Money, Banking and the Fed

[Judge Bean]

Money, Banking and the Fed

I give a rat's ass. I just have always assumed that banks were evil. They have never done anything to change my mind. Later, I learned that casinos were also evil, likewise. I learned these things from working in these institutions. I drew the conclusion that all of that money made everyone in those places (banks, casinos, etc.) off their rockers.

If you have too much to do with money, you lose your soul. Cary you should get out now while you have the chance. I don't know how you retain your sanity and good nature; you must have a lot of love at home.

 

[CaryP]

Money, Banking and the Fed

If you have too much to do with money, you lose your soul. Cary you should get out now while you have the chance. I don't know how you retain your sanity and good nature; you must have a lot of love at home.

Yes, thank you Paul. I do have a lot of love at home. I'm not a bank or a casino. I'm in the position to "beat the bank" so to speak. I love what I do. I don't "sell on commission" like a jewelry, appliance or car salesman. Is that "salesperson" these days? No matter. I make money from clients making money. I can "go long" (bet with the market) or "go short" (bet against the market). It's cool. I can go either way. I'm not married to a perspective. It's just that the current perspective is very negative. If I had to work in a bank, where it's all "happy talk" I'd probably kill myself. The small "luxury" of having my own firm, gives me the ability of thinking for myself. Anyway, we're still smiling. But that's about to pass down the road. Are you kids ready for what's coming? We'll see won't we.

Cary

 

[Judge Bean]

Money, Banking and the Fed

Originally posted by CaryP@Sep 28 2004, 01:16 AM
... I'm not married to a perspective.

​

I've seen her picture, and I'd have chosen her over the perspective in a heartbeat, too.

 

[CaryP]

Money, Banking and the Fed

The following article was provided by Snow Fire Watches. Thanks Snow.

Cary

IGNORE DANGER SIGNS OF THE COMING FINANCIAL CATASTROPHE AT YOUR OWN RISK

IGNORE DANGER SIGNS OF THE COMING FINANCIAL CATASTROPHE AT YOUR OWN RISK
PART 1





By: Devvy

September 28, 2004

NewsWithViews.com

\"There may be a recession in stock prices, but not anything in the nature of a crash.\" - Irving Fisher, leading U.S. economist, New York Times, Sept. 5, 1929

Americans are listening to the wrong people about the economy, specifically John Kerry and George Bush, Jr. They constantly talk about our strong economy, how many jobs they will create and how many trillions of dollars they will spend promising the moon to the mob at every campaign stop. This is not unusual. In the last weeks of the 2000 election, Marxist Al Gore, his paid mouthpieces and the great programmer's (TV) high paid experts, were all chanting that Bill Clinton's administration brought America the strongest economy in 50 years. As soon as Gore conceded, the politicians and media began telling everyone Bush is facing a recession and it would be his greatest challenge!

In roughly 34 days, America went from riches to rags. Amazing! But, the signs of an economy in trouble were already there during the Clinton administration and the stress began to emerge: On December 5, 2000, Montgomery Wards, after 75 years in business, announced they would close their doors forever, shutting down 250 stores and 10 distribution centers nationwide. This doesn't happen overnight to a big company like Wards, it takes years. On January 5, 2001 Sears Roebuck announced the closing of 89 stores.

These two retailers had been major staples of America's retail landscape. Thousands of employees were thrown out of work. Consider the trickle-down effect: truckers for both companies would no longer travel, buy gas or have those trucks maintained. Loss of dollars for businesses on their routes. Employees from those two conglomerates end up on unemployment and many on welfare when they couldn't find jobs and their unemployment ran out. Loss of dollars for all ranges of businesses in their local areas. This type of financial deterioration takes years to hit the boiling point.

On December 25, 2000, the business section of the Sacramento Bee has finally exposed something few care about: The utter and complete devastation of our steel industry because of NAFTA & GATT. LTV Corporation, the No. 3 U.S. steel company in America filed for bankruptcy protection, blaming unfair imports for driving steel prices to 20-year lows. The meltdown begun when NAFTA was signed into law in January 1995 continues destroying our critical job bases. We will see more of this meltdown escalate because of these unconstitutional, destructive, global trade treaties.

