Economic 'truths' - still in deep denial

The recent GDP contraction had some undisclosed fractions of information, which is crucial to know. First of all, the consumer spending contracted by 3.1%, the highest in 28 years. Keep in mind that the preliminary number, which we had recently, covers mostly July and August- hence the next revision may be to the downside as September gets implied and we had an unusual high government activity of plus 5.8% (basically weapon purchase), which is a onetime event. The -0.3 does not tell the real story and might be adjusted towards -1.0 but even that is not the real thing, since understated inflation finds its way into economic growth, which it is not. Typically, after the presidents and mostly the parties generating the president change, the kitchen sink operation starts. That means the new one takes the 'real' bad numbers, which the old one tried to hide, and pulls it to the open. So he can blame the prior administration (which is usually right) but with a secondary effect to have a chance to show his better numbers the next quarters. I am afraid that will not really work this time around.

Probably the WSJ printed it wrong but as Obama claims to be able to make by a $15 bil. investment over a decade creation of 5 mil jobs - that would be pure magic. McCain's evergreen song with lower taxes says he will save America is a fairy tale by itself. America has already committed $2 tril. for the bailout - that's an increase of 20% to the existing money the USA has borrowed and I am afraid that will not be the end of the story (we are still in the 4th inning). The bigger problem is the $20 tril. in 'value' destruction the boys from Wall Street have caused the world since against them a leverage play of $800 tril. of OTC derivatives gets triggered to work its way into the balance 'cheats' (we can now officially call it like that since governments allow and urge banks to hide their losses by marking them to some fantasies), which have no chance to digest that.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXpSoL0MWdek&refer=home

Commodities Send Sell Signal Before Long Recession (Update1)

By Millie Munshi

Nov. 3 (Bloomberg) -- A record plunge in commodities may signal the U.S. is headed for the longest recession since 1981, just after Ronald Reagan became president and the economy began a 16-month slump.

Industrial raw materials measured by the Journal of Commerce fell at an annual rate of as much as 56 percent last week, the most since 1949 and worse than the declines before every recession since then. Crude oil, copper and wheat tumbled more than 50 percent from records this year as the U.S. economy declined in the third quarter by the most since 2001.

``The industrial sector, which was helping to keep the recession relatively mild, has completely given way and now we need to be prepared for a much more severe recession,'' said Lakshman Achuthan, managing director at the Economic Cycle Research Institute in New York, which compiles the Journal of Commerce data. ``It's at least going to look something like what we saw in the early 1980s, but it could be worse.''

Excerpt from WSJ

EU: Euro-Zone Economy Is in Recession

BRUSSELS -- The euro-zone economy is now in recession and will remain at a standstill for most of next year, the European Commission said Monday in its autumn forecast.

The commission, the European Union's executive arm, said financial markets are still in a "precarious" condition, creating significant risks to its already bleak economic outlook.

The euro-zone economy will next year grow only 0.1%, the commission said, noting that there should be a slight recovery at the end of the year. For all 27 EU countries, the commission expects the economy to expand 0.2% next year.

But if risk premiums rise and credit to households tighten, the euro-zone economy could enter an "outright recession," contracting 1% next year, the commission said.

These latest forecasts show how strongly the financial crisis has hit the EU, despite earlier predictions that the bloc would fare better than the U.S. In April, the commission predicted 1.5% economic growth in the euro zone next year and a 1.8% expansion in the whole EU.

Among the EU's largest economies, the U.K. will show the sharpest slowdown, contracting 1% next year, according to the commission. Germany, France and Italy are expected to remain stagnant in 2009.

"The economic horizon has now significantly darkened as the European Union economy is hit by the financial crisis," the commission's top economic official, Joaquin Almunia, said in a statement.

The euro zone is now in a technical recession, since the region's economy contracted in both the second and third quarters of the year, the commission said. For this year, the commission expects the euro-zone economy to post a 1.2% growth rate, down from the 1.7% rate it had predicted in April. For the whole E.U., the commission expects 1.4% economic growth this year, down from its 2.0% forecast in April.

Europe's economy is expected to recover slightly in 2010, according to the commission. Economic growth in the euro zone will be 0.9%, while in the whole EU, the economy will expand 1.1%, according to the commission's forecasts.

Emerging market economies appeared resilient until recently, "but the outlook is darkening," the commission said. Hungary last week needed $25.1 billion in emergency financing from the EU, the International Monetary Fund and the World Bank. Other economies in the Baltic region also are expected to need international help.

Public finances in the EU are expected to deteriorate as economic growth slows tax receipts, the commission said. The EU's budget rules require countries to keep their budget deficits below 3% of gross domestic product, though the commission repeatedly has said this rule is flexible in exceptional economic circumstances. Ireland's budget deficit is expected to be 5.5% of GDP this year and 6.8% next year. France is expected to post a 3% deficit this year and a 3.5% shortfall in 2009.