to a meager 5.9%, the lowest print since the summer of 2008, the answer is the same one we have shown every month since 2010: the collapse in the labor force participation rate, which in September slid from an already three decade low 62.8% to 62.7% - the lowest in over 36 years, matching the February 1978 lows. And while according to the Household Survey, 232,000 people found jobs, what is more disturbing is that the people not in the labor force, rose to a new record high, increasing by 315,000 to 92.6 million!
And that's how you get a fresh cycle low in the unemployment rate.
http://www.zerohedge.com/news/2014-1...s-not-labor-fo
And that's how you get a fresh cycle low in the unemployment rate.
http://www.zerohedge.com/news/2014-1...s-not-labor-fo
Coupled with this alarmingly declining job market is that a large portion of the jobs that are actually being created are still part time and/or low wage service sector jobs…
The situation of these so-called involuntary part-time workers—those who would prefer to work more than 34 hours a week—has economists puzzling over whether a higher level of part-time employment might be a permanent legacy of the great recession. If so, it could force more workers to choose between underemployment or working multiple jobs to make ends meet, leading to less income growth and weaker discretionary spending.
Employers added some 3.3 million full-time workers over the past year, but the number of full-time workers in the U.S. is still around 2 million shy of the level before the recession began in 2007. Meanwhile, the ranks of workers who are part time for economic reasons has fallen by 740,000 this year to around 4.5% of the civilian workforce. That is down from a high of 5.9% in 2010 but remains well above the 2.7% average in the decade preceding the recession.
http://blogs.wsj.com/economics/2014/...-seven-charts/
Employers added some 3.3 million full-time workers over the past year, but the number of full-time workers in the U.S. is still around 2 million shy of the level before the recession began in 2007. Meanwhile, the ranks of workers who are part time for economic reasons has fallen by 740,000 this year to around 4.5% of the civilian workforce. That is down from a high of 5.9% in 2010 but remains well above the 2.7% average in the decade preceding the recession.
http://blogs.wsj.com/economics/2014/...-seven-charts/
We could also very easily speculate here that people are taking multiple part time jobs which would distort the employment report even more than it is. In other words, if Bill needs two part time jobs just to make ends meet, this would count as two jobs created in the data. But that’s admittedly just an aside because it’s purely hypothetical. Nevertheless, the declining U3 number is not what it really seems once what's underneath the surface is exposed.
Stock market record highs
This is not shocking when considering the hundreds of billions of dollars the Federal Reserve has pumped into the financial system. After all, those billions need someplace to go and being that every major economy in the world is on the brink of meltdown (EU, Japan, Russia, even China), both US bonds and the US equity market is really the only "ideal" place in town or the least risky place to park those billions. The problem is that this is a moot point relative to any discussion about a recovery because: a) as mentioned, there's nowhere else to put all that money, thus it doesn't necessarily reflect a good economy, just an economy that appears better relative to other more dire economies; b) it doesn’t in any way shape or form even reflect general public optimism or their own wealth because it’s actually corporations (those that have access to the Federal Reserve easy money printing) buying back their own stocks…
Companies are buying their own shares at the briskest clip since the financial crisis, helping fuel a stock rally amid a broad trading slowdown.
Corporations bought back $338.3 billion of stock in the first half of the year, the most for any six-month period since 2007, according to research firm Birinyi Associates. Through August, 740 firms have authorized repurchase programs, the most since 2008.
The growth in buybacks comes as overall stock-market volume has slumped, helping magnify the impact of repurchases. In mid-August, about 25% of nonelectronic trades executed at Goldman Sachs Group Inc., excluding the small, automated, rapid-fire trades that have come to dominate the market, involved companies buying back shares. That is more than twice the long-run trend, according to a person familiar with the matter.
The surge underscores share-price gains by many companies repurchasing stock more than five years after shares hit their low in the late stages of the financial crisis.
http://www.wsj.com/articles/companie...ket-1410823441
Corporations bought back $338.3 billion of stock in the first half of the year, the most for any six-month period since 2007, according to research firm Birinyi Associates. Through August, 740 firms have authorized repurchase programs, the most since 2008.
The growth in buybacks comes as overall stock-market volume has slumped, helping magnify the impact of repurchases. In mid-August, about 25% of nonelectronic trades executed at Goldman Sachs Group Inc., excluding the small, automated, rapid-fire trades that have come to dominate the market, involved companies buying back shares. That is more than twice the long-run trend, according to a person familiar with the matter.
The surge underscores share-price gains by many companies repurchasing stock more than five years after shares hit their low in the late stages of the financial crisis.
http://www.wsj.com/articles/companie...ket-1410823441
As one could easily figure out, contrary to reflecting any sort of positive aspect of the economy and even distorting one's view of the economy, this creates an overvalued asset market similar to 2008 pre-crash, or as one might also put it – another market bubble.
