Fun With Numbers

“I am concerned about the fact that the recovery that we’re on is not producing jobs as quickly as I want it to happen,”  POTUS Barack Obama

President Obama has recently been chastising Americans for being too pessimistic about the future while at the same time continuing to push his high-spending agenda down the nation’s throat. Continued reliance on PR spin and blaming George W Bush for the country’s ills is no substitute for substantive steps to stem the red ink and deterioration of financial risk profile that his and his various predecessors’  policies have produced. Unfortunately, it is not only Obama, but perhaps the entire US leadership of the two mainline parties that have been ignoring the grim reality of the situation unfolding around them.

It is therefore of no surprise to us that Austan Goolsbee resigned several days ago as Obama’s Chief Economic Advisor in the wake of a slew of troubling economic numbers  (To which we might add, “Mr. President: What “recovery” are you referring to?”)

In this blog we examine some interesting statistics that we came across recently that these folks might do well to reflect on. For example, the unofficial number (based on the 1980’s calculation methodology) for the Misery Index at 25.3%, is now higher than it was under Jimmy Carter (21.8%) . Other statistics show that the US Government is now spending almost all tax revenues on entitlement programs while (ominously) financing the balance of its budgetary obligations by printing money. Paranthetically, no mention is being made by this Administration, or anyone else inside the Beltway, of the lack of Congressional spending authority for the warfighting operations in the Libyan quagmire and the newly disclosed “secret” operations in Yemen.

Here we go:

So now, less than five years later, you can go up on a steep hill in Las Vegas and look West, and with the right kind of eyes you can almost see the high-water mark—that place where the wave finally broke and rolled back.” — Hunter S. Thompson (Fear and Loathing in Las Vegas)

 

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Disappointment is Sinking In

Last week we were interviewed on the European debt situation a number of times. You can view the interviews on our webpages in the Newsroom section here and here.

As serious as the situation in Europe is, it is merely a distraction from the much bigger debt crisis now unfolding in the United States. Ominously, the latest jobs numbers and other statistics show that the US economy might be rolling over again. Without the boost provided by the 206,000 jobs magicked up by the birth/death hand-adjustment, the May jobs figures would have beeen minus 153,000 workers. Not only are the jobs numbers weak, real wages are shrinking as well, providing scant reason for any optimism that the consumer can support the economy going forward. In fact, retail sales are arguably showing negative growth (as is the real economy) if we were to adjust the nominal numbers using inflation statistics from the MIT Billion Prices Project (running at 7% annulaized in the last 3 months) rather than the deflators normally applied by the Commerce Department.

Moreover, in the last few weeks we have seen data that show hoouse prices falling to new lows, weakness in bank lending and a drop off in consumer sentiment. This and other soft economic numbers is probably why Ben Bernanke in a speech today suggested that monetary policy was likely to remain ultra-loose for some time.

Unsurprisingly, a number of establishment economists such as Paul Krugman are now calling for yet more fiscal and monetary stimulus in order to “create” more growth. What these folks and their many acolytes do not seem to undestand is that there is no shred of data that supports the idea that fiscal stimulus can produce any type of predictable growth response in the economy at all (this is most eloquently argued by our friend Steve Hanke in a recent piece in the FP). Moreover, mainstream economic thinking also ignores the corrosive balance sheet effects of large deficits and monetary experiments that involve neophyte bond traders – Ben Bernanke -  laying down fixed income risk positions that amount to a non-trivial share of US GDP in terms of nominal size. The bottom line is that this situation will contribute to a continuing impasse in the US as regards needed fiscal reform and consequent inertia in reining in an out-of-control deficit picture. Finally, the probability of a QE3 to follow a short time after the conclusion of the current highly experimental QE2 monetary stimulus program has now become almost a certainty – as we have been predicting for some time now.

 Buckle up. The ride is going to get bumpy again

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