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Guest Post: If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?

Is the U.S. really a post-oil economy?

One way to gauge the real economy is to look at charts of the GDP, wages, household debt and the price of oil; another way is to correlate all of these on one chart. The following chart (courtesy of frequent contributor B.C.) plots these four metrics thusly: GDP/(wages/household debt)/price of oil.

What pops out of the chart is what happens when oil spikes higher or declines. In 1973, the first oil shock sent the economy off a cliff. Conversely, when oil fell to $12/barrel in the late 1990s while wages were rising strongly, the plotline peaked, reflecting a strong economy.

In 2008, oil spiked to $140/barrel in 2008, household debt reached record heights and wages began stagnating, and the economy fell into a sharp recession. When oil plummeted back to $40/barrel in early 2009, the plotline spiked up.

When oil prices and household debt are high while wages stagnate or decline, the economy sinks to recessionary levels.

Here are B.C.'s observations:

This chart utterly discredits the economics profession and those who claim that the post-industrial economy ("deindustrialization" and "financialization") is not oil-constrained and the service economy is what the rest of the world should adopt as the normative standard at $100+/barrel oil.

The current plotline is hovering just above the recessionary levels of late 2008. Does this reflect a strong economy, or one that is weak? If oil keeps climbing, what will that do to a visibly weak economy?

The Bulls are convinced that the U.S. has decoupled from the rest of the world and from the price of oil. This chart makes the opposite case: the price of oil matters, especially when wages are declining and household debt is elevated.


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Fri, 03/02/2012 - 12:07 | 2216867 Flakmeister
Flakmeister's picture

Is it because we are being lied to??

Fri, 03/02/2012 - 12:13 | 2216893 nope-1004
nope-1004's picture

If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?

Maxine Waters says "that chart is upside-down.  There, solved!!"


Fri, 03/02/2012 - 12:19 | 2216921 YesWeKahn
YesWeKahn's picture

It's like what the D-congressman (can't remember his name) said duing the last Bernank testmony:

Up is good, down is bad, up is right, down is wrong. He said that people can only understand this simple language if only if he is not an idiot himself.

Fri, 03/02/2012 - 12:45 | 2216980 Shocker
Shocker's picture

Oh that chart just looks dandy. Its called, we are in at least a major recession. There is no doubt about it


Fri, 03/02/2012 - 13:04 | 2217027 slewie the pi-rat
slewie the pi-rat's picture

don't matter

don't mean nuthin

the only thing that matters is the fiat ponzi confidence game, at this point, and the "price" you will need to pay to buy PMs

if you need oil, just go buy some, for pete's sake!

everyone has money, unless they are "poor", and they're hangin tough

you can make things
rake things
shake 'n bake things
the only thing that matters is the belief in fake things!

Fri, 03/02/2012 - 13:22 | 2217042 slewie the pi-rat
slewie the pi-rat's picture

i told zeroHeads last week that the syrian "crisis" had been put into china's hand and what the process was that they were authoring

then, i pointed out that kofiAnnan had been "appointed" to run the process

yesterday, kofiA called for the closure uf the UK embassy in syria

today:  UK withdraws diplomats from Syria, closes embassy -

Fri, 03/02/2012 - 13:22 | 2217097 slewie the pi-rat
slewie the pi-rat's picture

oh!  here's the link to what "happened" yesterday: Ban and New Envoy Annan Discuss Ways to Resolve Syria Crisis

Fri, 03/02/2012 - 13:28 | 2217119 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Bulls are full of shit. The only thing they leave in a pasture is what they are full of.

Fri, 03/02/2012 - 14:35 | 2217360 rosiescenario
rosiescenario's picture

.....maybe it was Bwarney, "Up and in is good" "Down indicates E/D"...and is not so good.

Fri, 03/02/2012 - 15:58 | 2217794 Shizzmoney
Shizzmoney's picture

Maxine Waters, LOL!

her husband's bank, OneUnited, the larget black-owned bank in the US, just foreclosed on a Black Church here in Boston.  It's the oldest Black church in the United States, where Frederick Douglass preached back during the abolition days.

What a disgrace.

According to Chuck Neubauer and Ted Rohrlich writing in the LA Times in 2004, Maxine Waters' relatives had made more than $1 million during the preceding eight years by doing business with companies, candidates and causes that Waters had helped. They claimed she and her husband helped a company get government bond business, and her daughter Karen Waters and son Edward Waters have profited from her connections. Waters replied that "They do their business and I do mine."[43]

Citizens for Responsibility and Ethics in Washington (CREW) named Waters to its list of corrupt members of Congress in its 2005, 2006, 2009 and 2011 reports.[44] Citizens Against Government Waste named her the June 2009 Porker of the Month due to her intention to obtain an earmark for the Maxine Waters Employment Preparation Center.[45]

Waters' husband is a stockholder and former director of OneUnited Bank and the bank's executives were major contributors to her campaigns. In September 2008, Waters arranged meetings between U.S. Treasury Department officials and OneUnited Bank, so that the bank could plead for federal cash. It had been heavily invested in Freddie Mac and Fannie Mae, and its capital was "all but wiped out" after the U.S. government took them over. The bank received $12 million in Troubled Asset Relief Program (TARP) money.[46][47] The matter is currently being investigated by the House Ethics Committee.[48]

Fri, 03/02/2012 - 12:20 | 2216923 Buckaroo Banzai
Buckaroo Banzai's picture

Are we just being lied to, or is it more sinister than that?

Breitbart: “Wait ‘Til They See What Happens March 1st”

"In a stunning coincidence, It appears Andrew Breitbart suffered his untimely death just hours before he was set to release damning video footage that could have sunk Barack Obama’s 2012 re-election campaign.

