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Wednesday, December 30, 2009

Hyperinflation And The Death Of The US Economy


If you thought John Williams, who a month ago prophesied that the US could be facing hyperinflation as soon as 2010, has changed his tune, think again. In an interview conducted by Phil Maymin of the Fairfiled Weekly, the man who has made a business out of debunking the government's data fabrication machine, dishes out some very hard to swallow truths about the US economy and where the fiat world is headed. As always, Williams' perspectives are debate-worthy by all, whether inflationist or deflationist: in a field of media sycophants, JW is not afraid to speak what we all know, yet rarely wish to acknowledge.

Maymin: So we are technically bankrupt?

Williams: Yes, and when countries are in that state, what they usually do is rev up the printing presses and print the money they need to meet their obligations. And that creates inflation, hyperinflation, and makes the currency worthless.

Obama says America will go bankrupt if Congress doesn't pass the health care bill.

Well, it's going to go bankrupt if they do pass the health care bill, too, but at least he's thinking about it. He talks about it publicly, which is one thing prior administrations refused to do. Give him credit for that. But what he's setting up with this health care system will just accelerate the process.

Where are we right now?

In terms of the GDP, we are about halfway to depression level. If you look at retail sales, industrial production, we are already well into depressionary. If you look at things such as the housing industry, the new orders for durable goods we are in Great Depression territory. If we have hyperinflation, which I see coming not too far down the road, that would be so disruptive to our system that it would result in the cessation of many levels of normal economic commerce, and that would throw us into a great depression, and one worse than was seen in the 1930s.

What kind of hyperinflation are we talking about?

I am talking something like you saw with the Weimar Republic of the 1930s. There the currency became worthless enough that people used it actually as toilet paper or wallpaper. You could go to a fine restaurant and have an expensive dinner and order an expensive bottle of wine. The next morning that empty bottle of wine is worth more as scrap glass than it had been the night before filled with expensive wine.

We just saw an extreme example in Zimbabwe. ... Probably the most extreme hyperinflation that anyone has ever seen. At the same time, you still had a functioning, albeit troubled, Zimbabwe economy. How could that be? They had a workable backup system of a black market in U.S. dollars. We don't have a backup system of anything. Our system, with its heavy dependence on electronic currency, in a hyperinflation would not do well. It would probably cease to function very quickly. You could have disruptions in supply chains to food stores. The economy would devolve into something like a barter system until they came up with a replacement global currency.

What can we do to avoid hyperinflation? What if we just shut down the Fed or something like that?

We can't. The actions have already been taken to put us in it. It's beyond control. The government does put out financial statements usually in December using generally accepted accounting principles, where unfunded liabilities like Medicare and Social Security are included in the same way as corporations account for their employee pension liabilities. And in 2008, for example, the one-year deficit was $5.1 trillion dollars. And that's instead of the $450 billion, plus or minus, that was officially reported.


These numbers are beyond containment. Even the 2008 numbers, you can take 100 percent of people's income and corporate profit and you'd still be in deficit. There's no way you can raise enough money in taxes.

What about spending?

If you eliminated all federal expenditures except for Medicare and Social Security, you'd still be in deficit. You have to slash Social Security and Medicare. But I don't see any political will to rein in the costs the way they have to be reined in. There's just no way it can be contained. The total federal debt and net present value of the unfunded liabilities right now totals about $75 trillion. That's five times the level of GDP.

What can we, the people, do to stop the government from, you know, taking all our money?

We should have acted 20 years ago. There's not much you can do at this point to prevent the eventual debasement of the dollar. This involves both sides of the political spectrum. It's not limited to the Republicans or the Democrats. They've both been very active in setting this up.

What can individuals do?

The only thing individuals can do now is look to protect themselves. I wish I could see a way, but shy of severe slashing of the social programs that is so politically reprehensible and would create such problems and social unrest, I don't see that as a practical solution.

If you're a young 20- or 25-year-old guy or gal, would you move to another country? What would you do?

We still have a great country. We're going through a period of economic pain. It's happened before. This is the kind of thing that's taken us decades to get into and it will take us decades to get out. Although the hyperinflation is going to be limited largely to the U.S., the economic downturn will affect things globally. I can't tell you how things will go with a hyperinflationary Great Depression, which is where I see things going.

It's the type of thing that will tend to lead to significant political change. People tend to vote their pocketbooks. You could have the rise of a third party. You could even have rioting in the streets. I'm not formally predicting that — anyone can run these different scenarios. For the individual, what you need to do, from an investment standpoint, look to preserve your wealth and assets. Don't worry about the day-to-day fluctuations in the markets. What I'm talking about here is over the long haul...

[Gold is] going to be highly volatile, as will the dollar, over the near term, but longer term, physical gold I would look at as a primary hedge for preserving the purchasing power of your wealth and assets. Maybe some physical silver. Get some assets outside the U.S. dollar. I might even look to move some assets physically outside the United States. The key here is to look at a longer range survival package, battening down the hatches, and preserving your wealth and assets during a very difficult time. Once you're through that, you'll have some extraordinary investment opportunities, and I can't tell you what it's going to be like on the other side of this crisis.

Dr. Phil Maymin is an Assistant Professor of Finance and Risk Engineering at NYU-Polytechnic Institute. The views represented are his own

part 2

3. Interesting contradiction of sentiment The ISEE had a 68 close yesterday which is usually a number you would expect in a capitulation but we need to remember the low was marked with a 220 which on the other hand would rather mark an euphoric top.
The other news is the sentiment number got to an extreme for a top which makes rather sense


Pessimism on Stocks Drops to Lowest Since 1987 Following Rally

Dec. 30 (Bloomberg) -- Pessimism about U.S. stocks among newsletter writers fell to the lowest level since April 1987, six months before the equity market crash known as Black Monday, following the biggest rally in the Standard & Poor’s 500 Index in seven decades.

The proportion of bearish publications among about 140 tracked by Investors Intelligence fell to 15.6 percent yesterday from 16.7 percent a week earlier. Sentiment has improved since October 2008, when the financial crisis drove the figure to a 14-year high of 54.4 percent. After plunging 38 percent in 2008, the S&P 500 has risen 24 percent this year.

Some analysts consider lower pessimism a sign stocks will stop advancing, under the theory that there are fewer bearish investors left to change their minds and purchase shares. The S&P 500 plunged 20 percent on Oct. 19, 1987.