June 30, 2004 Associated Press: \"U.S. Chamber of Commerce President and CEO Thomas Donohue announced more plans to promote the offshore outsourcing of jobs as a means of boosting the economy and even increasing employment --Donohue believes exporting high-paid tech jobs to low-cost countries such as India, China and Russia saves companies money that they may use to create new jobs for Americans....CEOs from Wall Street to Silicon Valley have embraced the theory, and the pace of offshoring has shocked statisticians and economists.\"

That's good for America, right? What bunk. Shipping American jobs overseas to increase the bottom profit line for stockholders is killing the middle class. The above referenced article had more good news for stockholders: \"The job outlook in the San Francisco Bay area is particularly bleak. Nearly one-third of local workers, or 31 percent, are worried about losing their jobs.\" They should be worried. Motorola is hiring 5,000 researchers for a global research and development center in Communist Beijing, while Intel employs hundreds of researchers at its Russia Software Development Center in Nizhny Novgorod. Americans can feel good knowing a commie in Beijing now has their good paying job while they had to take a minimum wage job just to eat, never mind being able to afford medical benefits. But, this is all good for American workers, right?

Probably the most revealing comment in the same article came from Forrester Research Inc., analyst John McCarthy when he said, \"Endlessly debating whether off shoring is good or bad is pointless -- like debating whether you've had a good trip on the Titanic while the iceberg comes into view....For the unemployed guy to accept these business leaders position is like believing Dick Nixon saying, 'Trust me, I'll take care of it all, things will be fine.'\"

Working against American interests

The U.S. Chamber of Commerce is rabidly anti-American and every single independent business owner in this country should walk away from that organization. I have traveled extensively through the states of the Union and I can tell you I have seen hundreds of towns reduced to nothing because of NAFTA & GATT. Once thriving little communities, these towns are now empty of businesses and commerce, their young being forced into big, crime infested inner cities in an effort to find work. I have seen the despair as factories and farms have shut down. Globalism at work and it will get worse. You can help by buying Made in the USA. Just go to my web site, scroll down and you'll see information on how to do it. I buy made in America or I go without. I will NOT contribute to the further destruction of American jobs just to buy a \"thing.\"

Factually challenged Marxist John Kerry, an old reprobate drug out of the caverns of Congress as the anointed one to represent Democrats in the upcoming Presidential election, continues to deliver more drivel about the economy, i.e., proposing tax reforms that would erase some financial incentives for companies to export high-paid jobs. Kerry's solution is no solution, just more double speak. Bush's solution to a strong economy is shipping more jobs off U.S. soil via \"free\" trade. If you think I'm just blowing smoke, look at this map and see the truth.

America is moving towards service oriented jobs and those paychecks won't support those big SUV payments and mortgages running close to two grand a month - even with two incomes. If the horrific anti-American Free Trade of the Americas treaty (FTAA) is illegally ratified by our counterfeit Senators, it will spell the death knell for our legitimate Constitutional Republic. Think I'm blowing smoke? This is as serious a threat to our sovereign Republic as we have ever faced since the war for independence.

If the two million textile workers who lost their jobs over NAFTA & GATT and now work for half what they were making before think those treaties are bad, the FTAA will make NAFTA & GATT pale in comparison. Mark my words: America is being reduced to third world status while greedy corporations send good jobs overseas. Sell your stock and don't buy their products; a list of companies is found here under Exporting America. Use market forces to re-establish our critical job bases. Tell retailers you want Made in America or you will take your cash someplace else.

The coming financial crisis that can't be stopped

Make no mistake about it: there is a financial crisis coming that can't be stopped unless drastic measures are taken in the next couple of years. The chances of throwing out every member of Congress (except Ron Paul and Tom Tancredo) are slim to none and this bodes disaster for our nation. The seniors will flock to polls in November to vote for Democrats who have given them \"free\" prescription pills and motorized carts at your expense. The so-called conservatives will vote for Mr. Bush because he talks about God a lot. In the meantime, the massive invasion of our nation by illegals continues unchecked, our critical job bases are disappearing and our freedoms are going right down the chute of a one world totalitarian government.

America's middle class have continued to vote themselves out of jobs because they vote for the Democratic Party which promises to be \"the friend of the worker\". Nothing could be further from the truth. Democratic administrations, the same as every Republican administration and every Congress since 1913, has lied to the American people about the voluntary nature of the income tax, withholding from their paychecks, the 100% voluntary nature of social security and a litany of other critical issues.