Around three weeks ago on February 9 during the ‘Blog Bash’ event in Washington DC, Breitbart made a prophetic comment that takes on a somewhat chilling nature given the fact that he died in the early hours of March 1st.

Speaking to Lawrence Sinclair of Sinclair News, Breitbart stated, “Wait til they see what happens March 1st.”

It’s almost certain that Breitbart was referring to his plan to release damning footage of President Obama that he had been promising to reveal throughout the month of February.

As we reported yesterday, Breitbart spoke of his intention to release the tape during his CPAC speech last month. The footage shows Obama in his college days appearing alongside former Weather Underground terrorists Bill Ayers and Bernardine Dohrn. Observers had speculated that the footage could have derailed Obama’s hopes for a second term."

Fri, 03/02/2012 - 12:56 | 2217010 LetThemEatRand
LetThemEatRand's picture

Putting aside my personal opinion of Breitbart, the coincidence is pretty amazing.  There was a time I would have openly laughed at the suggestion, but I don't put anything past these guys.  Having said that, would knocking him off make the videos go away?  It's not like he was some lone wolf.   Surely someone else in his large organization has access or would come forward if the videos disappeared etc.

Fri, 03/02/2012 - 13:14 | 2217047 RobD
RobD's picture

Well I suppose, if you were one of his associates and you got an anonymous note soon after Breitbarts death implying that you would be next, you may think twice about releasing the video.

Fri, 03/02/2012 - 13:17 | 2217055 Buckaroo Banzai
Buckaroo Banzai's picture

If you knew that you would be killed if you came forward with the video (which is certainly credible given what happened to Breitbart), what would you do?

I don't envy those that worked for Breitbart, who might be in a position to release the video. It is "nut up or shut up" time.

Fri, 03/02/2012 - 13:31 | 2217135 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Breitbart was either full of it or just dumb. Why would you warn everyone weeks ahead of time if you were to release such material? This gives your enemies time to cover up a potentially damaging leak. Just release it then let the chips fall.

Fri, 03/02/2012 - 14:52 | 2217435 Buckaroo Banzai
Buckaroo Banzai's picture

Call it arrogance, call it hubris?

Fri, 03/02/2012 - 13:18 | 2217067 Citxmech
Citxmech's picture

So if you were holding these allege videos for Breitbart what would you do at this point?  Now ask yourself what you would do in this situation but add being confronted by a few scary gentlemen threatening to skin your children in front of you if you don't hand over the copies along with the names of everyone involved?  Never underestimate the power of "offers you can't refuse."

Fri, 03/02/2012 - 13:52 | 2217210 viahj
viahj's picture

surely the videos are on the organizations computers, so Anonymous....

Fri, 03/02/2012 - 13:04 | 2217029 AcidRastaHead
AcidRastaHead's picture

Then I merely lament the loss of his balls since those days.

Fri, 03/02/2012 - 14:38 | 2217373 rosiescenario
rosiescenario's picture

"Obama in his college days appearing alongside former Weather Undergroun"....jeesh, that would be a plus....he is now owned by Goldmun's Sack....

Fri, 03/02/2012 - 14:59 | 2217468 Totentänzerlied
Totentänzerlied's picture

Obomba's connection to the Weathermen was a non-issue in '08, it will be a non-issue in '12. I'd be pleasantly surprised if even 50% of Obama voters could honestly say they dislike the Weather Underground and disagree with its message/intent/method.

Your mistake, which we all make these days, is to assume that the American public could care any less about anything of importance and/or possesses anything resembling the commonsense definition of a functional moral compass (bomb Iran!).

<sarc>Obama has ties to some hippie terrorist organization? Pffffft! So what? He's still gonna pay my mortgage, buy me an iPad 3, renew America, and support Green Energy! You're just trying to slander Obammie cause you hate blacks and poor people!</sarc>

Sat, 03/03/2012 - 10:08 | 2219512 blueridgeviews
blueridgeviews's picture

You could have pictures of Obama standing next to Stalin, Mao and Castro embracing each other and the American sheeple would still vote him in. The media would say something like: "look, he can mend the broken fences between all of us".


Seems to me there are 14 million new food stamp recipients that will surely vote for the free lunch.......dinner,breakfast,home etc....

Fri, 03/02/2012 - 12:26 | 2216940 SheepDog-One
SheepDog-One's picture

Lieconomic model.

Fri, 03/02/2012 - 12:09 | 2216872 Dr. Richard Head
Dr. Richard Head's picture

This's different.

Fri, 03/02/2012 - 12:10 | 2216880 Flakmeister
Flakmeister's picture

Yes... and people are about to find out how different......

Notice the first tooth of the saw... the second one is forming...

Fri, 03/02/2012 - 12:45 | 2216987 FrankThinkTank
FrankThinkTank's picture

When oil drops this time, the 'nank used all of our Keynesian weapons.

The spike in that graph we'll see will look good, but there will be so few left "households" left in that measurable index that it won't be relevant. 

The initial deflation is going to be dwarfed by the ensuing inflation corellating with a drop from a new peak on this graph - thanks to escaserbated imbalance of  liquidity and demand. (gigantic monetary base thanks to the 'nank and other central banks)

It won't matter that the pumped money sits in Fed reserve accounts for primary dealers, the impact will be felt; the argument has long been made that since it's not in the sheeples' circulation it won't affect inflation. lolz to the moon of course.  

Fri, 03/02/2012 - 12:51 | 2216998 FrankThinkTank
FrankThinkTank's picture

But have no fear. There will be plenty of scape goats left..

sovereign citizens, oil "speculators", gold bugs etc

Fri, 03/02/2012 - 15:00 | 2217473 Oracle of Kypseli
Oracle of Kypseli's picture

O'Bummer will pull a Hugo Chavez on AmeriKans after an alleged national security event followed by martial law.

Wake up AmeriKa! Alex Jones, Celente, Keiser and even Glen Beck will then be proven right.

