The US economy and the real GDP.

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May 23, 2008

SouthAmerica: Here is the opinion of a very smart man - Bill Gross.

Quoting from his article: “We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical scale, that our allies are dropping like flies.

… but I joined others in arguing that our CPI numbers were not reflecting reality at the checkout counter. In the ensuing four years, the debate has been joined by the press and astute authors such as Kevin Phillips whose recent Bad Money is as good a summer read detailing the state of the economy and how we got here as an “informed” American could make.”


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PIMCO
Investment Outlook
By: Bill Gross
June 2008
Hmmmmm?

You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.
– Abraham Lincoln

What this country needs is either a good 5¢ cigar or the reincarnation of an Illinois “rail-splitter” willing to tell the American people “what up” – “what really up.” We have for so long now been willing to be entertained rather than informed, that we more or less accept majority opinion, perpetually shaped by ratings obsessed media, at face value. After 12 months of an endless primary campaign barrage, for instance, most of us believe that a candidate’s preacher – Democrat or Republican – should be a significant factor in how we vote. We care more about who’s going to be eliminated from this week’s American Idol than the deteriorating quality of our healthcare system. Alternative energy discussion takes a bleacher’s seat to the latest foibles of Lindsay Lohan or Britney Spears and then we wonder why gas is four bucks a gallon. We care as much as we always have – we just care about the wrong things: entertainment, as opposed to informed choices; trivia vs. hardcore ideological debate.

It’s Sunday afternoon at the Coliseum folks, and all good fun, but the hordes are crossing the Alps and headed for modern day Rome – better educated, harder working, and willing to sacrifice today for a better tomorrow. Can it be any wonder that an estimated 1% of America’s wealth migrates into foreign hands every year? We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up – physically, intellectually, and institutionally – and begin to make some informed choices about our future. Lincoln didn’t say it, but might have agreed, that the worst part about being fooled is fooling yourself, and as a nation, we’ve been doing a pretty good job of that for a long time now.

I’ll tell you another area where we’ve been foolin’ ourselves and that’s the belief that inflation is under control. I laid out the case three years ago in an Investment Outlook titled, “Haute Con Job.” I wasn’t an inflationary Paul Revere or anything, but I joined others in arguing that our CPI numbers were not reflecting reality at the checkout counter. In the ensuing four years, the debate has been joined by the press and astute authors such as Kevin Phillips whose recent Bad Money is as good a summer read detailing the state of the economy and how we got here as an “informed” American could make.

Let me reacquaint you with the debate about the authenticity of U.S. inflation calculations by presenting two ten-year graphs – one showing the ups and downs of year-over-year price changes for 24 representative foreign countries, and the other, the same time period for the U.S. An observer’s immediate take is that there are glaring differences, first in terms of trend and second in the actual mean or average of the 2 calculations. These representative countries, chosen and graphed by Ed Hyman and ISI, have averaged nearly 7% inflation for the past decade, while the U.S. has measured 2.6%. The most recent 12 months produces that same 7% number for the world but a closer 4% in the U.S.

You can read the entire report and see the charts at the following website:

Source: http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+June+2008.htm
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does that mean... are assets are worth a lot less and our money real worthless and the price of stuff ,really,costs a lot more than it seems???
 
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May 9, 2008

SouthAmerica: You forgot to quote the current US government position: Debt does not matter since the US government has an infinite credit line from the rest of the world. Without US business there is no world economy, the rest of the world would stop – the US economy is the only economy relevant to world affairs, and so on….

By the way, if you had the chance to read the latest issue of Harper’s magazine – the article by Kevin Philips “Numbers Racket – Why the Economy Is Worse Than We Know.” In that article he mentioned something that I knew for a long time the official government figures for GDP is a real Fairy Tale; about 15 percent of that figure is made up of stuff like the government come up with the value of having a free checking account and that Mickey Mouse number is added to GDP.

Without the Mickey Mouse stuff the real GDP of the United States is around $ 10 trillion dollars. And when you calculate the amount of Defense spending based on the real number $ 10 trillion dollars then you get a better picture of how much money the United States is pissing away in wasteful wars including Iraq and Afghanistan.


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05-09-08 07:30 PM

SouthAmerica: If you had taken the time to read the article on Harper’s magazine you would know that Kevin Philips used the figures from John Williams a California-based economic analyst and statistician who is an expert on the official Washington numbers.

In a 2006 interview, Williams noted that although few Americans ever see the fine print, the government “always footnotes the changes and provides all the fine detail. Nonetheless, some of the changes are nothing short of remarkable, and the patter over time is what I call Pollyanna Creep.” Williams is one of a small group of economists and analysts who have paid any attention to the phenomenon. A few have pointed out the understatement of the Consumer Price Index – the billionaire bond manager Bill Gross has described it as an “haute con job,” and Bloomberg columnist John Wasik has dismissed it as “ a testament to the art of spin.” ….