Poverty is growing in America despite the astronomical amount of taxes being unlawfully bled from the people. Sadly, too many still think their \"income\" tax funds the federal government, but it doesn't. Because tens of millions of Americans don't have the inertia or intellectual capacity to grasp anything more complicated than the TV guide, they will just continue clanking their chains and allowing the fruits of their labor to be stolen from them. When government steals the fruits of your labor, you are a slave.

There is no reason for poverty in a bountiful land such as America. In 2002, 34.9 million Americans didn't get enough to eat each day; more than 13 million were children. Not through any fault of their parents, but because good paying jobs have been wholesaled off U.S. soil, family farmers have been driven off the land by corporate greed and the FED. Americans have destroyed their own job bases by supporting politicians in Congress who have betrayed this Republic by supporting these destructive and unconstitutional trade treaties. The result is American workers in the bread line while populations of foreign countries now have the jobs that should have stayed here for our people.

I have been telling Americans for the past 14 years what is coming, but few will listen because Americans are too afraid of the truth. They don't want to know what's just over the horizon. They want their material comforts and fun times. A recent article was published that must be read by everyone (here). Carolyn Lochhead has laid it out in frightening detail - all the numbers of what is going to happen in four short years when the baby boomers retire - 77 million of them. The numbers in Ms. Lochhead's article are accurate. There is no money in the U.S. Treasury to fund those numbers. The borrowing by Congress to fund their immoral and unconstitutional wars, UN dues, 18% of the IMFs budget, billions in corporate welfare, trillions in foreign \"aid,\" all these social welfare programs and basic government functions continues to rack up debt at a rate of $1.69 BILLION dollars a day from an empty treasury. Quite a trick.

 

[StarLord]

Money, Banking and the Fed

Cary, you should be recieving the three rats asses in the mail soon. Keep up the Great Work Brother. ><

 

[Judge Bean]

Money, Banking and the Fed

I didn't know you actually had to send them so long as you truly and deeply cared enough to give them, any one of them.

 

[CaryP]

Money, Banking and the Fed

StarLord, Paul, unintentianal and scififan, I'll run with the four rats' asses for now. Thanks guys.

Here's the part 2 of the previous post for those of you who didn't see it in the link, or maybe just didn't go to the link. My continuing rant.

Cary

Congress: A body of lawbreakers working for a one world government

Did you know that in a senate new bill there is a provision for the \"International Youth Opportunity Fund\" on page 177, Section 509? This is another program that will be funded from your wallet to\" improve and provide education and opportunities to children in the Middle East.\" That's right. $40,000,000 will be stolen from you for the 2005 budget in this bill. There isn't a scintilla of constitutional authority to steal your labor to send to foreign countries to build and fund schools. Because the U.S. Treasury is empty, the money will have to be borrowed from the private Federal Reserve and your children and grand babies will be paying on the interest until the day they die. This insanity is in a bill to \"fight terrorism.\"

Page 184 of this abomination carries a $200,000,000 (that's two hundred million dollars) funding for fiscal year 2005 for a \"Middle East Partnership Initiative.\" Again, neither Congress nor Bush (or Kerry) have a legal leg to stand on to steal from the American people to give our hard earned money for this \"initiative,\" but it will happen unless this bill is stopped. As there is no money in the U.S. Treasury, that two hundred million bucks will have to be borrowed from the private \"FED\" and the interest will get slapped on your back for the rest of your life as well as your children and grand babies. Go ahead, spend the weekend reading that bill and see what's in store for our nation under the deceptive label of \"fighting the war on terrorism.\" What bull.

The lawbreakers in Congress have passed or agreed to (September 24, 2004) another blatantly unconstitutional rape of the American people: The Comprehensive Peace in Sudan Act of 2004, Senate bill S. 2781. Yes, the slaughter of humans in the Sudan is nothing short of mass murder on a scale too horrible to contemplate, but it is going on while the world has stood by and watched. Yes, every government on this planet should be putting extreme pressure on the government there to stop such a grotesque insanity. However, the U.S. Congress has absolutely no authority whatsoever to involve itself in stealing from you to give to the Sudan. This bill contains a provision to give the Darfur region $200,000,000 million dollars for fiscal year 2005 and another $100,000,000 million dollars to the same after a peace agreement has been reached.