Fri, 03/02/2012 - 12:11 | 2216888 JPM Hater001
JPM Hater001's picture

Paula Poundstone was different.  This is wack.

Fri, 03/02/2012 - 12:43 | 2216977 Mugatu
Mugatu's picture

As Austin Powers would say "Whoop de doo Basil - What does it all mean?"

I thought everything was bullish now?

Fri, 03/02/2012 - 12:53 | 2217000 resurger
resurger's picture

There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.” Ludwig von Mises


Fri, 03/02/2012 - 13:22 | 2217096 marathonman
marathonman's picture

My bet is on total catastrophe of the currency system involved.  Goldman Sachs ain't going quietly into the night.

Fri, 03/02/2012 - 13:48 | 2217197 hamurobby
hamurobby's picture


Expect nothing less. Why would anyone give up absolute power over everything.

Fri, 03/02/2012 - 14:47 | 2217412 Backspin
Backspin's picture

Agreed, but I think they can and will drag it out as long as they can, and it could be a while.  "They" are numerous and powerful and are not just going to roll over and give up.

Fri, 03/02/2012 - 12:10 | 2216876 MFL8240
MFL8240's picture

Because this goverment the Federal Reserve and the Wall Street gangsters are incapable of telling the truth.

Fri, 03/02/2012 - 12:18 | 2216917 Bunga Bunga
Bunga Bunga's picture

Not only that.

Fri, 03/02/2012 - 12:09 | 2216877 Chuck Bone
Chuck Bone's picture

There is one unit of energy behind each unit of GDP. Anyone who tells you otherwise does not believe in thermodynamics.

Fri, 03/02/2012 - 12:11 | 2216887 Flakmeister
Flakmeister's picture

Those damn leftwing intellectual elites are forcing their Laws on us...

Fri, 03/02/2012 - 15:19 | 2217571 sun tzu
sun tzu's picture

Paul Krugman and Larry Summers?

Fri, 03/02/2012 - 12:20 | 2216907 Dr. Richard Head
Dr. Richard Head's picture

The laws of thermodynamics have been suspended by the laws of collateralization. You see, Wall Street simply sold forward a couple of decades of production, energy, and labor to extract miniscule (percentagwise) transaction fees.  They didn't extract the energy, just profited from it.  The financial machinations are very complex and best left to Ivy League financial managers. The whole idea of entropy does NOT exist in a financial ledger, as Ben Bernanke has ended the whole idea of gradual decline into disorder.  /sarc

Fri, 03/02/2012 - 12:24 | 2216938 centerline
centerline's picture

And there you go letting silly laws of nature get in the way of things.  LOL.

Fri, 03/02/2012 - 15:09 | 2217525 Oracle of Kypseli
Oracle of Kypseli's picture

Cryogenics will follow soon my friends. The laws of physics can be put into suspended animation for only limited time.

Also I remind you that scientist stiil can not explain the force of gravity which does not diminish even behind super thick lead walls.

The best explanation is that the earth sucks.

Al jokes aside, they are coming down hard.

Fri, 03/02/2012 - 12:24 | 2216939 Flakmeister
Flakmeister's picture

That pretty well sums it up....

It's funny in that the people that understand thermo and similar physical concepts instantly identify and understand the artificial pulling forth of demand and, in the long run, the negative effects therein...

Fri, 03/02/2012 - 12:32 | 2216955 Dr. Richard Head
Dr. Richard Head's picture

I think the whole idea of Math and compounded interest are clearly not subjects the majority of society can come to terms with as it relates to debt in general.  The math becomes a political tool for the red/blue team fuckcunts out there.  Math matters with welfare when it comes to red team voting tardfucks, but is rendered irrelevant when wars are put into that same math equestion or argument.  Similarly the opposite will hold true for blue team twatfarts lever pullers. 

I am simply adding alcohol to my equation, as we are all Greeks now in the US.  The problem is the Greeks at least nip the heels while the math fucks them over.


Fri, 03/02/2012 - 12:40 | 2216967 centerline
centerline's picture

The brainwashing is so complete at this point that even if the average person could for a moment see the math - even the basic math - they would reject it.  And society would reinforce the abandonment of such thinking as well.

"Think of how stupid the average person is, and realize half of them are stupider than that."
George Carlin

We live in groupthink hell, where groups of people can achieve stupidity in a much more complete, efficient and self-reinforcing manner than even George postulated in the above statement!  LOL.

Fri, 03/02/2012 - 13:15 | 2217048 GeneMarchbanks
GeneMarchbanks's picture

It's called a cult -- in respect to what you live in -- the realization is even more highlighted when you actually leave physically and get so perspective outside of the heavily filtered sources.

The name of the game is Weltanschauung, and in the States there is only the corporatist approved one. Hence Mittens Rmoney as the embodiment of corporate personhood.

Simple arithmetic is really not a grand intellectual exercise and the 'problems' within the US socio-economic construct shouldn't be associated within the domain of math alone. Dubious moral practices and a general breakdown of all institutions have contributed much more than 'poor education'.

Fri, 03/02/2012 - 13:32 | 2217141 centerline
centerline's picture

Amen.  And thanks for the new term.  Already reading all about "world view."

Fri, 03/02/2012 - 13:56 | 2217221 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

" We live in groupthink hell, where groups of people can achieve stupidity in a much more complete, efficient and self-reinforcing manner than even George postulated in the above statement!  LOL."

The blonde with the big boobs and skirt suit from HR would call that syngergy which is a, like, good thing!

If we all just promote more synergy via celebration of diversity, six-sigma training and ISO practices, the economy will be just fine.

Fri, 03/02/2012 - 14:13 | 2217267 centerline
centerline's picture

Great idea.  I love it.  I will bring it up in my next 360 degree review.  LOL.