Brainstorming Wednesday

1. Huffington Post calls for the quite revolution its a good starting point - change your banks and brokers actually you can manage your money yourself with ETF's and common sense if you do not give to many credit to mainstream media news.

Move Your Money: Transfer Your Money From Big Banks To Community Banks

2. I hinted a few times to the time bombs within the EU and that the Euro rise was not supported by any fundamentals - actually the rise of the Euro was a US government move to gather earnings momentum for the SPX 500 companies who made more than 50% from oversees profits mostly due to currency effects. The problem now is that the heavy burden of 2.5 tril of bond issues thereby 2 tril is net new borrowing can not be accomplished with a sinking Dollar. To prepare for another scam they let the Dollar float higher to generate demand - though the second step of this operation might be to let stock markets drop hence that will ultimately trigger save heaven buying.

Euro Zone Grapples With Debt Crisis

In 2010, many nations in the currency bloc will attempt to shore up finances and sustain fitful economic recoveries

Tuesday, December 29, 2009

Bond chart harbinger of bad things to come for stocks

Bonds are in a quite mini-crash nobody really talks about which is devastating for the FED and the stockmarkets. Since we will have a net 2 tril new issuance next year compared to 200 bil in 2009. Its basically a vote of failure of the FED and the Obama admin as they will have big trouble selling bonds next year and whatever they do will bring stocks down. They could bring stocks down deliberately to create artificial demand by save heaven buying ( likely scenario) or trigger a bond crash on a faster lane which would trigger stocks to go down anyway as it would kill the so called recovery story right away. Besides a further steepening curve creates losses for banks who have locked in their carry spread already. Either way truth is a force you can surpress temporarily but it finds its way to the surface. This bullshit story the worst is over is not confirmed by the markets the stock market is just in a camouflage trade up as all the underlying stats are made up and inflated but not representing the truth of the situation. Bonds do confirm though that very shortly in a matter of days stocks will turn north as the bond should have a short term bottom 2-3 trading days lower.

part 2

2. China goes into full power mode and claims its place as a global leader

a) First they said probably much nicer to TG to go and f... himself about the currency situation - they are now starting to compete directly with America. Its a smart timing as America is already fighting many wars and is in the biggest crisis of the last 100 years. It will lead at some point to more nationalism as I had posted before we are entering stage 2 of the de-globalisation that's what all the economists get wrong then saying will outperform and lead the global economy up. We rather enter a global economic war with the gloves down now.

b) The execution of a British citizen was another sign of their new self presentation now as was the Copenhagen showdown where they basically blocked all solutions which was very welcome by the USA as it matched their selfish interests anyway - both are by far the biggest polluters in absolute terms but America due to its far smaller population is insanely overpolluting.

c) The straight forward refuse to pay any derivative losses on oil to foreign banks and Goldman is the first official opponent in this new stage of selfconfidence. Now we will see how tough Obama and his boys are as they got slapped 2 times into their face which is a bit of a disgrace and very crucial as the Treasury is going to borrow 2 trillion next year in capital markets.


Small Chinese Company Tells Goldman To Take A Hike, Refuses To Pay $80 Million In Derivative Losses

It appears that even after thoroughly dominating the US legislative, judicial and executive branches, the long tentacles of the squid have been no better than the Mongolian hordes at overcoming the Chinese Wall (which is ironic seeking how easy it is to ignore the same construct internally between the firm's prop and flow traders...and yes, we will be posting our response to Goldman shortly, we have not forgotten). In the meantime, half a world away, a small Chinese power generator, Shenzhen Nanshan Power, is blatantly refusing to honor contracts with Goldman Subsidiary J. Aron for $80 million in derivative losses, and it appears that China itself has decided to stand behind the small company.

Reuters reports:

Shenzhen Nanshan Power (000037.SZ) (200037.SZ) said in a statement that it received several notices from J. Aron & Company, a trading subsidiary of Goldman Sachs (GS.N), for at least $79.96 million as compensation for terminating oil option contracts.

"We will not accept the demand by J. Aron for all the losses and related interests," said Nanshan, in line with the stance it took last December.

"We will try our best to negotiate with J. Aron and resolve the dispute peacefully...but the possibility of using a lawsuit can not be ruled out when talks fail," it added.

"J. Aron told us in one notice that if we do not pay the money, they will reserve the right to launch a lawsuit and will not send us any further notice."

The State Assets Supervision and Administration Commission said in September that it would back state-owned companies in any legal action against the foreign banks that sold them oil derivatives, which resulted in losses when oil prices dived late last year. [ID:nPEK14474]

A Beijing-based Goldman Sachs corporate communication official declined to comment.

Not sure what Hank Paulson's former firm would comment: alas the Chinese communist party still has to be filled with Goldman alumni. That being said, this is precisely the track that Goldman has been focusing on for the past few years. At this point, the firm realizes all too well that dominating power politics in China in the near futures is far more critical than complete control over D.C., as there is little the world's most important company can do domestically in the context of taxpayer capital transfer without a full fledged revolution.

Tuesday brainstorming

1. Geithner is insane and a freaking disgrace - with this Feinberg charade

a) Secretely the Fannie and freddie limits were taken away and the moron Ceo's working there loaded with millions in cash bonus pays.

b) Why does a councel who was around and responsible for the disaster AIG is in get millions of taxpayer dollars

Departing AIG Counsel Gets Millions as She Exits

It is unbelievable how this Obama admin does things and finally they are even more rotten than the Bush boys as they do all this in the open and despite the obvious failure of prudence and criminal methods people get their undeserved perks ( actually I call that stealing at daylight). This whole Feinberg charade with pay cuts as everybody was allowed to rush out of TARP which was a stupid criteria in the first place. I know I sound like a broken record but Goldman and JPM just to name the big gainers of this crisis have still billions of taxpayer money in their pockets which are not due for repayment. They still can borrow at zero allthough inflation is at 4% aprox. right now and in case of JPM were allowed to raise interest rates to Mainstreet plus all the other taxpayer perks like the 500 mil for the Goldman building.

An interesting cycle analysis matching the Astro pattern

All technical indicators I do follow confirm a top at hand we have also reached the price targets and are starting the year with a bullish Wallstreet herd of analysts. Even the sweet ladies of Bloomberg TV get angry about any negative comment these days - Michael must have send a memo out. This bullshit story pushed on TV that internet retail sales has risen 16% ( from 4% overall give me a break morons) is symptomatic how this cheerleader want to load you up.