There is no money in the U.S. Treasury for Congress to unconstitutionally throw at yet another foreign country. Yes, the conditions there are beyond what most people in this country can imagine, but that's what private charities and foundations are for: humanitarian relief. And yes, my husband and I have donated for those agencies we feel are actually effective in bringing relief. But, it is not within the authority of the U.S. Congress to steal from you to give to a foreign country, no matter how great the need. The Constitution is very specific about this, but the banking cartel that owns the White House and Congress love it. Right now you are working from January until almost June to voluntarily pay \"income\" taxes to the Federal Reserve - not to finance a single legitimate government function, but to enrich the bankers and believe me, the bankers love this type of plunder of the American people.

For those unfamiliar with how this rape of the American people works, let me quote from the Congressional Record, House, September 29, 1941, page 7583, Congressman Wright Patman on this very issue:

\"Mr. Speaker, our Government debt at this time is approximately $50,000,000,000. By the time that it's paid, it will aggregate $100,000,000,000....The amount of 100 percent is due to the interest charges....I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money....I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with this Congress for sitting idly by and permitting such an idiotic system to continue. I make that statement after years of study.

\"I have talked to the Secretary of the Treasury and members of the Federal Reserve Board and other people who are supposed to know about the money system of our country. They know this can be done easily and conveniently and will save money.... We have what is known as the Federal Reserve Bank System. That system is not owned by the Government. Many people think that it is because it says \"Federal Reserve.\" It belongs to private banks, private corporations. So we have farmed out to the Federal Reserve Banking System that which is owned exclusively, wholly, 100 percent to the private banks - we have farmed out to them the privilege of issuing the Government's money!\"



This rancid system of borrowing money from the privately owned \"Federal\" Reserve is why Congress doesn't want the income tax to end. Congress will continue raping the American people for unconstitutional expenditures as outlined above with borrowed money from the \"Federal\" Reserve. The American people by the millions have been demanding that Congress shut down the FED as Andrew Jackson did during his Presidency. They won't and nothing will change until every single one of these lawbreakers in Congress (except Ron Paul and Tom Tancredo) are thrown out of office in November. Sadly, too many Americans won't vote out the hand that feeds them and will selfishly allow this plunder to enslave their children and grand babies for the short term gain.

War is good for the economy

America's economy is on its death bed and the Gold Dinar/oil scenario will further exacerbate the situation by making a serious threat to the dollar and the privately owned Federal Reserve Banking System. Few Americans have any idea about oil except the nickel increase at the gas pumps. They haven't spent the time to educate themselves in understanding that oil rules the world and when the oil producing countries begin demanding gold for oil, the \"stuff\" will hit the fan. It's just a matter of time before all of this comes to fruition.

The \"fix\" by either Bush or Kerry will be another major war to save the dollar and the central bank. Then watch a mandatory draft for men and women sail through Congress and get signed by either Bush or Kerry - despite Kerry's promises today that he won't institute a draft. Wars are good for the economy. Wars employ lots of people in the defense industry and when those employees have paychecks, they spend in the community, spreading those dollars around town. It doesn't matter whose blood drips from the paper money, good times and heaping plates of food will tamp down their doubts and guilt. After all, it will be for the never ending \"war on terrorism\" and that's good for America, right?

The effects of what Ms. Lochhead has so succinctly laid out in her article will be felt long before the event. Americans were caught so unaware in October 1929, mother's didn't even have the ten cents to buy milk for their babies because the banks closed their doors. People jumped out of buildings or put a bullet in their head. They all listened to their favorite politicians and leading economists of the time tell them how great the economy was and that Wall Street was doing fine: \"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.\" - Irving Fisher, Ph.D. in economics, Oct. 17, 1929.

Twelve days later, the stock market crashed. In two months, September and October, the stock market shed 40% of its value and by the end of November, investors had lost $100 billion dollars in assets.