Fri, 03/02/2012 - 14:59 | 2217385 Die Weiße Rose
Die Weiße Rose's picture

the "average person" is a myth created, by those who want to control others -

the "average person" is much more intelligent than the " intellectual elite" will give them credit for.

To control someone you have to destroy their self-confidence, and make them believe that they are stupid and ignorant and blind and completely lost without your help. You have to destroy peoples natural intuition and self-believe and their innate natural emotional intelligence and good sense, you have to destroy their very conscience, intuition, judgement and their relationship and understanding of their world around them.

You do that by demonizing the "average person" by making them believe that they are stupid, helpless and incompetend. By destroying their "Weltanschauung" their relationship and understanding of their world around them, you can so enslave and control the now submissive and demonized "average person" slave into your absolute Power.

If the "average person" is so stupid and helpless

then who is the Master, the Führer, the Saviour,

the all-powerful intellectual elite ?

and who is the slave ? you...


Sat, 03/03/2012 - 05:45 | 2219374 Ghordius
Ghordius's picture

excellent thread and excellent anti-fascist counterpoint on the dominant corporate dehumanisation

we have not forgotten and I hope we never will

Fri, 03/02/2012 - 13:29 | 2217124 marathonman
marathonman's picture

The whole problem is that our monetary system is an inequality.  The banks only put the principle amount of a loan in circulation but demand payment of principle plus interest.  It's all good until the poor shlubs that owe all that money run out of real growth and the debt-based money supply collapses.  The whole world's monetary system is a Ponzi scheme.  My mind boggles at the absurdity of it all.

Fri, 03/02/2012 - 12:47 | 2216994 Chappy
Chappy's picture

Don't forget, entropy of the system as a whole increases.  So if the banks are getting less disorderes then something else is getting more disordered.

Fri, 03/02/2012 - 22:12 | 2218870 StychoKiller
StychoKiller's picture

Gradual decline?  We should be so lucky...

Fri, 03/02/2012 - 12:11 | 2216882 ollie9000
ollie9000's picture

New interview just released with Andrew Maguire (silver whistleblower)

I like the news on the new Chinese exchange with physically backed contracts.

Lets hope it gets out the doors before it is killed like PAGE was.

Fri, 03/02/2012 - 12:11 | 2216885 JPM Hater001
JPM Hater001's picture

Looks like a bubble to me...

Funny, Nice and steady 59-72...Gold Standard of course.

Ron Paul!

Fri, 03/02/2012 - 12:12 | 2216891 Flakmeister
Flakmeister's picture

Nope, try rising US oil production....

Fri, 03/02/2012 - 12:16 | 2216895 Mercury
Mercury's picture

See Achuthan's interview in my comment on the previous post - he makes use of similar indicators 2216834

Fri, 03/02/2012 - 12:14 | 2216897 Moneyswirth
Moneyswirth's picture

If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?

Because this GDP chart doesn't include the effects of iPad3, YELP and the soon-to-be issued FCBK! 

BTFD suckers!

Fri, 03/02/2012 - 13:03 | 2217024 Die Weiße Rose
Die Weiße Rose's picture

you forgot AAPL with a greater Market Capitalization than Polands GDP

and the GOOG that runs the world and looks after you, so everything will be fine

so don't worry, be happy and remember:

Even on an ordinary day at Chevron,

you're part of an extraordinary mission to bring the world vital energy.

so thank you and keep consuming more !


Fri, 03/02/2012 - 12:15 | 2216902 Conrad Murray
Conrad Murray's picture

"If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?"

Simple. The chart line is blue and resembles rain. That makes you sad, you lose confidence, there is a recession.

However, if you were wearing your government issued rose-colored glasses(I will send DHS VIPR team to discuss this with you shortly), the line would be purple. Purple Rain makes everyone happy, boosts confidence, no recession.

Proof - Purple Rain:

My op-ed. Read, share:

Fri, 03/02/2012 - 12:22 | 2216932 realtick
realtick's picture

Great chart.

Fri, 03/02/2012 - 13:06 | 2217030 prains
prains's picture

the chart looks like a subterranean bomb has gone off and we are now at the part where all the dirt is falling back to earth. here's to living in the crater.

Fri, 03/02/2012 - 12:23 | 2216935 adr
adr's picture

When you got free billions in loans to turn into millions of profit you get to keep, you don't care about $8 gas or $18lb hamburger, YOU'RE RICH BEOTCH!!!

If you are making $50k trying to feed two kids and pay for a modest house, $4 gas kills your budget. You need to drive to work to make money, but tht drive uses up all your discretionary income.

You see wholsale nat gas at $2 but you can buy it for less than $5 and pay $6.35 per mcf after delivery charges. Headlines don't matter when you don't see the results in your own life.

Fri, 03/02/2012 - 12:27 | 2216945 centerline
centerline's picture

Yup.  This is what they are up against.  And they know it.  The water that is intended to boil the proverbial frog is getting hot too quick.  The US is in a most precarious place herein considering the extent of the welfare state and entitlements.  Hence, the rapid rise of the police state and outright attacks on constitutional freedoms.

Fri, 03/02/2012 - 12:34 | 2216958 WonderDawg
WonderDawg's picture

Once again, Centerline, you sum up my thoughts quite succinctly, although my thoughts are somewhat more profane.

Fri, 03/02/2012 - 12:45 | 2216985 centerline
centerline's picture

Is really scary stuff to watch happen.  Even scarier when realizing how few people know the extent of what is going, or care.  Of course you know that.  Sort of like preaching to choir around this place.  But, feels good to say once and awhile amongst people who still have the ability to think for themselves.  And hoping maybe other folks stumble onto this site and find something that rattles them into thinking for themselves.

Personally, I am getting squeezed from every end possible.  I felt it coming on many years ago.  So, little that I find out now surprises me really.  What is difficult is trying the manage a retreat of sorts at home when society is accelerating into oblivion.  

