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3 Things: If You Don't Like It Change It
Submitted by Lance Roberts via STA Wealth Management,
GDP - The Problem
Yesterday, it was announced that the Bureau of Economic Analysis would once again change the methods by which the economic growth of the country (GDP) would be measured. To wit:
"Nicole Mayerhauser, chief of BEA's national income and wealth division, which oversees the GDP report, said in the statement that the agency has identified several sources of trouble in the data, including federal defense service spending. Mayerhauser said initial research has shown this category of spending to be generally lower in the first and the fourth quarters. The BEA will also be adjusting "certain inventory investment series" that have not previously been seasonally adjusted. In addition, the agency will provide more intensive seasonal adjustment quarterly service spending data."
Now, for all of you playing the home version of "Nail That GDP Number," it was just a couple of years ago that the BEA decided that the economy was not growing fast enough and "tweaked" the GDP calculation and added in "intellectual property." Those adjustments boosted GDP by some $500 million.
The problem with adding "intellectual property" is that the cost of a new cancer drug treatment, a Hollywood movie or a new hit song is already included in the value of product brought to market. In other words, since production is what drives economic growth, that value is captured in the quarterly analysis of business investment, spending, etc. Furthermore, how does the BEA value "intellectual property" accurately and fairly across all industries and products? Some products like a cancer treatment have a much different "value" than a song.
However, since those tweaks did not boost the economic growth rate as much as was hoped, the BEA has now wondered if maybe their statistical modeling is wrong and will be making adjustments once again to boost economic output in the U.S.
I am not a conspiracy theorist by any stretch. However, something strikes me as very odd about the timing of this announcement.
The Federal Reserve understands, at more than six (6) years in the current economic expansion; we are likely closer to the next recession than not. The problem is that the Fed Funds rate is still stuck at the zero bound.
Since QE programs have not been effective at creating organic economic growth, the only effective monetary policy tool of the Fed to stave off the effects of a recessionary drag, lowering interest rates, is not available. This is why, despite weak economic growth, little inflation and a large amount of labor slack in the economy, the Fed has consistently hinted that they will likely raise the overnight lending rates in June. Therefore, since the Fed is "data dependent," a boost to GDP, via the recalculation of the numbers, would be vastly supportive in justifying that increase.
However, is economic growth really stronger than currently reported? We can look at some alternative measures of the economy to answer that question.
Alternative Measures Of Economic Growth
While the BEA is suggesting that it is simply "residual adjustments" lingering in the inventory and production related data, that does not really explain the economic weakness in other areas of the economy.
The chart collection below is from a variety of reports that I have produced in the past. However, most importantly, the bottom chart is the best overall indicator of economic activity in the domestic economy. The Economic Output Composite Index (EOCI) at the bottom is a compilation of broad economic inputs from manufacturing to small business to leading economic indicators. (read more on construction here)
Importantly, all of these indicators confirm that economic weakness is pervasive across a broad swath of the economy, and weakness in GDP growth in Q1 was likely more than just a "weather related or statistical anomaly."
But it is here, as suggested above, that the Federal Reserve finds itself trapped. The Federal Reserve needs stronger economic growth to justify raising interest rates. After all, the reason the Fed tightens monetary policy to is SLOW economic growth to mitigate the potential of surging inflationary pressures. The problem currently, is that the Fed is discussing raising interest rates into an environment of low growth and inflation.
So, what has happened historically when the Fed has raised interest rates in such an environment?
Interest Rates Versus Economic Growth
Currently, employment and wage growth is extremely weak, 1-in-4 Americans are on Government subsidies, and the majority of American's are living paycheck-to-paycheck. This is why Central Banks, globally, are aggressively monetizing debt to keep growth from stalling out. If the Fed starts hiking rates in June or September, and the next recession doesn't occur for another three years as the majority of economists suggest, this would be the single longest economic expansion in history based on the weakest economic fundamentals.
Furthermore, most of the analysis overlooks the level of economic growth at the beginning of interest rate hikes. The Federal Reserve uses monetary policy tools to slow economic growth and ease inflationary pressures by tightening monetary supply. For the last six years, the Federal Reserve has flooded the financial system to boost asset prices in hopes of spurring economic growth and inflation.
Outside of inflated asset prices there is little evidence of real economic growth as witnessed by an average annual GDP growth rate of just 1.2% since 2008, which by the way is the lowest in history....ever. The chart and table below compares real, inflation-adjusted, GDP to Federal Reserve interest rate levels. The red vertical bars denote the quarter of the first rate hike to beginning of the next rate decrease or onset of a recession.
If I look at the underlying data, which dates back to 1943, and calculate both the average and median for the entire span, I find:
- The average number of quarters from the first rate hike to the next recession is 11, or 33 months.
- The average 5-year real economic growth rate was 3.08%
- The median number of quarters from the first rate hike to the next recession is 10, or 30 months.
- The median 5-year real economic growth rate was 3.10%
However, note the BLUE arrows. There have only been TWO previous points in history where real economic growth was below 2% at the time of the first quarterly rate hike - 1948 and 1980. In 1948, the recession occurred ONE-quarter later and THREE-quarters following the first hike in 1980.The importance of this reflects the point made previously, the Federal Reserve lifts interest rates to slow economic growth and quell inflationary pressures. There is currently little evidence of inflationary pressures outside of financial asset prices, and economic growth is weak to say the least. Therefore, rather than lifting rates when average real economic growth was at 3%, the Fed will not start this process at less than half that rate.