Stock Ind analystexes Confirm Strength into 2010
By Jim Curry - Published 12/02/09

Going back to the mid-July period of 2009, the time cycle work that I track had confirmed the 07/08/09 low as a combination bottom with the 45 and 90-day cycles. Using a statistical analysis of the larger 90-day component, the probabilities favored that this particular cycle would not see it's following peak made prior to the late-September or early-October period - and thus the assumption was that the SPX was headed toward the low-1100 level or better into October.

After moving into the October, 2009 period, there was then a larger combination bottom with both the 90 and 180-day components that was due around mid-November, but with a plus or minus of approximately 2 weeks in either direction - due to the variance larger 180-day cycle. In terms of price, a normal 90/180-day downward phase will usually see a decline of 10%-or-better off the top - and thus the expectation was for a potential decline in this range before our larger combination low was finished. The actual decline ended up being in the range of 6.5%, which fell short of expectations - possibly due to the positive seasonality.

Key resistance for the month of November was noted at or near the 1069 level on a closing basis - which was the monthly projected resistance high for the SPX CASH index. When prices closed on this figure at the closing of trading on 11/06/09, then there was the potential for our 90 and 180-day combination bottom to be in place; this was then confirmed the very next trading session.

With the above, our larger 90 and 180-day combination wave is now deemed to be headed upward into January of 2010, as shown on the updated forecast wave below:

Even with our larger bottom confirmed in place on 11/9/09, in our daily outlooks I did note that a secondary low would likely be seen in the late-November timeframe - due to a nominal 20-day cycle that was projected to bottom near the November 27th period. The minor cycle forecast chart (below) suggested this low well ahead of time:

The expectation for the downward phase of the 20-day component is that it would see a retracement back to or below the 18-day moving average - which this cycle will do better than 95% of the time before bottoming out.

Right now, the minor cycle forecast is looking for continued strength in the coming days. This minor cycle forecast is essentially unchanged from what it was projecting back in September, and the market has followed the roadmap extremely well since this time.

Stepping back, the basic suggestion for the mid-term picture is for higher highs to be made into January, 2010. There is an outstanding upside target from the 45-day cycle to the 1130.09 - 1153.63 level on the SPX; this range is also likely to be the area that tops this same 45-day component.

For the longer-term, the key figure for the SPX is the 1122 level (closing basis). That number is the approximate 50% retracement of the entire move down from the October, 2007 high to the March, 2009 bottom. That is, it will take a firm daily close above this level for the larger 90 and 180-day cycles to gain momentum into the Spring of 2010 (where the 180-day component is next set to peak). Otherwise, holding below the same will continue to keep the action very choppy (sideways) for the near-term.

Stepping back even further, 2010 is setting up for what should be a very important peak - one that should top the entire countertrend retracement off the March, 2009 bottom. That top should then give way to an eventual breach of the 666.79 low on the SPX - ideally to move on down to a longer-term 'swing support' area at the 580-620 level on this index. There is a much-larger 36-year wave that is projected to bottom in the late-2010 timeframe - but which could easily stretch out into 2011 or 2012, simply based on the very large average variance with this particular cycle. More on this in a future article.

Jim Curry
Market Turns Advisory

Monday, December 28, 2009

Brainstorming Monday - part 1

1. Most of the smart-ass guys on (CNBC - Bloomberg) TV - I am referring mostly to so called fund-mangers have not made any money for their clients in the last 10 years. Actually they have rather lost money in real and nominal terms who come up now and praise some bullshit recovery stories are mostly overpaid liars in some cases evil opportunists. In the last 10 years all US indices have lost money in Dollar terms and even more so in real money terms ( against Gold or the CRB). Most of the Bond funds have also lost money allthouıgh some may have made money in nominal terms but in real inflation terms they have lost money as well. This whole Wallstreet money management is a huge ponzi scheme basically the so called heroes like recently Paulson before him Soros were never available for Mainstreet they are actually outlets of the Rothschild / Rockefeller gang I suspect and that they made money was not only based on skills also on their information network to put it in diplomatic terms.
Some money mangers are doing a prudent job but the big houses with their asset management bullshit theories are more like casino's working only for their own merits.

Beneath some simple and good arguments why the emperor is really naked -* do not buy any of these snake oil sales people bullshit including to the top of DC who are liars by profession - 'West Wing' was just produced to make you believe that something decent must be in DC but that's another propaganda story and part of the Matrix.

SPX update - sell into this obvious manipulation of prices

The SPX has reached the crucial sell levels and got there obviously by a pure price manipulation. All the positive Astro support is fading away as Jupiter moves away from the conjunction and within a few weeks out of Aquarius ( the positive tech momentum will vanish as well). We are approaching a lunar eclipse on NYE which is a T-square with the Saturn / Pluto square which will bring markets down. Finally the overdue correction will start and many technical indicators are on red alert. Actually we should have had the same timing as the Dollar and Gold but that acted to the Mars retrogade and is not in a political manipulation as stocks are. As we also are approaching monthly 9 counts we can expect a severe correction and I still believe we will retest the lows and even make new ones. The mainstream Wallstreet analysts have no doubt that the worst is behind which is a confirmation for that scenario. Zerohedge brought up a good point for even a downside manipulation in stocks as the Treasury will have trouble selling 2 tril in new government bonds and a good way to produce demand would be a stock crash of some degree and the charts do confirm such a move as well.

Saturday, December 26, 2009

The banksters are just part of the scam - the story below just describes a fraction

Interesting how J.S. puts together a lot of evidence for a conspiracy but does not like to go the final step and one can not trust anyone who ever worked for the IMF in a senior position ( referring to the final recommendation 'The quite coup'). As you will see in excerpt 3 after the TARP lies Geithner tries to make a backdoor attempt for an even bigger scam. Geither is a dangerous puppet as a member of the Trilateral Commission a Rockefeller executer of mastermind Brezinski.

Excerpt 1

In July 1972, Rockefeller called his first meeting, which was held at Rockefeller's Pocantico compound in New York's Hudson Valley. It was attended by about 250 individuals who were carefully selected and screened by Rockefeller and represented the very elite of finance and industry.

Its first executive committee meeting was held in Tokyo in October 1973. The Trilateral Commission was officially initiated, holding biannual meetings.