Fri, 03/02/2012 - 12:58 | 2217015 tabasco71
tabasco71's picture

Maybe this is what getting old is?

Never thought it would catch me out, but younger people are zipping about oblivious to it all.

I'm so busy depressing myself so much, I think I'll become obsolete if I'm not more careful....

Fri, 03/02/2012 - 14:46 | 2217406 Silver Dreamer
Silver Dreamer's picture

The weather was so nice in my area that I grilled out yesterday.  I couldn't help but worry that my neighbors might see it as a sign of wealth and hate me for it however.  Unlike them, I'm not buried in debt.  Unlike them, I'm well prepared.  That is what it has come to in my area.  I have to serious consider grilling because my neighbors may take it the wrong way.

Fri, 03/02/2012 - 12:45 | 2216986 Hulk
Hulk's picture

He/She is definitely invited over for Christmas dinner...

Fri, 03/02/2012 - 13:12 | 2217039 WonderDawg
WonderDawg's picture

I concur, Hulkster. How you doing?

Fri, 03/02/2012 - 13:21 | 2217084 Hulk
Hulk's picture

Good! Real interesting what the old eyes are beholding. How are you doing WD?

Fri, 03/02/2012 - 13:40 | 2217168 WonderDawg
WonderDawg's picture

Same here, holding steady. Although I should be used to it by now, I'm still amazed on a daily basis by the blatant fraud and corruption of our political and financial system. I catch myself laughing hysterically at times, while at other times, I'm just trying not to cry. Whatever.

So, any ideas for a location for our gathering?

Fri, 03/02/2012 - 14:16 | 2217274 centerline
centerline's picture

We just need some sort ZH thing like a funky gesture so that we can spot each other in the FEMA camps!


Fri, 03/02/2012 - 14:28 | 2217324 Hulk
Hulk's picture

I was thinking ZH T-shirts...

Fri, 03/02/2012 - 15:50 | 2217743 WonderDawg
WonderDawg's picture

Yeah. Something like you look at your watch (or your wrist, if your watch has been confiscated) and say, "Holy shit, look at the time!" This is in keeping with the "On a long enough timeline..." theme.

Fri, 03/02/2012 - 14:27 | 2217320 Hulk
Hulk's picture

You anywhere near the breadbasket of the confederacy?

Fri, 03/02/2012 - 15:47 | 2217717 WonderDawg
WonderDawg's picture

Not sure where that is, but I can't be too far, being in GA.

Fri, 03/02/2012 - 20:54 | 2218719 Hulk
Hulk's picture

I'm about 500 miles NNE from you...

Fri, 03/02/2012 - 12:26 | 2216941 tabasco71
tabasco71's picture

FACT: almost every manufactured item has some connection to the price of oil as almost all component parts are constructed using some derivative of oil or other.  Even if its just the gas to run the delivery truck.

VERY SIMPLE CONCEPT: If input prices rise, consumer prices will rise

VERY SIMPLE CONCLUSION: Prices will go up and I will be less happy.

OLD WORLD SOLUTION: Threaten your boss for a pay rise.




Fri, 03/02/2012 - 13:38 | 2217138 Die Weiße Rose
Die Weiße Rose's picture

that's exactly why the CPI figure (Consumer Price Index) 

excludes such volatile Items as the price of Oil, Gasolene, Fuel, Food and Energy etc..

the BLS needs to keep that CPI looking as pretty

as that handsome GDP figure.

otherwise the BLS would just not add up right!


thank you,


Fri, 03/02/2012 - 12:27 | 2216946 Eric L. Prentis
Eric L. Prentis's picture

Quantitative Easing and LTRO help the elite 1% by creating a bubble in the stock market and making it seem that everything is all right. All this easy money inflates food, rental, clothing, medical expenses and especially gasoline. Consequently, the 99% are taking a big hit to their living standard and forcing the economy back into recession. Oil, with the economy so weak, should only half the price that it is today.

Fri, 03/02/2012 - 12:28 | 2216948 monopoly
monopoly's picture

It is a presidential election year. Irrelevant that we do not have any presidential contenders. Just a sham election but it does not matter. Until the election is over there will be no truth, no facts and no honest reports on labor, the economy or our debt.

Move on now. Next!

Fri, 03/02/2012 - 12:32 | 2216954 daxtonbrown
daxtonbrown's picture

I actually have an even worse chart which I call the Biflationary Index which takes into account more variables. We are really in a Biflationary Depression because GDP=M*V which has two variables. When the Bernank pumps money it pushes M up from which you'd expect inflation. But you get all these loss of trust issues which crushes credit, assets and wages pushing V down. In short, you get a raisin muffin of inflation AND deflation, meaning you are doubly fucked.

I've done some really cutting edge work on these issues.

Fri, 03/02/2012 - 14:24 | 2217304 jimmyjames
jimmyjames's picture

Stagflation is the normal outcome of loose monetary policy. Stagflation is the natural result of monetary pumping which weakens the pace of economic growth and at the same time raises the rate of increase of the prices of goods and services. For loose money policy to work, people would need to be fooled into thinking the increase in money was the same as prosperity, but that game soon wears thin.  Where the stagflation model breaks down is that loose money has also led us to experience massive deflation from credit collapse, most notably in housing (inflation + deflation).  This leads to a refinement in terms called biflation.


I don't disagree that we're not in stagflation but also i don't see how a collapse in housing prices can be interpreted as anything but deflation-

Yes there is a loose monetary policy in place but it has no effect on inflation (credit expansion) simply because the pool of greater fools has dried up-people who would borrow can't and those who could are not borrowing-

Housing was the economic driver of the economy-until the bubble blew-


U.S. debt levels are so astronomical that the Federal Reserve cannot increase interest rates without collapsing our system because of the increased interest payment that would be needed to service this debt. 