Think about it this way. If it has historically taken 11 quarters to fall from an economic growth rate of 3% into recession, then it will take just 1/3rd of that time at a rate of 1%, or 3-4 quarters. This is historically consistent with previous economic cycles, as shown in the table to the left. This suggests there is much less wiggle room between the first rate hike, and the next recession, than currently believed.
But then again, if you can just keep changing the data calculation to goal seek a better economic picture, then surely that is enough. Right? Might want to ask those 100 million on government welfare what they think.
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The next FED MINUTES will be the most important data release EVER!
Ooooop! (I farted).
QE programs have been very effective in saving the syndicate from bankruptcy and transferring the wealth of the world to themselves.
This article contains the erroneous fallacious idea that the FED is interested in anything other than that.
I got a fever, and the only prescription is more nailguns!
"Therefore, since the Fed is "data dependent," a boost to GDP, via the recalculation of the numbers, would be vastly supportive in justifying that increase."
A phony recalculation doesn't justify anything.
Jews and your money.
Bwhahahaha.
I vote yes!
.."We know Intelligence was running all sorts of secret operations in the 1960's. Many of them have
since been partially de-classified, like Operation Mockingbird, Operation Bluebird, Operation Chaos,
MKULTRA, and many many more. But there appears to have been an even larger, more fundamental
Operation beneath all of them. This was Operation Rolling Stone. It was the promotion of change in
all forms. To what end? The promotion of trade. The Jews and Gentiles that would run the 20th
century were masters of trade. They were money lenders and money changers and money makers.
These families had always been very good at making money, but in the 20th century they discovered a
way to accelerate this money making beyond even their own dreams. They discovered that accelerated
trade depended directly on accelerated change. The more change of any kind they could introduce into
society, the more money they would make. This is simply because change can always be accompanied
with new products. New products = new wealth. More products = more wealth. Therefore, the
fundamental and underlying Operation of the 20th century has been CHANGE.
This was revolutionary in every way, since humans don't really like change. Like cats and all other
animals, they prefer things to stay as they are. Living creatures tend to equate change with discomfort.
So to promote change was to go against human nature. It wasn't something that would happen on its
own. It had to be manufactured and constantly sold.
It was revolutionary in another way, since it went against all tradition. Tradition had always taught that
change was something to be avoided. All the major religions sought balance and harmony, neither of
which could be maintained in times of rapid change.
It was revolutionary in a third way, since traditionally trade had been considered dirty. Thoreau was
still teaching in the 1840's that “trade curses everything it touches.” Gentlemen in the early 19th
century looked down on trade, as we see from reading Dickens or Austen, or watching Downton
Abbey. The English aristocracy mocked American wealth, since it came from trade. So you would
think it would be difficult to flip the world 180 degrees, taking us to the present where most believe
that trade sanctifies everything it touches. " m.m.
http://mileswmathis.com/dylan.pdf
Well, it was difficult. It required hiring millions of people and spending vast amounts of capital over
more than a century. But the investment paid off, as we see. Accelerated change has made the
billionaires into trillionaires. They are now so rich they have to hide their wealth. The wealthiest
families won't even allow their names to appear on the Forbes lists, the totals are so obscene. For
instance, the Rockefellers are hundreds of times as wealthy as Bill Gates, but we are told they only
have a few billion. The truth is, the Rockefellers had made their first trillion by 1930 (in today's
dollars). We are told they gave most of it away and are now worth less than then. Don't believe it.
But what does this all have to do with Bob Dylan? Dylan was just one player in a vast operation of
change. And one of the clues is the “Rolling Stone” meme. We see it coming up several times, in
things that don't appear to be related. We see Dylan's famous song, we see the band the Rolling Stones,
and we see the magazine Rolling Stone. All came out in the 1960's. Why? Have you ever asked that
question? Maybe. Has anyone ever explained that to you? I don't think so.
To understand it, we have to go back to the maxim that started them all:
A rolling stone gathers no moss." m.m.(same link)
Muddy Waters Rollin'Stone - Newport1960
https://www.youtube.com/watch?v=z5RwNit_HUw
.
Hey wait a minute... Don McClean said moss grows fat on a rolling stone...
Muddy Waters & The Rolling Stones - Baby Please Don't Go - Live At Checkerboard Lounge
https://www.youtube.com/watch?v=z3Or7huOK7o
.
ps. the cold war. a grand scam of global control,
oh , it all man.
Tom Waits - I Wish I Was In New Orleans
https://www.youtube.com/watch?v=eSaCQooqVLY
Too many parasites, not enough hosts.
"I am not a conspiracy theorist by any stretch."
Don't worry Lance... You're not going to touch the '3rd rail' by agreeing with or even (Horrors!!) espousing your own 'conspiracy' theories - as if one should be tainted by speaking the truth. You're in good company.
if you are not a conspiracy theorist you are
not appreciating the essential nature of
the mind, language and human behavior; that
makes you an idiot and a useful sheeple.
no? not the worst way to go but not entirely
satisfying or enlightened.
I would shock the 3 three charts on the right, and the one on the bottom, with PVC's. Clear!
Wait - this isn't EMS1.com
We're screwed
Let's just face it, they'll make the numbers they want. We here know it's bullshit and know how to protect our wealth. Fuck all the braindead sheeple that believe this shit and watch them burn when free money runs out.
But if GDP is being gamed to show that 1% growth, it is more likely that actual "growth" has been negative throughout the "recovery." And how long will it take for the recession to occur after the Fed raises rates in a negative growth environment? That's a trick question, because we are already (still) in recession.