There are many well know economists that are aware of what has been going on since the early 1980’s

Please don’t mention the economic models developed by PhD economists – they have a very poor track record on Wall Street.

Maybe because they are using data published by the US government on their models data that is not worth even the paper that they use to publish such a data.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1915697&highlight=Kevin+Philips#post1915697

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October 30, 2008

SouthAmerica: Wall Street players love to believe in Fairy Tales when they are making their investment decisions. And later they wonder why they lost their shirt.

Paul Krugman an Economics Nobel Prize winner wrote recently in one of his columns published by The New York Times about the wishful thinking that is built into the monthly US GDP figures.

The official US government published figures for the monthly US GDP figures is inflated by 15 to 20 percent and that was before we had the massive financial crisis and meltdown in the United States – and if you adjust for this massive deleveraging that has been underway in the US economy then the current US GDP figures has to be inflated by at least 30 percent.

Today, the US government published the latest official figure for US GDP equal to $ 14.4 trillion dollars and if we adjust this Fairy Tale figure to reflect the reality of the US economy then the actual figure becomes US$ 10.1 trillion dollars.

The people who believe on these US government Fairy Tale figures and use them in their investment decisions, they deserve to lose their shirt since they are a bunch of fools who have not done their homework.


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April 22, 2008

SouthAmerica: I wrote various articles over the years about how Brazil also should adopt the Fairy Tale system of US government statistics to show all kinds of meaningless information like the ones the people on Wall Street uses on a regular basis to make their investment decisions – information provided by the US government regarding the US unemployment rate, GDP, and so on…

The world of illusion has worked well for Wall Street and for the United States economy for a number of decades now and people from around the world also have been rushing with their money and they want to participate on this massive economic world of illusion.

Americans should be glad that there are so many naïve suckers around the world who believe on the illusion that are being staged as we can see by foreign lending and investments that continues to come in into the US even when these foreigners start losing their shirt as soon as the money arrives in the US.

Yesterday I bought a copy of the May 2008 issue of Harper’s magazine after reading a terrific article by Kevin Phillips “Why the economy is worse than we know.”

Here is what Paul Krugman (one of a hand full of economists that I respect) said on his NYT column on April 11, 2008 regarding that article: “Have you seen the awesome article by Kevin Phillips in the latest Harpers: “Numbers Racket — Why the economy is worse than we know. ...”

In 2007 alone 15 percent of GDP was based on phantom figures. The United States government has been using for a long time the Enron System of how to deceit people with cooked figures.

I wonder if the Chinese government understands to what extent that they have been taken for a ride so far, and when it is better to cut your losses than continue to sink more fresh money into the money pit.

Here are some excerpts from "Numbers Racket: Why the economy is worse than we know" by Kevin Phillips, from the May 2008 issue of Harper’s Magazine, but I strongly suggest that if you have the opportunity then you should read the entire article (about 5 pages long) on Harper's magazine:

“…The effect, over the past twenty-five years, has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowings, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed. If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunities than it actually is.

…The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3-4 percent range). We might ponder as well who profits from a low-growth US economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?

Let me stipulate: the deception arose gradually, at no stage stemming from any concerted or cynical scheme. There was no grand conspiracy, just accumulating opportunisms. As we will see, the political blame for the slow, piecemeal distortion is bipartisan--both Democratic and Republican administrations had a hand in the abetting of political dishonesty, reckless debt, and a casino-like financial sector. To see how, we must revisit forty years of economic and statistical dissembling.

…The GDP has been subject to many further fiddles, the most manipulatable of which are the adjustments made for the presumed starting up and ending of businesses (the “birth/death of businesses” equation) and the amounts that the Bureau of Economic Analysis “imputes” to nationwide personal income data (known as phantom income boosters, or imputations; for example, the imputed income from living in one’s own home, or the benefit one receives from a free checking account…). During 2007, believe it or not, imputed income accounted for some 15 percent of GDP.

…"...if you were to peel back the changes that were made in the Consumer Price Index (the inflation rate) going back to the Carter years, you'd see that the CPI would now be 3.5 to 4 percent higher -- meaning that, because of lost CPI increases, Social Security checks would be 70 percent greater than they currently are.

…The real numbers, to most economically minded Americans, would be a face full of cold water. Based the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9 and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional "Pollyanna Creep," what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically but globally.

Under measurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt (from less then $11 trillion in 1987 to $49 trillion last year) that props up the American economy. Moreover, the rising cost of pensions, benefits, borrowing, and interest payments -- all indexed or related to inflation -- could join with the cost of financial bailouts to overwhelm the federal budget. As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering.