A Trilateral Commission Task Force Report, presented at the 1975 meeting in Kyoto, Japan, called An Outline for Remaking World Trade and Finance, said: "Close Trilateral cooperation in keeping the peace, in managing the world economy, and in fostering economic development and in alleviating world poverty, will improve the chances of a smooth and peaceful evolution of the global system." Another Commission document read:

"The overriding goal is to make the world safe for interdependence by protecting the benefits which it provides for each country against external and internal threats which will constantly emerge from those willing to pay a price for more national autonomy. This may sometimes require slowing the pace at which interdependence proceeds, and checking some aspects of it. More frequently however, it will call for checking the intrusion of national government into the international exchange of both economic and non-economic goods."


In his book Radical Priorities, Noam Chomsky said this:

Perhaps the most striking feature of the new Administration is the role played in it by the Trilateral Commission. The mass media had little to say about this matter during the Presidential campaign -- in fact, the connection of the Carter group to the Commission was recently selected as "the best censored news story of 1976" -- and it has not received the attention that it might have since the Administration took office. All of the top positions in the government -- the office of President, Vice-President, Secretary of State, Defense and Treasury -- are held by members of the Trilateral Commission, and the National Security Advisor was its director. Many lesser officials also came from this group. It is rare for such an easily identified private group to play such a prominent role in an American Administration.

—The Carter Administration: Myth and Reality, Excerpted from Radical Priorities, 1981 Noam Chomsky[

The same applies for the current Obama admin many members of the Trilateral commission some samples of names you might know.

Anthony M. Solomon: former President, Federal Reserve Bank of New York
Ted Sorensen: former special adviser to President Kennedy
Robert Zoellick: President of the World Bank, former U.S. Deputy Secretary of State, former U.S. Trade Representative
Paul H. O'Neill: former Secretary of the Treasury under George W. Bush and former chairman of Alcoa
Walter Mondale: former Vice President of the U.S. under Carter
Henry Kissinger: U.S. diplomat, National Security Advisor and Secretary of State in the Nixon and Ford administrations; former Chairman of the International Advisory Committee of JP Morgan Chase.
Hank Greenberg: Former chairman and CEO of American International Group (AIG), the world's largest insurance and financial services corporation.
Alan Greenspan: Former Chairman of the Federal Reserve[33]
John Gutfreund: Former CEO of Salomon Brothers
Martin Feldstein: Professor of economics at Harvard University; president and CEO of the National Bureau of Economic Research (NBER); chairman of the Council of Economic Advisers from 1982 to 1984; former director of the Council on Foreign Relations; member of the Bilderberg Group and of the World Economic Forum.
Bill Clinton: Former President of the U.S.
Hillary Rodham Clinton: 67th United States Secretary of State
Dick Cheney: Former Vice President of the U.S.[33]
Warren Christopher: former Secretary of State under Clinton and Deputy Secretary of State under Carter
Jimmy Carter: Former President of the U.S.
George H.W. Bush: Former President of the U.S
Lloyd Bentsen: former US Senator and Secretary of the Treasury under Clinton

Excerpt 2

How the Bankers Stole Christmas

I hate bankers and so should you. Why? Because bankers steal a little bit of Christmas cheer every year. For the past severalthe grinch that stole christmas years, bankers have stolen a lot of Christmas cheer. Like the Grinch from Dr. Seuss’s famous children’s tale, How the Grinch Stole Christmas, bankers have hearts two sizes too small, and by means of burglary, they do their best to deprive everyone of Christmas every year. Only unlike the Grinch, despite stealing from people every year, bankers never learn and never reform, they never return to the people the vast amounts of money they stole from them, and they are cold-hearted and arrogant enough to claim that they are doing “God’s work” (as stated by Goldman Sachs Chairman and CEO Lloyd Blankfein, when in reality, they do much more harm to society as a whole than good. And this makes the majority of bankers worse than the even the loathed Grinch himself.

Since the institution of banking was founded, bankers have been guilty of deceit, fraud and theft. During Biblical times, “Jesus went into the temple, and began to cast out them that sold and bought in the temple, and overthrew the tables of the moneychangers [bankers]..And he taught, saying unto them, Is it not written, my house shall be called of all nations the house of prayer? But ye have made it a den of thieves.” (Mark 11:15-17)

Fast forward almost a couple thousand years later, and bankers were still committing the same theft. In fact, over a period of eighteen hundred years, bankers learned nothing from being cast out by Jesus from the temples, and they continued to commit such questionable acts of morality that even a man of very questionable character himself showed nothing but contempt for them. Though historians noted that former US President Jackson committed numerous hateful acts against Choctaw, Chikasaw, and Cherokee American Indians, Jackson despised bankers so much, that in front of a delegation of bankers, he stated the following:

Gentlemen, I have had men watching you for a long time, and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.”

Fast forward another one hundred and eighty years, and we discover that bankers have failed to evolve even a tiny iota from their deceitful nature. When ex-CEO and former US Secretary Henry Paulson lied to the American people and to US Congress by asking for more than $800 billion of funds for the purposes of helping American home owners and then committed the ultimate bait-and-switch fraud by handing this money to his banking friends, he epitomized the very warning Andrew Jackson levied against bankers in the 1800’s: “When you won, you divided the profits amongst you, and when you lost, you charged it to the bank.” In this case, Paulson acted beyond the normal level of immorality of bankers, and charged the banks’ losses to every single American citizen. Unlike the Grinch, who repented from the error of his ways over a period of a few days, bankers have refused to repent for the unsound monetary system they have created for more than two thousand years!

To understand why Jesus threw bankers out of the temple, why a former governor of the Bank of England stated that banking “was born in sin”, and why Andrew Jackson, a focus of much hatred and contempt among American Indians, viewed bankers as so immoral, that despite his own immense character flaws, he made it his own personal crusade to throw out all bankers from US government, one must understand how bankers continually rob all citizens of their wealth every day. To state that bankers lie, deceive, rob and steal from all citizens every day is not an exaggeration. The means by which they do so today has drastically changed from the means they employed centuries ago, so this is why so few people understand that bankers continually rob them. Most people don’t understand that bankers ensure the continual devaluation of the purchasing power of all money in the system by not only literally creating money out of nothing but also by creating money as debt.

