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Garbage Data

The basis for consumers and market participants to make decisions regarding the purchase of goods and services or capital deployment rests to a large extent on the perceived conditions of that environment that are visible to us on a basic level from what we witness each day. Naturally, we also require timely, accurate, unbiased and reliable economic data measures to guide us. While we do indeed receive volumes of such data metrics from our government on a regular basis, they are neither timely, factual, unbiased nor reliable.

Some of the key economic indicators are skewed by a garbage- in, garbage-out montage of disinformation synchronized to further a more enduring objective- namely to justify loose monetary policy permissible only under the perception that inflation remains modest.

It is the opinion of this author that the data provided exclusively by the government on such key economic measures such as inflation, budget deficits, jobs, etc. are factually untrue to the point of being false and misleading in their public perception. This happens because the key criteria assumed is so fatally flawed that it serves to distort its value altogether. Take or example, the approach used with measuring inflation, the data point most examined by the markets. By design it excludes energy and food in its measure because supposedly their price fluctuations move in patterns diverging from the rest of the economy and net out over time. However we all know that both, especially energy prices of all forms- oil, gas, electricity, natural gas, etc. have all spiked much higher for many years now and thus represent a “core” inflation rate much, much higher than they would have us believe. These increases are real and tangible yet not accounted for in the model. The ramifications for such a low-balling of these metrics are quite significant since even a tiny upward revision to the perceived measure has quantum implications in the all the capital markets (credit, stock, commodity and currency) and throughout the economy. The rationale for the current method is inherently flawed and does understate the real rate.

Also disturbing is the confounding manner that our fiscal deficits are reported to the public. Ignored are tens of trillions in liabilities accruing on the books in the form of entitlement programs such as Social Security, Medicare, etc. In fact funds from these entitlement accounts are “borrowed” to replenish current deficits. If the fiscal budget deficits were subjected to the same principles required under GAAP standards for corporations then the public perception would obviously be more negative. Close scrutiny of the government’s intermediate and long term financial condition would indicate a severely distressed credit not worthy of the AAA rating our Treasury notes have commanded for years

As explained earlier in the section on Dollar Hegemony, the US Treasury has always had a captive market for their debt despite its deficits because their petrodollar hegemony forced foreigners to repatriate their sizeable oil purchases in dollar denominated assets and to date the primary venue of that repatriation has been through US government securities issued at the lowest market rates. The US government has good reason to desire that the status quo perception endures because for every degree that our credit rating falls we are forced to pay higher interest rates on these debt securities which are now held by foreigners in sums of several trillions of dollars and growing each month. Given this predicament, it is ever more prudent to scrutinize the methodology of the data gathering metrics provided by the federal government and challenge assumptions that don’t pass the smell test. To that extent, the articles below will display evidence of the troubling discrepancies in some of the various economic data metrics provided by our government agencies. Given their scale and potential impact on the aggregate economy, public ignorance or indifference to these measures could very well contribute to the conditions that allow severe market dislocations to occur.

1. MUST READ Behind the Falsification of US Economic Data – This article from traces the molestation of the reporting of the most key economic data from the Kennedy administration to the present, showcasing the exemplary contributions of each administration in their role in the current deception. In each case, the reader will see how the government sought to obfuscate the truth in a manner that would benefit their agenda to the detriment of the people and the sanctity of our financial markets. Written in a straightforward style heavy on details and light on hyperbole, it offers an accurate and damning portrayal of deception by our government over the years hiding in plain sight.

2. Numbers Racket – Featured recently in Harper’s magazine in May, “Numbers Racket” warns their readers of what they refer to as America’s “opacity crisis” that hides the true state of our economy. It does a marvelous job of integrating each of the key statistical delusions- inflation rate, the jobs report, and GDP- against the backdrop of the gigantic US public debt to showcase its relevance into the big picture. It traces the evolution of our “Pollyanna creep” from the 1960’s that has morphed into pure delusion today. It redefines some basic economic terms, such as unemployment, more clearly so that the reader can better grasp exactly how it is not being properly measured today. They conclude that the current unemployment hovers between 9-12%, that inflation is really between 7-10% and that GDP growth rates are far below advertised. This nine page article is an easy and compelling read for a broad audience, and I am pleased that mainstream magazines not devoted to finance such as Harper’s are giving this crucial matter the attention it deserves.

3. The Great Inflation Cover Up – CNN Money takes a swipe at the lunacy of the government’s inflation measures in a refreshingly unique fashion. By using one person’s crude method of gauging real inflation through the menu of his upscale steakhouse they are able to frame the inflation quandary in real and personal terms. It attacks the price volatility myth now used to exclude food and energy from the core rate and concludes naturally that these trends are now so established they should count. If so, current inflation is over 4% even without accounting for the dollar decline. The significance of this fallacy cannot be overstated and is sure to fuel dissention and debate for some time to come.