The US Commerce Department has just released it 2010 Q4 GDP advance report.  It indicates that GDP rose by 3.2 percent from October through December.  The data used is incomplete and subject to revision according to the release, but it looks like Santa Claus came to town.  The numbers are also victims of intentional misrepresentation bordering on outright fraud.  Since 1980 the agencies charged with reporting economic statistics have been revising those numbers to make them politically more palatable to hide the destruction of private wealth in the United States perpetrated by the Federal Reserve and the Federal government.  When you look at real numbers calculated as they were in 1980 by John Williams of Shadow Government Statistics, a very different picture emerges.    

The first thing to note is that there is about a five percent difference between the numbers at the end of 2010.  Note how that variance has been growing over the years as the metrics have been adjusted by the government.  The next thing to note is the economy has actually been in recession (below zero percent growth) since 2005.  This is in stark contradiction to the numbers from Washington that paint a much rosier picture.  That would seem to be obvious, however, given all of the bailouts, handouts, and money printing going on during that time.

The figures on the CPI, the index for the GDP inflation deflator, show the same kind of differences.  Over time we see the government and SGS numbers diverge as Washington modifies the calculations  Again a rosier picture shows in the DC figures as with GDP.  What also is apparent is the the difference in GDP nearly matches the discrepancy in the CPI.  This means that our politicians are intentionally deceiving individuals and the markets to try and keep borrowing rates low and to encourage economic behavior that isn’t appropriate for prevailing conditions.

We see the same sort of flim-flam going on with unemployment statistics.  U3 is the number trumpeted on the nightly news every month.  U6 is U3 plus short term discouraged workers.  Note that it is nearly twice the U3 rate.  The SGS alternate includes U6 plus long term discouraged workers who were defined out of existence in 1994 to paint a prettier unemployment picture.  This rate is nearly 2.5 times the official rate (as calculated in 1980).  Again we have authorities intentionally misinforming individuals and markets about statistics to induce economic behavior that would be different if they knew the real story.

After all of that one might conclude that things are not doing to well in the American economy.  Consider this, though, of that GDP in the fourth quarter, approximately 10 percent of it was driven by stimulus spending borrowed from the private capital markets or printed by the Fed.  This is not productive growth in the economy.  It is one time spending thrown at politically connected interests that will disappear when Washington can no longer justify it to the public.  That is probably already happening given the results of the November election and the content of the President’s State of the Union address.

The Beltway cognoscenti are falling all over themselves trying to look like they are cutting the growth of the federal leviathan while not hurting their welfare dependent zombies.  All the while they are spending more on military expenditures than the rest of the entire planet.   If citizens did that with consumer spending and went to ask for a loan they would be laughed out of the bank.  The DC crew is merely warned about a possible downgrade on government debt in the next two years.  The private financial markets are not making Washington pay the risk premium that they should be bearing for such out-of-control fiscal mismanagement.

What we are witnessing is a financial marketplace that is in a delusional state.  They are completely ignoring the risk of sovereign debt defaults in many European countries as well as in the US.  We like to believe that this won’t happen, but the US government is committed to $200 trillion of spending in entitlements right now.  There is almost no way short of a default that the US can extract itself from its self-induced buy-now/pay-later tomb that DC has built for us.

Yes Virginia, there is a Santa Claus – a Miracle in Q4.  But he’s fled the scene and may not be back next Christmas because a cold wind is blowing from the furnaces of Mordor on the Potomac.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s