I don't like to pen such a negative article, but I have time to do the hard research where most American's don't because of work and family obligations. Americans have a right to know the facts so they can take the necessary steps to protect themselves and their families. For the past five years I have warning people to diversity their portfolio, at least 25% of it into gold because gold doesn't lie, politicians do. I urge people to begin the process of protecting your assets and seriously consider purchasing gold so that if the power brokers decide to pull the plug, you won't be caught like our fellow countrymen were in October 1929; don't look to ATM machines to save you. Give Harvey Gordin at El Dorado Gold a call. There's no obligation to buy anything. I've known Harvey for many, many years and bless him - when someone calls, he spends so much of his time helping people to understand just how dire the situation is and how they can help themselves.

Debt is not prosperity and America is drowning in debt. Without credit cards, the American economy would collapse within 48 hours. The point of no return where the transfer payments to the privately owned \"FED\" can't be met, even if every single working American handed over their entire paycheck to those thieving scoundrels is looming. Add that to the numbers contained in Ms. Lochhead's accurate presentation of a very bleak situation and you will hear the coming financial train wreck of a total economic collapse. Those who think Bush or Kerry will save them better think again.

 

[StarLord]

Money, Banking and the Fed

See, thats exactly the problem about really caring, you get to a point where you're hip deep in rats asses, which makes people think your chock full of apathy because your not moving fast enough to suit them.

The trick, I have learned, is to Really Give a rats ass. It cuts down on holes in your pockets, plus you have way more cheese by the end of the month. It's good exercise for the hip cats at the Post Office too.

 

[CaryP]

Money, Banking and the Fed

Foruth and final installment by Gillespie Research on the delusional economic reports from the govt. This one deals with the Gross Domestic Product. The graphs are kinda bunched up, but you can see them with the link provided.

Seems things ain't quite so good as da gubament been sayin' day is. Who you gonna believe?

Cary

Gross Domestic Product

\"GOVERNMENT ECONOMIC REPORTS: THINGS YOU'VE SUSPECTED
BUT WERE AFRAID TO ASK! -- GROSS DOMESTIC PRODUCT\"
(Part Four in a Series of Four)

By Walter J. \"John\" Williams
[email protected]

________


Overstated GDP growth has meant that the 1990 and 2001
recessions were much more severe than recognized, and that lesser
downturns in 1986 and 1995 were more or less missed entirely.


Introduction

The Gross Domestic Product (GDP) is one of the broader measures of economic activity and is the most widely followed business indicator reported by the U.S. government. Upward growth biases built into GDP modeling since the early 1980s, however, have rendered this important series nearly worthless as an indicator of economic activity. The analysis in this Installment will indicate that the recessions of 1990/1991 and 2001 were much longer and deeper than currently reported, and that lesser downturns in 1986 and 1995 were missed completely in the formal GDP reporting process. Furthermore, the current economic circumstance is suggestive of an early-1980s-style double-dip recession.

The distortions from bad GDP reporting have major impact within the financial system. For example, Alan Greenspan's heavy reliance on productivity gains to justify some of his policies is equally flawed, since the methods applied to GDP estimation influence the numerator in the productivity ratio. As with the CPI distortions discussed in Installment III, the Federal Reserve Chairman knows better.

With reported growth moving up and away from economic reality, the primary significance of GDP reporting now is as a political propaganda tool and as a cheerleading prop for Pollyannaish analysts on Wall Street.

Reporting Basics

The GDP is compiled and reported by the Bureau of Economic Analysis (BEA) of the Department of Commerce. Quarterly estimates are updated monthly, with the \"advance\" estimate published at the end of the first month following the close of a quarter. The first and second revisions are called the \"preliminary\" and \"final\" estimates. In turn the \"final\" estimate is revised in annual revisions (usually in July), and every five years or so a benchmark revision is published that revises all data back to 1929, the first year of formally estimated economic activity.[1]

The popularly followed number in each release is the seasonally adjusted, annualized quarterly growth rate of real (inflation-adjusted) GDP, where the current-dollar number is deflated by the BEA's estimates of appropriate price changes. It is important to keep in mind that the lower the inflation rate used in the deflation process, the higher will be the resulting inflation-adjusted GDP growth.