This process, to which they cleverly assign the word “inflation” is in reality a tax that constitutes a direct theft of your savings, and no different than the tax British monarch King George imposed upon the American colonists that triggered the American Revolution. The bankers have only changed the mechanism by which they collect this tax, and the word that they use to describe this mechanism. In America, this hidden tax of inflation, which is a euphemism for the devaluation of the currency that sits in your savings account, is directly responsible for the following situation that Eric Schlosser described in his national bestseller, Fast Food Nation:

“It used to be, even in low income families, that the father worked and the mother stayed home to raise the children. Now it seems that no one’s home and that both parents work just to make ends meet, often holding down two or three jobs. Parents increasingly turn to the school for help, asking teachers to supply discipline and direction.”

The above paragraph described the family life of many families that lived in Middle America almost a decade ago. Due to an unsound monetary system that has led to relentless devaluation of the US dollar, the situation described above will explode in intensity and magnitude over the next five years, and affect everyone in America, no matter your income level and socio-economic status. As the US dollar continues to lose purchasing power, despite a current possible extended rally against the pound and Euro, middle-class America will sink into the ranks of the poor. If the world operated on a sound monetary system, even in low-income families, the mother could still stay home to raise the children. Today, even in middle-class families, thanks to bankers, the mother does not have the option to stay home and raise the children. When the situation of both parents working two or three jobs and their kids attending high school while working 20+ hours a week is still not enough to make ends meet, crime will explode in America during the next five years. It is the critical problems of these very families that the bankers are creating through their monetary policies that will come home to roost in America.

In reality, I don’t hold hatred in my heart for anyone. Christmas is a time for forgiveness and none among us are infallible and none among us are without sin. Yet, to be forgiven, those that continually do wrong must repent, and bankers have yet to do anything that demonstrates that they have even the slightest amount of regret and remorse for the economic upheaval and chaos that they have created throughout the world in recent years. The rich, though they may not care to understand the tale of How the Bankers Stole Christmas now, should make it their prerogative to understand this as soon as possible. Why? The current course the bankers have set us on has ensured that the rich will soon become victims of desperate masses of people in their country that will see a huge degradation in their quality of life due to the recent monetary policies bankers have elected to impose upon their citizens. When large portions of the middle class are destroyed, masses of people that never considered stealing before, will steal and loot due to the simple instinct of survival, and a great battle between “the haves” and the “have nots” will ensue in future years in many developed countries, as crazy as this concept sounds today. Should the people choose to understand "How the Bankers Stole Christmas", the inevitable massive increase in crime that will accompany the sinking of the middle class into poverty can be avoided.

If instead, everyone chooses to buy into the propaganda of the bankers, then this same scenario, as crazy as it sounds today, will come true in the future just as the “crazy” stock market crashes I predicted in 2006 eventually materialized in 2008. And the biggest culprit of this shameful scenario, should it materialize, will embarrassingly be our own refusal to see the truth about how bankers have commandeered today’s “modern” monetary system for their own benefit, and their own benefit only, to the detriment of every single citizen they claim to be helping. If one doubts the enormous reach of banker’s tentacles into governments, then perhaps now is a good time to review former IMF Chief Economist’s Simon Johnson’s brilliant article, “The Quiet Coup”.

Excerpt 3

On September 25th, I wrote:

Paul Volcker and senior Harvard economist Jeffrey Miron both testified to Congress this week that the government is trying to make bailouts for the giant banks permanent.

Writing Wednesday in The Hill, Congressman Brad Sherman pointed out that :

In my opinion, Geithner’s proposal is “TARP on steroids.” Section 1204 of the proposal [the proposal being the "Resolution Authority for Large, Interconnected Financial Companies Act of 2009"] allows the executive branch to use taxpayer money to make loans to, or invest in, the largest financial institutions to avoid a systemic risk to the economy.

Geithner’s proposal reminds me of the Troubled Asset Relief Program (TARP), the $700 billion Wall Street bailout adopted last year, but the TARP was limited to two years, and to a maximum of $700 billion. Section 1204 is unlimited in dollar amount and is a permanent grant of power to the executive branch. TARP contained some limits on executive compensation and an array of special oversight authorities. Section 1204 contains absolutely no limits on executive compensation and no special oversight.

When I asked Geithner whether he would accept a $1 trillion limit on the new bailout authority (if the executive branch wanted to spend more, it would have to come back to Congress), he rejected a $1 trillion limit, insisting that the executive branch be able to respond without coming back to Congress.

Both TARP and the Treasury proposal have vague provisions under which taxpayers might possibly recover any money lost through a special tax on the financial services industry. Under the Treasury proposal, only the very largest institutions could benefit from a bailout, but the special tax, if ever collected, would fall chiefly on medium-sized institutions.

Thus, the medium-sized institutions will be at a competitive disadvantage for two reasons. First, the largest institutions will be able to borrow money more cheaply because their creditors will believe that if the institution is unable to pay, the taxpayers will. Second, if there ever is a bailout benefitting a very large financial institution, the tax will be imposed on the medium-sized institutions.

Sherman is a senior member of the House Financial Services Committee and a certified public accountant, so he has a good nose for analyzing proposed financial regulations.

Last week, Sherman made the following comments to the Washington Independent regarding Congress' proposed bill on the too big to fails:

That is a huge gravy train to the top 20 [financial institutions] because it allows them to borrow money at a lower rate. Think of what this does to moral hazard.

I’m not looking for a TARP on steroids with oversight. I’m looking for an end of TARP.

The House Committee on Financial Services will hold a hearing on the bill tomorrow, with Tim Geithner, Sheila Bair, John C. Dugan (Comptroller of the Currency), Daniel K. Tarullo (Governor, Board of Governors of the Federal Reserve System), John E. Bowman (Acting Director, Office of Thrift Supervision), Richard Trumka (President, AFLCIO), and others as witnesses.

As the Washington Independent points out, Sherman is going to try to take Tarp off of steroids:

Sherman said he intends to offer a series of amendments addressing the issue during the Financial Services panel’s markup of the bill, which has yet to be scheduled. Included will be a provision to cap the president’s bailout authority at $1 trillion, and another to strip out the resolution authority language entirely. A potential third proposal — to create an oversight panel like that monitoring TARP funds — is one he’s leaning against.