Arguably, the unraveling has already begun. As Robert Hardaway, a professor at the University at Denver, pointed out last September, the subprime crisis "can be directly traced back to the (1983) Bureau of Labor Statistics decision to exclude the price of housing from the Consumer Price Index...With the illusion of low inflation inducing lenders to offer 6 percent loans, not only speculation run rampant on the expectation of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the teaser rates." Were mainstream interest rates to jump into the 7 to 9 percent range -- which could happen if inflation were to spur new concern -- both Washington and Wall Street would be walking in quicksand. The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy. The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down and even rockier slope.

The credit markets are fearful, and the financial markets are nervous. If gloom continues, our humbugged nation many truly regret losing sight of history, risk, and common sense.”

http://www.elitetrader.com/vb/showthread.php?s=&postid=1893339&highlight=Krugman+and+GDP#post1893339

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March 8, 2009

SouthAmerica: I guess today there are enough fools around the United States who still believe on this Fairy Tale information provided by the US government on a regular basis.


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Published February 27th, 2009

…Gross domestic product (GDP) is a measure of all of the value of all goods and services produced and sold in an economy in a given year. Current US GDP on a nominal basis stands at roughly $14.25 trillion. Note that nominal GDP isn’t adjusted for inflation but is the total GDP measured in current dollars.

http://www.kciinvesting.com/articles/9886/1/The-Money-Super-Accelerator/Page1.html


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Americans take forever to grasp even the obvious – today the United States might be lucky if at this stage of the game the real US GDP still in the range of US$ 9 to US$ 10 trillion dollars.

That means the cumulative debt of the US government has already reached a level of 100 percent to 120 percent of GDP.

The US economy has an imploding GDP and at the same time has a skyrocketing debt plus all kinds of US government guarantees.

If the current US government cumulative outstanding debt is adjusted by the toxic assets being held on the Federal Reserve books plus all kinds of US government guarantees that probably will cost a ton of money to the US government in the near future and so on…then that means the cumulative debt of the US government has already reached a level of 160 percent to 180 percent of the real GDP.

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June 11, 2009

SouthAmerica: According to measuring worth website the US GDP of $ 14 trillion dollars includes 17 percent of spending on goods and services that are produced overseas

That means the domestic portion of the US GDP is estimated to be $ 11.6 trillion dollars - This is the portion of US GDP that relates to the domestic US economy – That should be used to compare to US budget deficits, defense spending, and so on….

The domestic portion of US GDP of $ 11.6 trillion dollars includes a lot of items that are make believe or wishful thinking at best, and after you clean up the domestic portion of US GDP of the BS items that they add to that figure then a more realistic figure for the domestic US GDP is closer to $ 10 trillion dollars for 2008.

The 2009 domestic US GDP after we consider the massive financial crisis, an imploding economy and even after all kinds of US government intervention in 2009 – we still can estimate that the domestic portion of US GDP should not be larger than $ 10 trillion dollars.

When you compare the US government budget for 2010, future US government budget deficits, the US government actual cumulative debt, the budgeted defense spending, and so on versus the current domestic US GDP of $ 10 trillion dollars then countries such as China and Japan and many others would realize that they have been investing in the Titanic and they have no insurance to recoup their coming massive losses.

Note: In the same way investors from around the world claimed ignorance and that they trusted the AAA rating given to the sub prime garbage by the major US rating agencies and they had no real understanding of what they were buying – in the future central bankers from around the world can claim that they also trusted and had a superficial understanding of the information provided by the US government on a monthly basis regarding the Fairy Tale figures for US GDP.


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Gross Domestic Product, or as abbreviated, GDP:

GDP is a measure of the total market value of all final goods and services produced in a country during a year. In other words, GDP is total spending on newly produced goods and services. In the United States, annual GDP is about 14 trillion dollars, meaning that amount is spent on U.S output in one year.

Four general groups are buying what is produced. The households buying food, HDTVs, medical care and whatever else they want and can afford to spend constitute about 70 percent of GDP. Another 15 percent of GDP consists of spending by business firms to purchase new capital equipment, buildings, and inventories. Taking up about 20 percent of GDP is spending of government on items such as schools, highways, and Air Force F-16s. Finally, production of goods and services for export is 12 percent of GDP. This adds up to more than 100 percent, because 17 percent of U.S. spending on goods and services are produced overseas.

http://www.measuringworth.com/glossary/index.html#


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Comprehensive Revision of the National Income and Product Accounts

BEA plans to release the results of the 13th comprehensive (or benchmark) revision of the national income and product accounts (NIPAs), as part of the annual revision on July 31, 2009. More information on the revision is available on BEA’s Web site at www.bea.gov/national/an1.htm, including a link to an article in the March 2009 issue of the Survey of Current Business that discussed the changes in definitions and presentation that will be implemented in the revision and a link to an article in the May Survey that described the changes in statistical methods. The September Survey will contain an article that describes the results of the revision in detail. The Web site also contains links to redesigned PCE table stubs; other revised NIPA table stubs and press release stubs will be available in June.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm


The official BEA US GDP for 2008 was $ 14.3 trillion dollars.

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