Due to a lack of good-quality hard data, the \"advance\" GDP report is little more than a guesstimate. The BEA comes up with three estimates of growth, a high, low, and most likely. The numbers then get re-massaged so that the reported growth rate is moved closer to whatever the economic consensus is expecting. There actually is a belief at the BEA that there is some value to economic consensus estimates.[2]

The estimation process does not improve much with the \"preliminary\" and \"final\" estimates. The BEA reports that 90% of ultimate revisions to the \"final\" estimate fall within a range of +3.1% to -2.6%. Where average growth has been about 3.5% over the years, that means that most reporting is not statistically significant. The upward bias shown in the revisions is due to what I call \"Pollyanna Creep,\" where methodological changes regularly upgrade near-term economic growth patterns. These patterns will be explored shortly.

The GDP is a large component of the National Income and Product Accounts (NIPA), representing \"the output of goods and services produced by labor and property in the United States.\"[3] The NIPA was the concept and development of the National Bureau of Economic Research, a private organization founded in 1920. The NBER work evolved into the BEA and the current NIPA accounting.

The NBER remains a consultant to the process and retains the position as official arbiter of U.S. recessions. At one time, the NBER did define a recession as two consecutive quarters of negative GNP/GDP growth that were not distorted by an event such as a truckers' strike.[4] The NBER used trends in indicators such as industrial production and payroll employment to time a recession's beginning and end, to the month. More recently, though, the NBER has abandoned the GDP as a recession indicator and has relied instead on those other economic series. My presumption is this change resulted from an unofficial recognition of the declining value of the GDP reports. In theory, the NBER is apolitical, although the timing of some of its recent calls on the ends of recession are suspect. Specifically, there is no such thing as a jobless recovery. If jobs are being lost, the economy still is in recession.

There Is a Problem in the Basic Structure

As part of the NIPA, the construct of the GDP is heavily reliant on economic theory for composition, unlike other data series such as retail sales or the trade deficit, which are relatively simple surveys that end up contributing to the GDP estimations.

The related Gross National Product (GNP) is the broadest U.S. economic measure and includes the GDP plus the balance of international flows of interest and dividend payments. For net debtor nations such as Guinea-Bissau and the United States, GDP usually will show the stronger growth than GNP, since the outflow of interest payments does not get charged against economic activity. For this reason, the United States switched its primary reporting from the GNP to the GDP in 1991. Put in perspective as of the \"final\" estimate of second-quarter 2004, annualized real GDP growth was 3.3%, down from 4.5% in the first quarter, while GNP growth for the same period was 1.9%, down from 3.9%.

I respect the intellect and creativity of those who have anchored their careers in academia. Frankly, though, most economic theories have little practical use in the real world. Concepts such as free trade being a boon to the world's economy [5], a weak currency helping turn a nation's trade deficit[6], or personal income including what the average homeowner would receive from himself in rental income if he charged himself to live in his own house, fall in to the \"not in the real world\" category.[7]

Varied academic theories, often with strong political biases, have been used to alter the GDP model over the years, resulting in Pollyanna Creep, where changes made to the series invariably have had the effect of upping near-term economic growth. Whether the change was to deflate GDP using \"chain-weighted\" instead of \"fixed-weighted\" inflation measures, to capitalize rather than expense computer software purchases, or to smooth away the economic impact of the September 11th terrorist attacks, upside growth biases have been built into reported GDP with increasing regularity since the mid-1980s.

The accompanying table shows the net impact of these changes over time. The GNP level for various years from 1929 through 1980 and GDP for 1980 and 1990 are shown in billions of current dollars. Once set, these GNP/GDP levels should not change. With redefinitions and methodological shifts, however, earlier periods have been restated so as to be on a consistent basis with the latest reporting. Accordingly, the GNP/GDP levels are shown as they were reported variously in 1950, 1984 and at present.[8]