Thursday, December 24, 2009

Have a swell and peaceful time - Merry Christmas

Merry Christmas!, Frohe Weihnachten! ,Vasel Koleda!, Joyeux Noël!, Kala Christougenna! ,Vrolijk Kerstfeest!, Pozdrevlyayu s prazdnikom Rozhdestva!, Feliz Navidad!, God Jul! , Bon Natali! , Craciun fericit!, Boas Festas! , Seng Dan Fai Lok! , Wesolych Swiat!

Wednesday, December 23, 2009

part 2

3. Inv. Intel as good as it gets at record level on the bears and the spread bulls had also an 55 level once.

4. The ISEE indicator improves sharply into the right direction as we trade the 180 level currently hence the 10 day will be at 140 tomorrow actually today which is the correction level but still can go to even 150. In any case the top is about to gett to the point. Its anyway just printing higher prices government sponsored market manipulation. If someone tried to sell serious amounts the market would drop sharply ( except for PPT holding it up). Max target were SPX 1150 and DOW 10700 anyway.

Previous Trading Day15312/22/2009
10-Day Moving Average13812/09/2009 - 12/22/2009
20-Day Moving Average13411/24/2009 - 12/22/2009
50-Day Moving Average13210/13/2009 - 12/22/2009
52-Week High22003/09/2009
52-Week Low7710/20/2009

CRB update - still a buy

The CRB has about 10% to go to the upside a natural target would be the 300 level (38%) and the chart shows clear signs that 300 will be an easy target as we need at least 4 weekly higher closes. Once we reached that one should consider shorting Australia and especially the housing market looks like a big bubble which will bring severe problems to Aussie banks. Anyway one can still go long the CRB which is lagging the action.

Brainstorming wednesday - part 1

New Home sales disappoint but that should be not a real surprise assuming that the economy is not recovering as the Obama boys try to make us believe. Furthermore it is a secret stimulus package as stated in an earlier post as hundreds of thousands do not pay the mortgage but stay rent free in their houses which is an additional income and might easily reach the dimension of 10s of bil altogether( 100k not paying 10k per year equals 1 bil - over time that should easily reach the number of 10 mio at least. For the banks it makes sense as they could not sell it anyway for below mentioned reasons plus a full house losses less value.
The New Homes which were sold at deep discounts are already handled and out of the way for bargain hunters - the only area you can make a bargain is the existing home sales segment as foreclosures keep rolling. Although banks have kept foreclosures down artifically for 2 reasons. One was to keep prices higher through lesser supply for the ones on their balance cheats to have higher values which might have wiped out their capital. The value of the underlying securities would have been under pressure as well - undermining the FED purchase of 1.3 tril MBS bonds far above value which they used to unload the bonds to recapture cash for free sponsored by taxpayers.


Full Housing Crisis Effect Yet To Be Felt: Economist

Published: Wednesday, 23 Dec 2009 | 7:53 AM ET

The full effect of the housing crisis has not yet been felt because foreclosures are not happening fast enough, John Geanakoplos, a partner at Ellington Capital Management, told CNBC Wednesday.


One of the remedies for the crisis would have been to write down the principal on troubled mortgages, as many houses get destroyed and lose value between the time the owners are notified they will be foreclosed and the time they leave, Geanakoplos said.

But mortgage loans that are securitized, especially the subprime ones, are not owned directly by issuers but by servicers -- separate companies owned by the big banks -- and this makes things more complicated, he added.

"I think we haven't seen the full effect of (the housing crisis) yet, because the servicers are not foreclosing that fast on homeowners… they realized they can leave these people in houses for a while, not paying," Geanakoplos told "Squawk Box."

"The servicers don't own the mortgages, they have no interest in cutting down the principals," he explained.

"Almost all of these people are going to end up defaulting and being thrown out of their homes," he said.

The fact that the government is not writing down the principal on troubled mortgages is a "bad move," Geanakoplos also said.

"The FHA (Federal Housing Administration) is giving out loans at 3.5 percent - we're repeating the same mistakes," he added.

2. NO idea how they fake this consumer sentiment numbers especially the inflation part but basically the way you address the questions makes the outcome very obviously in favor of the target. I do not get why people still can bear to hear this lies over and over again with a common sense everyone can figure out that this corrupt bastards are faking everything and to kick their asses is not that difficult. America need to implement real democracy come back to the roots of the constitution. Just the fact that Bernanke gets to be reelected is a slap into the face of Mainstreet by this Rockefeller gang. The FED has accumulated losses with its 2.3 tril purchases of various bonds of a few hundred billion - which they will never show until maturity. At the same time they are telling people they even made a few billions with TARP which is a lie as well.


U.S. consumer sentiment improved in December from November on some income growth and less gloomy job conditions, a survey showed Wednesday.

Consumer confidence improved late in November, but it remained lower than in October.

The Reuters/University of Michigan Surveys of Consumers said the final December reading on the index of consumer sentiment was 72.5, the highest since September. It was up from 67.4 in November and 60.1 a year ago.

But the latest figure fell short of analysts' median expectation of 73.5, according to a Reuters poll. It was also below the preliminary December figure of 73.4.

The gauge on current economic conditions rose to 78.0 from 68.8 in November but this was below an expected 79.1.

The barometer on consumer expectations climbed to 68.9 from 66.5 in November but was below a forecast 69.7.

Tuesday, December 22, 2009

part 2

3. The way tops are made are not just indicators one has to get the whole mix and its gettin close.
The ISEE MA's are about to see todays numbers and try to digest the 52 - week high of 220 and see when it was made - thats the only time I have seen such a thing because it would usually mark a high not a low - clear indication of manipulation.
Anyway more reliable are the MA's the 10 tops around 150 the 20 makes 140 to a good level - we do not have the levels yet. The fact that the VİX dived below 20 is also good for a top but the count says 3 more weeks of lower weekly closes are very likely before the big turn comes. It can be a bit more tricky though as starting next week for different reasons the probability is rather for a spike in vol for the next 2-3 weeks and we get a final upmove starting later in Jan briefly. I was looking for a double top in the Nov/ Dec period but now it looks it will be delayed by a month.