Loose money guarantees inflation, but it also induces debilitating deflation as businesses realize the game is fixed and transactions grind to a halt. Loose monetary policy is the only option left, but it guarantees a slowing economy as money velocity falls.

Consequently, you couldn’t pick a better weapon of war than biflation to demoralize a population and crush its economic base; it is better than even bombing the industrial structure of a country.  If the Federal Reserve and President don’t know this, they are idiots.  If they do know they obviously are at war with the people they are supposed to protect.


I'm missing something-

First it says the Fed can't raise rates because it would kill the economy and then it goes on to say that the Feds are deliberately trying to kill the economy with their loose monetary policies?

Also-loose monetary policies do not "guarantee" inflation--

It worked up until the housing bubble blew and since then-rates have been in the tank and credit is still contracting-borrowing is decreasing-

Loose monetary policy also does not guarantee a slowing economy and i think the writer puts the cart before the horse in regards to velocity-a falling velocity is the result of a slowing economy-not the cause-

Fri, 03/02/2012 - 12:40 | 2216968 MrBoompi
MrBoompi's picture

"The Bulls are convinced that the U.S. has decoupled from the rest of the world and from the price of oil."

The Bulls have decoupled from the US.  They are doing extremely well while the suffering is increasing in the rest of the world.  If you're lucky enough or rich enough to buy oil futures contracts or derivative products in this market, who gives a shit what the rest of the world is doing.

Fri, 03/02/2012 - 12:43 | 2216975 vote_libertaria...
vote_libertarian_party's picture

It doesn't include gvt deficit spending.  Cranking up the GDP with $1.5T in funny money per year can delay the inevitable.

Fri, 03/02/2012 - 12:47 | 2216992 SheepDog-One
SheepDog-One's picture

What people dont seem to get is no one is in there trying to fix anything, this was all designed to allow CB's to buy all the bonds and stocks with fake free money, while just keeping things 'looking OK' for crowd control until they collapse it all one morning. Just all a diversion from the biggest total transfer of wealth in human history, almost done with it too.

Fri, 03/02/2012 - 22:20 | 2218888 StychoKiller
StychoKiller's picture

Termites, carpenter ants, MF Global, "The House of Usher" -- everything looks fine until one day, gramps falls through a hole in the floor...

Fri, 03/02/2012 - 12:43 | 2216979 SheepDog-One
SheepDog-One's picture

Remove the trillions that were pumped in and are the only thing holding up the markets and raise rates to just 2%, historically very low rate, and lets see what the data shows then! DOW 4,000 would be optimistic.

Fri, 03/02/2012 - 12:44 | 2216981 TheInfoman
TheInfoman's picture

If the price of oil inflates the price of most everything, it will give Bernanke the cover he needs to push the print button.  Because when inflation strikes, he can say "oh, its not because of my policy."

Fri, 03/02/2012 - 12:49 | 2216997 SheepDog-One
SheepDog-One's picture

Ridiculous. Anyone waiting for Bernank to 'push the print button' will be left with surviving on generic cat food pretty soon.

Fri, 03/02/2012 - 22:22 | 2218891 StychoKiller
StychoKiller's picture

Ren:  "Don't touch that!  It's the History eraser button, you fool!"

Fri, 03/02/2012 - 13:42 | 2217175 Implicit simplicit
Implicit simplicit's picture

it would be self-defeating, as that weould drive up the price of oil through speculation/inflation.

Fri, 03/02/2012 - 12:49 | 2216996 michael_engineer
michael_engineer's picture

Charles Hugh Smith, can you also incorporate into the chart, the Hubbert curve?  Use actual oil production for prior years since that data is available.  Extrapolate to the future possibly with a plateua in oil production, or a ramp down, or with the bell shape down in oil production.  Or just provide commentary about what may happen in future years to GDP, wages, etc if oil production declines.

Also, consider relating the Hubbert curve to factors such as GDP by themselves.   Your analyses along these lines are very insightful.

Fri, 03/02/2012 - 13:31 | 2217070 michael_engineer
michael_engineer's picture

Also, consider multiplying into the graph by the growth in oil production from the previous year.  For instance if oil production grew by 2 percent from the previous year, the multiplying factor would be 1.02.    Wouldn't that tend to smooth the dips on the left side, and also to make it climb faster on the left?  

And now that oil production seems to have hit a plateua, wouldn't that make the last 6 years show up with more of a contrast in trends than the earlier years? 

If that is easy to do in a timely manner, consider posting that chart as a reply to this comment.  Quick feedback on that would be impressive.



Fri, 03/02/2012 - 13:39 | 2217163 Implicit simplicit
Implicit simplicit's picture

It would be an interesting addition, however it will not be an issue until we gert through this next world recession/depression, and start the next world ecomomic expansion.

Fri, 03/02/2012 - 12:59 | 2217016 Rockfish
Rockfish's picture


If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?  

The same reason we tell our fat ugly wives their beautiful. Its just easier.

Fri, 03/02/2012 - 13:24 | 2217044 Meatballs
Meatballs's picture

"Why David Stockman isn't buying it"...Duh.

Q: You sound as if we're facing a financial crisis like the one that followed the collapse of Lehman Brothers in 2008.

A: Oh, far worse than Lehman. When the real margin call in the great beyond arrives, the carnage will be unimaginable.

Q: How do investors protect themselves? What about the stock market?

A: I wouldn't touch the stock market with a 100-foot pole. It's a dangerous place. It's not safe for men, women or children.

Q: Do you own any shares?

A: No.