GDP growth
This is probably one aspect of the economic data being misrepresented that astounds me the most (next to the unemployment data), and one could even make a strong case of actual manipulation, whether intentional or otherwise is not the point here.
I think anyone with any common sense doesn’t need all that much economic knowledge to know that something is amiss if the third quarter GDP can surge to 5% from the outright crash of the first quarter. I mean even if you believe the US economy is doing well, it can’t be doing THAT well. Well, you’d be correct in your suspicion. In short, the surge of GDP in the last two quarters from the crash of the first quarter is primarily based on healthcare. Yes, the government mandate on healthcare has forced consumers to buy a product which has been the major driver in GDP growth.
But not only is it the major cause of the last two quarter surges, but the Bureau of Economic Analysis (BEA) is arguably revising it in a way to cause these dramatic surges (note here that I’m not necessarily suggesting why they’re doing this – whether for nefarious reasons or just standard procedure… I’ll leave that up to you)…
Fast forward to today when as every pundit is happy to report, the final estimate of Q3 GDP indeed rose by 5% (no really, just as we predicted), with a surge in personal consumption being the main driver of US growth in the June-September quarter. As noted before, between the second revision of the Q3 GDP number and its final print, Personal Consumption increased from 2.2% to 3.2% Q/Q, and ended up contributing 2.21% of the final 4.96% GDP amount, up from 1.51%.
So what did Americans supposedly spend so much more on compared to the previous revision released one month ago? Was it cars? Furnishings? Housing and Utilities? Recreational Goods and RVs? Or maybe nondurable goods and financial services?
Actually no. The answer, just as we predicted precisely 6 months ago is... well, just see for yourselves.
...
In short, two-thirds of the "boost" to final Q3 personal consumption came from, drumroll, the same Obamacare which initially was supposed to boost Q1 GDP until the "polar vortex" crashed the number so badly, the BEA decided to pull it completely and leave this "growth dry powder" for another quarter. That quarter was Q3.
http://www.zerohedge.com/news/2014-1...n-surge-q3-gdp
So what did Americans supposedly spend so much more on compared to the previous revision released one month ago? Was it cars? Furnishings? Housing and Utilities? Recreational Goods and RVs? Or maybe nondurable goods and financial services?
Actually no. The answer, just as we predicted precisely 6 months ago is... well, just see for yourselves.
...
In short, two-thirds of the "boost" to final Q3 personal consumption came from, drumroll, the same Obamacare which initially was supposed to boost Q1 GDP until the "polar vortex" crashed the number so badly, the BEA decided to pull it completely and leave this "growth dry powder" for another quarter. That quarter was Q3.
http://www.zerohedge.com/news/2014-1...n-surge-q3-gdp
Moreover, this is anything but a reflection of household wealth, as people are apparently being forced to dig into their savings just to make these purchases…
Despite the increased consumer spending, households actually lost disposable income in this revision -- losing yet another $29 in real annualized per capita disposable income (now reported to be $37,496 per annum). This is now down a full $373 per year from the 4th quarter of 2012. The healthcare spending growth reported above came exclusively from reduced household savings, which dropped yet another -0.3% percent in this report.
http://www.consumerindexes.com/
http://www.consumerindexes.com/
Why we are really in stagnation
Or what I would term as stagflation. Even though hyperinflation hasn’t set in due to the insane amount of money printing as one would expect, we are seeing signs of inflation in certain areas of the economy, particularly food prices, healthcare, tuition, etc (things that naturally don’t reflect the CPI). I don’t think I need to offer any citations here because I’m sure this is more than apparent to anyone that consumes US goods and services.
So I argue, once the facade of the economic data has been exposed, that we are actually experiencing both recession (evident by dropping commodity prices, such as oil) and inflation – or stagflation. But why haven’t we seen consistent hyperinflation? Simply put, the hundreds of billions created by the Fed is not being used as intended, or is not flowing into the main economy outside of the equity and bond market. In short, we have an extremely lopsided economic system here (which has been contributing to the growing wealth gap of late). The hyperinflation is actually evident in both the over-inflated stock market (as I covered earlier) and the US bond market…
American banks are loading up on U.S. government debt, a sign they remain cautious on the economy even with the jobless rate at a six-year low and corporations at their healthiest in a generation.
Commercial lenders increased their holdings of Treasuries (BUSY) and debt from federal agencies in September by $54 billion to an unprecedented $1.99 trillion, data from the Federal Reserve show. Banks have now been net buyers for 12 straight months.
http://www.bloomberg.com/news/2014-1...m-lending.html
Commercial lenders increased their holdings of Treasuries (BUSY) and debt from federal agencies in September by $54 billion to an unprecedented $1.99 trillion, data from the Federal Reserve show. Banks have now been net buyers for 12 straight months.
http://www.bloomberg.com/news/2014-1...m-lending.html
In the midst of a recovery facade, there are three major bubbles to keep an eye on: stock market, bond market, and derivative market (exceptionally susceptible to EU troubles and falling oil prices).
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