Previous Trading Day15312/21/2009
10-Day Moving Average13512/08/2009 - 12/21/2009
20-Day Moving Average13411/23/2009 - 12/21/2009
50-Day Moving Average13310/12/2009 - 12/21/2009
52-Week High22003/09/2009
52-Week Low7710/20/2009

Nasdaq Composite - the lagging index - red alert

Even here we reached now extreme territory testing the band resistance with the nose just above the 200 week MA. We might though have still a little room for the manipulators will try to drive markets higher under all circumstances in this thin market. Unfortunately DC will consider this kind of manipulation as beneficial and rather support it as they consider it a victory to make Mainstreet believe they are richer. Its like a Victoria Secret show where the girls get hours of make up to create the impression they have perfect bodies but once you go in medias res with the ladies the truth will come out. The difference though is that this are beautiful women after all, the economy is rather a Frankenstein's monster. We are reaching exhaustion levels and red alerts are all over the tapes as we will have a sharp decline early Jan. even the week between the holidays might be trouble. What we see is a perfect Astro effect of the final Jupiter Neptun conjunction which is fading away and as soon as the Sun hits the square with Saturn at Christmas trouble are on.

After all the statistic fakes here some good explanations if you missed mine

I know I already constantly stated that all government statistics are cooked in order to steal money in many ways from Mainstreet here a more eloquent version of the same - very good read. 'Amazing' to me is that random publishers come up with the most realistic pieces like Harpers Bazar or Rolling Stones - not really amazing considering that Wallstreet , Media and most governments are owned or controlled by the same people.

Numbers racket:
Why the economy is worse than we know

By Kevin P. Phillips

Almost four decades have passed since the United States scrapped its last currency ties to precious metals. Our copper and nickel coinage still retains some metallic value, but not nearly enough for the purpose of currency tampering—the historic temptation of inflation-plagued or otherwise wayward governments, including, at times, our own. Instead, since the 1960s, Washington has been forced to gull its citizens and creditors by debasing official statistics: the vital instruments with which the vigor and muscle of the American economy are measured. 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 borrowing, 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 opportunity than it actually is.

The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.

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 U.S. 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.

A short history of “pollyanna creep”

This apt phrase originated with John Williams, a California-based economic analyst and statistician who “shadows,” as he puts it, 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 pattern over time is what I call Pollyanna Creep.” Williams is one of the 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.” In 2003, a University of Chicago economist named Austan Goolsbee (now a senior economic adviser to Barack Obama’s presidential campaign) published an op-ed in the New York Times pointing out how the government had minimized the depth of the 2001–2002 U.S. recession, having “cooked the books” to misstate and minimize the unemployment numbers. Unfortunately, the critics have tended to train their axes on a single abuse, missing the broad forest of statistical misinformation that has grown up over the past four decades.

The story starts after the inauguration of John F. Kennedy in 1961, when high jobless numbers marred the image of Camelot-on-the-Potomac and the new administration appointed a committee to weigh changes. The result, implemented a few years later, was that out-of-work Americans who had stopped looking for jobs—even if this was because none could be found—were labeled “discouraged workers” and excluded from the ranks of the unemployed, where many, if not most, of them had been previously classified. Lyndon Johnson, for his part, was widely rumored to have personally scrutinized and sometimes tweaked Gross National Product numbers before their release; and by the 1969 fiscal year, Johnson had orchestrated a “unified budget” that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in the former to mask the emerging deficit in the latter.

Richard Nixon, besides continuing the unified budget, developed his own taste for statistical improvement. He proposed—albeit unsuccessfully—that the Labor Department, which prepared both seasonally adjusted and non-adjusted unemployment numbers, should just publish whichever number was lower. In a more consequential move, he asked his second Federal Reserve chairman, Arthur Burns, to develop what became an ultimately famous division between “core” inflation and headline inflation. If the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of “volatility,” categories that happened to be troublesome: at that time, food and energy. Core inflation could be spotlighted when the headline number was embarrassing, as it was in 1973 and 1974. (The economic commentator Barry Ritholtz has joked that core inflation is better called “inflation ex-inflation”—i.e., inflation after the inflation has been excluded.)

In 1983, under the Reagan Administration, inflation was further finagled when the Bureau of Labor Statistics decided that housing, too, was overstating the Consumer Price Index; the BLS substituted an entirely different “Owner Equivalent Rent” measurement, based on what a homeowner might get for renting his or her house. This methodology, controversial at the time but still in place today, simply sidestepped what was happening in the real world of homeowner costs. Because low inflation encourages low interest rates, which in turn make it much easier to borrow money, the BLS’s decision no doubt encouraged, during the late 1980s, the large and often speculative expansion in private debt—much of which involved real estate, and some of which went spectacularly bad between 1989 and 1992 in the savings-and-loan, real estate, and junk-bond scandals. Also, on the unemployment front, as Austan Goolsbee pointed out in his New York Times op-ed, the Reagan Administration further trimmed the number by reclassifying members of the military as “employed” instead of outside the labor force.

The distortional inclinations of the next president, George H.W. Bush, came into focus in 1990, when Michael Boskin, the chairman of his Council of Economic Advisers, proposed to reorient U.S. economic statistics principally to reduce the measured rate of inflation. His stated grand ambition was to move the calculus away from old industrial-era methodologies toward the emerging services economy and the expanding retail and financial sectors. Skeptics, however, countered that the underlying goal, driven by worry over federal budget deficits, was to reduce the inflation rate in order to reduce federal payments—from interest on the national debt to cost-of-living outlays for government employees, retirees, and Social Security recipients.

It was left to the Clinton Administration to implement these convoluted CPI measurements, which were reiterated in 1996 through a commission headed by Boskin and promoted by Federal Reserve Chairman Alan Greenspan. The Clintonites also extended the Pollyanna Creep of the nation’s employment figures. Although expunged from the ranks of the unemployed, discouraged workers had nevertheless been counted in the larger workforce. But in 1994, the Bureau of Labor Statistics redefined the workforce to include only that small percentage of the discouraged who had been seeking work for less than a year. The longer-term discouraged—some 4 million U.S. adults—fell out of the main monthly tally. Some now call them the “hidden unemployed.” For its last four years, the Clinton Administration also thinned the monthly household economic sampling by one sixth, from 60,000 to 50,000, and a disproportionate number of the dropped households were in the inner cities; the reduced sample (and a new adjustment formula) is believed to have reduced black unemployment estimates and eased worsening poverty figures.