Fri, 03/02/2012 - 13:19 | 2217075 azzhatter
azzhatter's picture


Fri, 03/02/2012 - 13:30 | 2217133 goforgin
goforgin's picture


I have no idea what this chart is supposed to indicate. Is it price of oil vs GDP and wages? What happens when GDP, wages fall at rate slower than oil.  The relative amplitude of the index is meaningless. Look at the period from 1959 to mid 1970s.

Fri, 03/02/2012 - 14:26 | 2217312 Implicit simplicit
Implicit simplicit's picture

Its not just wages alone but wages/debt, so if wages stagnate or even go up, debt could diminish any positives.

There was a gold standard until 1970, thus overall debt through currency deprecuiation and inflation didn't start taking off until after that period.

Fri, 03/02/2012 - 13:39 | 2217165 Fortunes Favor
Fortunes Favor's picture

A look at transports as a group would also add a hint of economic concern.

Stalking The Bear: Trouble In Transports


Fri, 03/02/2012 - 13:43 | 2217179 MayerRothschild
MayerRothschild's picture

It is going up at the end.... Those are the 'green shoots'

Fri, 03/02/2012 - 14:13 | 2217268 gloogle
gloogle's picture

The grass is always greener over the septic tank.  Or is it the cemetery?  Oh well, either way we are fucked...

Fri, 03/02/2012 - 14:06 | 2217251 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

Energy price is the new fed funds rate.  It's just that simple.  Oil will zig-zag higher and create deflationary forces which will drop oil price until the fed responds which drives it higher and repeat until either structural shifts in the economy catch up with the new reality or we're eating eachother (in which case it doesn't matter).

The good news is that this process may only need to last for another 5 to 10 years until the demographic bulges in China and the US create enough retired persons that energy price is not so high in relation to the price of credit (which should be like a bazillion percent by then).

Fri, 03/02/2012 - 14:10 | 2217260 trip kitchen
trip kitchen's picture

How much worse would the graph look if a REAL metric were used for GDP. 70% 'consumer' driven GDP.    Puhleez. It's GDProduct, not GDConsumer.

Fri, 03/02/2012 - 14:30 | 2217342 Nobody For President
Nobody For President's picture

"...the price of oil matters, especially when wages are declining and household debt is elevated."


Duh. The idea that the US economy is somehow 'decoupled' from oil is so ivory tower as to be laughable. Every conversation I have had the past week has at least a mention of the price of a gallon of regular locally - and I am not the one bringing it up. 

Course, I talk to a lot of 20%ers - the bottom 20: waitresses, grocery store clerks, part-time data entry people, admin assistants down to 1 day week 'until things pick up', - real people who are more worried about feeding their kids than how to keep them in the 'correct' private schools at 30K a year - hell, some of them don't make 30K.

Yesterday in town, it was $4.359/gallon. Christ knows what it will be today. At least, around here, most people have a short (or non-existent) commute, but still...

I'm riding TZA today.

Fri, 03/02/2012 - 15:15 | 2217557 geekgrrl
geekgrrl's picture

I'm having a difficult time interpreting this plot. The problem is the middle term of wages/household debt. It doesn't make a lot of sense to me. Maybe I'm just being dense this morning, but for a given price of oil, the term (GDP/wages/household debt) will decrease if wages increase or household debt decreases. Conversely, it will increase if wages decrease or household debt increases. It seems to me that this is not a measure of economic health, so it's not clear to me that a decrease in this parameter is meaningful. Or am I missing something?

Another way to write this expression is: (GDP * household debt) / (wages * oil price). I could see the point of (GDP * wages) / (household debt * oil price) since an increase in this expression would be considered good for an economy (high GDP, high wages, low household debt, low oil prices). But then the middle term would be 1 / (wages/household debt) or household debt / wages.

I'm not really used to looking at these kind of compound index charts, so if someone can point out what's going on, I'd appreciate it.

Fri, 03/02/2012 - 16:07 | 2217841 jimmyjames
jimmyjames's picture

Another way to write this expression is: (GDP * household debt) / (wages * oil price). I could see the point of (GDP * wages) / (household debt * oil price) since an increase in this expression would be considered good for an economy (high GDP, high wages, low household debt, low oil prices).


I think it's meant to show that if household debt is increasing then GDP will increase as a big part of the GDP component is credit-

The problem is-when asset prices (real estate) is climbing it masks the fact that wages did not and are not keeping up to the accumulation of debt as people feel richer with the increase in equity-but do not see the decrease in "real" wage as measured by the inflation loss and i don't think the author has adjusted that not so little effect into his chart-

GDP is such a skewed number as it represents government spending war/bank and corporate bailouts and credit/flip side/debt as a measure of economic growth and so any layover/comparison correspondence with GDP-is bound to be flawed-


Fri, 03/02/2012 - 18:45 | 2218402 geekgrrl
geekgrrl's picture

Thanks. But I'm still having difficulty comprehending the significance of chart. So a high number is good? We want a high GDP, high household debt, low wages, and low oil price? That seems backwards to me, at least for wages/debt.

The other thing is that all the partial derivatives are different, so the sensitivity of the overall expression is much different for say, oil price than for wages. Why glom them all into the same chart, each indexed to 100 in Q4 2007? If wages are flat to slightly decreasing, and household debt has reached saturation, then it probably would have been more meaningful to just plot GDP / oil price.

There must be better ways to represent the real state of an economy that's not some figure that includes all sorts of things that aren't productive. If consumption is 70% of US GDP, and if much of that consumption is plastic junk from China, then I fail to see how this is productive, or a benefit to society. It has seemed to me for a long time that the GDP is a better measure of how quickly an economy turns natural resources into waste than in producing anything "productive."

Sat, 03/03/2012 - 01:11 | 2219207 jimmyjames
jimmyjames's picture

I'm still having difficulty comprehending the significance of chart. So a high number is good? We want a high GDP, high household debt, low wages, and low oil price? That seems backwards to me, at least for wages/debt.