What becomes evident when looking at these data is that the biggest reporting changes have taken place since 1984 and have accelerated coming forward in time. For example the 1980 GDP that had been reported as $2.708 trillion in 1992 had crept up by 2.9% to $2.786 trillion based on 2004 reporting. The 1990 GDP, however, had Pollyanna Creep of 5.3% over the same period.
----------------------------------------
POLLYANNA CREEP
----------------------------------------
? ? ? ? ? ? ? ?Change in
? ? ? ? ? ? ? ?Reporting
Year ?1950 ?1984 ? 2004 ?2004/1992
----------------------------------------
?GNP (Billions of Current Dollars)
----------------------------------------
1929 103.8 ?103.4 ?104.4 ?+0.97%
1933 ?55.8 ? 55.8 ? 56.7 ?+1.61%
1940 101.4 ?100.0 ?101.7 ?+1.70%
1950 284.2 ?286.5 ?295.2 ?+3.04%
1960 ?-- ? 506.5 ?529.5 ?+4.54%
1970 ?-- ? 992.7 ?1044.9 ?+5.26%
1980 ?-- ? 2631.7 ?2823.7 ?+7.30%
----------------------------------------
?GDP (Billions of Current Dollars)
----------------------------------------
? ? ? ? ? ? ? ?Change in
? ? ?As Reported ? ? Reporting
? ? ? in 1992 ?2004 ?2004/1992
----------------------------------------
1980 ? ? 2708.0 ?2785.5 ?+2.86%
1990 ? ? 5513.8 ?5803.1 ?+5.25%
----------------------------------------

Double-Entry Bookkeeping

The NIPA effectively is a double-entry bookkeeping system, where an item on the consumption side of the ledger, in the GNP/GDP accounts, is offset on the income side of the ledger, in Gross Domestic Income (GDI) accounts. In theory, the GNP and the GDI should be identical. In practice they rarely are, with the latest \"statistical discrepancy\" showing GNP to be $67 billion, or 0.6% higher than the GDI. This is due to the BEA's inability to reconcile the two series.

Part of the problem is that source data often are estimated without regard to actual numbers otherwise available. As an example of how far from reality the GNP/GDP/GDI reporting has gone, consider data from a high quality and unbiased resource: the Internal Revenue Service (IRS).

Based on its analysis of income tax returns, the IRS reports that, \"For the second consecutive year, Adjusted Gross Income (AGI) fell, decreasing by 2.3% to $6.0 trillion for 2002. This represents the first time since prior to 1950 that total AGI reported on individual tax returns has fallen for two successive years.\"[9]

While one might expect to see some parallel income reporting in the GDI, it only happens by coincidence. Although the BEA considers the IRS data, it never has been able to reconcile the differences between GDI assumptions and IRS reality. Of course, the BEA sticks with the GDI assumptions, which have income rising in 2001 and 2002. The following table shows some of the specifics of comparable income components. Where wages and salaries are the single largest component in the GDI, they grew by 6.8% in 2002, according to the BEA, but the IRS reports a 0.4% contraction.
-----------------------------------
INCOME GROWTH 2002/2001
-- IRS VERSUS BEA
(Not Adjusted for Inflation)
-----------------------------------
Income Category ? ?IRS ? GDI
-----------------------------------
Wages & Saleries ? -0.4% ?+6.8%
Interest Income ? -20.9% ?-6.4%
Divident Income ? -14.9% ?+5.1%
-----------------------------------

Part of the difference is in imputations, which gets back into the theoretical structure of the NIPA. Any benefit one receives, either living in one's own house, or receiving free checking from a bank has an imputed income component. Free checking, for example, is calculated as imputed interest income. Not only did imputed interest income account for 21% of all personal interest income in 2002, but also it grew at an annual rate of 8.3%! As an aside, renting the house you own from yourself gets imputed as 62% of total rental income.

Another issue is distortion in underlying series. The bias factors (now reported as net business birth/death modeling) inflate reported payroll employment, as discussed in this series' first installment. GDI estimates of wages and salaries are calculated off the payroll numbers and are inflated on a parallel basis.

Deflation Wonders

As emphasized earlier, the lower the inflation rate that is used to deflate the GDP, the higher will be the resulting inflation-adjusted growth.

One of the deflation stars is the computer. While computer prices have come down over time, the quadrupling and re-quadrupling of memories provided with a standard computer have, through hedonics and quality adjustments (see Installment III on the CPI), enhanced the decline in prices used in deflating computer consumption in the GDP. According BEA deflators, $1,000 computers bought in 1990, 1995 and 2000 would cost $48.63, $95.84 and $526.58, respectively, today. I bought computers in each of those time frames and could not replicate any one of them for the suggested proportionate price in deflated dollars, regardless of free memory enhancement.