Despite the present Bush Administration’s overall penchant for manipulating data (e.g., Iraq, climate change), it has yet to match its predecessor in economic revisions. In 2002, the administration did, however, for two months fail to publish the Mass Layoff Statistics report, because of its embarrassing nature after the 2001 recession had supposedly ended; it introduced, that same year, an “experimental” new CPI calculation (the C-CPI-U), which shaved another 0.3 percent off the official CPI; and since 2006 it has stopped publishing the M-3 money supply numbers, which captured rising inflationary impetus from bank credit activity. In 2005, Bush proposed, but Congress shunned, a new, narrower historical wage basis for calculating future retiree Social Security benefits.

By late last year, the Gallup Poll reported that public faith in the federal government had sunk below even post-Watergate levels. Whether statistical deceit played any direct role is unclear, but it does seem that citizens have got the right general idea. After forty years of manipulation, more than a few measurements of the U.S. economy have been distorted beyond recognition.

America’s “opacity” crisis

Last year, the word “opacity,” hitherto reserved for Scrabble games, became a mainstay of the financial press. A credit market panic had been triggered by something called collateralized debt obligations (CDOs), which in some cases were too complicated to be fathomed even by experts. The packagers and marketers of CDOs were forced to acknowledge that their hypertechnical securities were fraught with “opacity”—a convenient, ethically and legally judgment-free word for lack of honest labeling. And far from being rare, opacity is commonplace in contemporary finance. Intricacy has become a conduit for deception.

Exotic derivative instruments with alphabet-soup initials command notional values in the hundreds of trillions of dollars, but nobody knows what they are really worth. Some days, half of the trades on major stock exchanges come from so-called black boxes programmed with everything from binomial trees to algorithms; most federal securities regulators couldn’t explain them, much less monitor them.

Transparency is the hallmark of democracy, but we now find ourselves with economic statistics every bit as opaque—and as vulnerable to double- dealing—as a subprime CDO. Of the “big three” statistics, let us start with unemployment. Most of the people tired of looking for work, as mentioned above, are no longer counted in the workforce, though they do still show up in one of the auxiliary unemployment numbers. The BLS has six different regular jobless measurements—U-1, U-2, U-3 (the one routinely cited), U-4, U-5, and U-6. In January 2008, the U-4 to U-6 series produced unemployment numbers ranging from 5.2 percent to 9.0 percent, all above the “official” number. The series nearest to real-world conditions is, not surprisingly, the highest: U-6, which includes part-timers looking for full-time employment as well as other members of the “marginally attached,” a new catchall meaning those not looking for a job but who say they want one. Yet this does not even include the Americans who (as Austan Goolsbee puts it) have been “bought off the unemployment rolls” by government programs such as Social Security disability, whose recipients are classified as outside the labor force.

Second is the Gross Domestic Product, which in itself represents something of a fudge: federal economists used the Gross National Product until 1991, when rising U.S. international debt costs made the narrower GDP assessment more palatable. 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, or the value of employer-paid health- and life-insurance premiums). During 2007, believe it or not, imputed income accounted for some 15 percent of GDP. John Williams, the economic statistician, is briskly contemptuous of GDP numbers over the past quarter century. “Upward growth biases built into GDP modeling since the early 1980s have rendered this important series nearly worthless,” he wrote in 2004. “[T]he recessions of 1990/1991 and 2001 were much longer and deeper than currently reported [and] lesser downturns in 1986 and 1995 were missed completely.”

Nothing, however, can match the tortured evolution of the third key number, the somewhat misnamed Consumer Price Index. Government economists themselves admit that the revisions during the Clinton years worked to reduce the current inflation figures by more than a percentage point, but the overall distortion has been considerably more severe. Just the 1983 manipulation, which substituted “owner equivalent rent” for home-ownership costs, served to understate or reduce inflation during the recent housing boom by 3 to 4 percentage points. Moreover, since the 1990s, the CPI has been subjected to three other adjustments, all downward and all dubious: product substitution (if flank steak gets too expensive, people are assumed to shift to hamburger, but nobody is assumed to move up to filet mignon), geometric weighting (goods and services in which costs are rising most rapidly get a lower weighting for a presumed reduction in consumption), and, most bizarrely, hedonic adjustment, an unusual computation by which additional quality is attributed to a product or service.

The hedonic adjustment, in particular, is as hard to estimate as it is to take seriously. (That it was launched during the tenure of the Oval Office’s preeminent hedonist, William Jefferson Clinton, only adds to the absurdity.) No small part of the condemnation must lie in the timing. If quality improvements are to be counted, that count should have begun in the 1950s and 1960s, when such products and services as air-conditioning, air travel, and automatic transmissions—and these are just the A’s!—improved consumer satisfaction to a comparable or greater degree than have more recent innovations. That the change was made only in the late Nineties shrieks of politics and opportunism, not integrity of measurement. Most of the time, hedonic adjustment is used to reduce the effective cost of goods, which in turn reduces the stated rate of inflation. Reversing the theory, however, the declining quality of goods or services should adjust effective prices and thereby add to inflation, but that side of the equation generally goes missing. “All in all,” Williams points out, “if you were to peel back changes that were made in the CPI going back to the Carter years, you’d see that the CPI would now be 3.5 percent to 4 percent higher”—meaning that, because of lost CPI increases, Social Security checks would be 70 percent greater than they currently are.

Furthermore, when discussing price pressure, government officials invariably bring up “core” inflation, which excludes precisely the two categories—food and energy—now verging on another 1970s-style price surge. This year we have already seen major U.S. food and grocery companies, among them Kellogg and Kraft, report sharp declines in earnings caused by rising grain and dairy prices. Central banks from Europe to Japan worry that the biggest inflation jumps in ten to fifteen years could get in the way of reducing interest rates to cope with weakening economies. Even the U.S. Labor Department acknowledged that in January, the price of imported goods had increased 13.7 percent compared with a year earlier, the biggest surge since record-keeping began in 1982. From Maine to Australia, from Alaska to the Middle East, a hydra-headed inflation is on the loose, unleashed by the many years of rapid growth in the supply of money from the world’s central banks (not least the U.S. Federal Reserve), as well as by massive public and private debt creation.

The U.S. economy ex-distortion

The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today’s U.S. unemployment rate is somewhere between 9 percent 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.

Undermeasurement 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 than $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 of Denver, pointed out last September, the subprime lending crisis “can be directly traced back to the [1983] BLS decision to exclude the price of housing from the CPI. . . . With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectations 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 an even rockier slope.

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

About Me

I am a professional independent trader