The high number (his chart) shows a credit expansion = inflation = high debt  = an increase in GDP)  ie: credit boom with lower oil prices leading to more spending elsewhere and no-we really do not want high household debt but in this Keynesian world-credit expansion (debt) is what keeps the motor running-when it stops expanding-so does the economy because the money supply (credit) reaches its peak and credit demand vanishes--the assets it was borrowed for-decrease in price (diminished purchasing power) for the 70% consumer driven economy-

If you look at the oil price by itself you can see that we had a recession right after every severe price spike as high fuel prices cause almost every consumable to increase in price and it  takes away from discretionary spending-

The oil price certainly does not belong with GDP and wages because those are more monetary measures and the oil price is so susceptible to so many different influences-political strife/nationalization/war/peace/weather/ speculation/inflation/deflation and the general state of the economy-

As his chart shows when the oil price fell during those years-GDP and wages climbed (not inflation adjusted) as my chart above  showed-which is why i said GDP is a mostly useless measurement of the economy because "debt" is a large component of its measure-


There must be better ways to represent the real state of an economy that's not some figure that includes all sorts of things that aren't productive.

If consumption is 70% of US GDP, and if much of that consumption is plastic junk from China, then I fail to see how this is productive, or a benefit to society. It has seemed to me for a long time that the GDP is a better measure of how quickly an economy turns natural resources into waste than in producing anything "productive."


Absolutely agree with that and without credit flowing to gun asset prices-money supply decreases and the economy tanks-typical Keynesian economics-

The best measurements are unemployment/trade balance/business start ups/bankruptcies/purchasing power and most important-savings-not high debt levels (credit expansion) which was what was happening when CHS explains a robust economy with his chart-he's wrong imo and oil is too wild to pin down to any trend-although low oil prices are a good-like any other low prices are for a strong economy-

Fri, 03/02/2012 - 16:30 | 2217997 zebra
zebra's picture


Fri, 03/02/2012 - 20:14 | 2218645 dxj
dxj's picture

My first thought was that this chart is either brilliant or retarded. After breaking it down, I've decided that it's more retarded than brilliant.

1) The index of GDP and the index of wages are nearly identical.

2) Therefore GDP can be substituted for wages such that wages/debt is the same as gdp/debt.

3) Therefore the formula can be rewritten as: g/(w/d) = g/(g/d) x (d/g)/(d/g) = d/1 = d

4) If you put d/o you get the same chart as the author (minus the erroneous comments).

In essence, the author is graphing the ratio of two indexes (household debt / price of oil) which makes no sense. You might as well graph the real price of oil which tells you that the 1980-84 double-dip and 2008 recessions were both financial crisis set off by oil shocks (duh)!

But somehow this "utterly discredits the economics profession" when in reality the logic behind the graph is pure shit. The author merely stumbled on the obvious: If oil goes back to $120+/barrel, we'll have another double-dip. That's brilliant Einstein!

Sat, 03/03/2012 - 02:31 | 2219275 geekgrrl
geekgrrl's picture

Thanks for the links and explanation. There is no doubt that the debt / oil price plot you linked looks identical. The reason your simplification worked is because Fed data shows wages tracking GDP, but as with all aggregate data, it conceals more than it reveals.

The problem is that the vast majority of these wage gains came at the top end of the income distribution, and for 90% of the population, wages have been more or less flat since the 1970s. So if they had plotted GDP/(wages of the 90%ers / household debt) / oil price, it would be clear that lower wages increase the value of the overall expression as presented by the authors. I know that wasn't your point, but I'm more curious about this choice of a metric for a "good" economy. Any metric where lower wages is good for GDP is not going to be very convincing for me.

I've been poking around in that FRED database, and for me, a much better descriptor of the real state of the economy is GDP/GFDEBTN.

Sat, 03/03/2012 - 13:13 | 2219677 dxj
dxj's picture

No, the reason wages (income) tracks the same as GDP is because GDP and national income are the same thing. When you convert something to an index you're adjusting it to the same scale, thus the wage index looks the same as the GDP index which looks the same as the personal income or national income index. It has nothing to do with "concealing" anything, but rather it reveals the wide-spread ignorance of statistics and economics and a lack of critical thinking.

Put in simple terms, wages plus transfers of wealth are the 99%. The difference between that and national income is the 1%. The ratio of the two have essentially been the same since the 80's and has even increased lately in favor of the 99%.

The inflationary period of the 70's and early 80's robbed the working class of their earning power. Newly printed money always favors the 1% because they get it first (government contracts, real assets, raw materials etc) and can spend the new money before prices go up. This gives the 1% an incalcuable advantage.

But if you want to help the 99% earn and save (which is the key to wealth) then you'd be in favor of sound money and stop with the class warfare. The only class you should be bitching about is the ruling class who pick winners and losers, print money so that they can promise all sorts of goodies without raising taxes, steal the people's labor and savings and just generally rig the system in favor of corruption.

Yes, debt as a percentage of GDP is an ominous indicator but one should realize that it's all made possible by the Fed:

Sat, 03/03/2012 - 23:42 | 2220903 geekgrrl
geekgrrl's picture

That not what I was getting at. I wanted to break out the lower 90% of the wages and salary and redraw the graph, but curiously, the data from the FRED website doesn't let me pick wages and salary for the 90%. It doesn't have any distinctions by income bracket at all. That information is destroyed in the aggregate figures.

As for the class warfare comment, it sets off a red flag for me. When I point out that virtually all of the gains of the last 30 years have gone to the top 10% (more to the top 1%), this is just a fact, and I hope we can at least agree that this is an accurate description of what has actually happened.

Sat, 03/03/2012 - 00:36 | 2219119 q5251355
q5251355's picture

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Sat, 03/03/2012 - 10:39 | 2219529 cnhedge
cnhedge's picture

oil price will shock the economy again.

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