One of the more significant changes to GDP inflation was made in 1996, when the deflator was shifted from fixed-weighted to a chain-weighted basis. The chain-weighted basis weights inflation for a two-year grouping of a related GDP component, rather than using the weighting of the benchmark year. One happy side effect of this change is that the components of inflation-adjusted GDP do not add up to the total, with the difference being allocated to the residual category. As of the \"final\" second-quarter 2004 real GDP, the residual was a negative $35.6 billion, or 0.33% of total GDP. The residual usually gets worse the more removed it is from the benchmark year, which is 2000 at present. As of the fourth-quarter 1990, for example, the residual is 13.4% of GDP. Before 1990, the BEA does not publish the detailed breakout of accounts, because of the large residual. For some reason, this bothers a number of well-reputed economists.

A Tempting Target for Manipulation

In the introduction to this series on government reporting, I mentioned political manipulation of the GNP/GDP in the Johnson and first Bush administrations that went beyond overly positive methodological changes. In both instances, my sources were consulting clients who had been involved directly in the process. In the latter instance, an individual at the BEA also confirmed the situation.

Few people argue with the GNP/GDP reports, so when Lyndon Johnson kept sending the initial GNP estimates back to the Commerce Department for correction, he eventually got what he wanted, and the media dutifully reported stronger than actual economic growth.

Near the end of the first Bush administration, an outside-the-system manipulation was worked. A senior member of the Executive Branch approached a senior officer of a large computer company and requested that reporting of computer sales to the BEA be inflated. This was done specifically to help with the reelection effort. The request was granted, and thanks to the heavy leverage of computer deflation, reported GDP growth enjoyed an artificial spike.

There are suggestions of other direct manipulations over time, specifically involving the Clinton administration and the current Bush administration. Most recently, a bizarre annual revision to the GDP data eliminated the 2001 recession, at least as traditionally defined with two consecutive quarters of real GDP contractions.

Where little public attention is paid to the GDI, however, it is interesting to note that the revisions did not follow the same pattern on the inflation-adjusted income side of GDP. Pre-revision numbers showed quarterly real GDP contractions in third-quarter 2000 and the first- through third-quarter 2001. In the 2004 annual revisions, second-quarter 2001 GDP growth turned positive (from -0.6% to +1.2%), breaking up any consecutive quarterly GDP declines. The patterns were repeated in revisions of the GNP. Following the latest annual revisions, however, the GDI-same as GNP in theory-showed contractions in fourth-quarter 2000, second- through fourth-quarter 2001 and third-quarter 2002.

Estimating Economic Reality

Based on my analysis of the GDP/GNP revisions and redefinitions over time, over-deflation and economic reporting as published before later political corrections, reporting of real GDP growth at present is overstated by roughly three percent per year against a more realistic, pre-Pollyanna Creep period.

Where the period of bloated GDP reporting began after the severe double-dip recession of 1980 and 1981/1982, it includes the last two recessions that were severe enough to generate reported GDP contractions. Both the 1990/1991 and 2001 recessions were deeper and longer than currently estimated. The recession from July 1990 to March 1991 (timing per the NBER) really began in late-1989 and persisted into 1992, perhaps even 1993. Such was evident in the underlying data of the time. Due to the NBER's early call of the recession's end, however, the first \"jobless recovery\" was seen.

Similarly, the recession that was timed from March to November 2001, began in late-2000 and persisted into 2003. Again, because of an early call to the recession's end, a \"jobless recovery\" was seen.

There also were economic downturns in 1986 and 1995 that were evident to most companies dealing in real world economic activity at he time. Although the contractions showed up in a number of measures, they were not severe enough to turn bloated GDP growth negative.

As the economy once again appears to be faltering, or losing traction, risk is high of renewed or a double-dip recession, of which the 2001 downturn eventually will be counted as the first leg.

I have only touched upon some of the highlights in problems with GDP reporting. Unfortunately, though widely followed, the series is probably the least meaningful of the major economic statistics followed by investors and the financial media.

 

[Judge Bean]

Money, Banking and the Fed

America has turned a corner. We are on the road to full economic recovery and the creation of millions of new jobs. We have given a tax cut to small businesses across the country and this has caused an increase in investment and savings, and the benefits of that can't help but bring everybody up. Everything is working out just the way we want it to. And when I was 16, every time I'd go up to a door to collect for the paper route, some lonely housewife would invite me in to "help her with something"...