Economic Metrics Are Now Used As Political Tools


It’s now clear that the spate of positive economic data coming out of Europe prior to the German Federal Election in September 2013 was just political gaming to get Angela Merkel back into office.


The reasoning here is obvious: Merkel has walked a tightrope act between appearing to play “hardball” with bankrupt EU nations while effectively writing every check needed to keep the EU project together.


Consider that the alternative to Merkel was a completely anti-Euro party that wanted Germany out of the Euro, it’s fairly obvious who EU-leaders would be supporting during this election.


Germany's exceptionalism is obvious. Whereas electorates across the European Union have punished their governments for the Great Recession and the euro crisis, Germans re-elected Chancellor Angela Merkel and displayed strong support for her party, the Christian Democratic Union (CDU), in the recent election


Elsewhere, populist anti-European parties of the right have been gaining ground with campaigns directed against immigrants and minorities, especially Muslims….   Germany, by contrast, has no anti-European party with any serious support. Even the newly formed Alternative for Germany – which did unexpectedly well in the recent election, finishing just short of the 5% threshold needed to enter the Bundestag – insists that its anti-euro agenda is not anti-Europe. They want to end the common currency, because, in their view, it is undermining the European ideal.


Merkel’s Germany is effectively the glue holding the whole EU mess together. And it is not surprising that those EU-political leaders (PMs in Spain, Greece, Portugal, etc) in danger of being ousted by anti-Euro parties in their home countries are exceedingly “pro-Merkel.” No Merkel= no Euro = no more political career for most of this crowd.


Note in the below article how the improvement in unemployment for August was revised down after Germany’s elections.


The unemployment rate across the 17-country eurozone hit a record 12.2 percent in September, with about 19.5 million people classed as jobless by EU data agency Eurostat.


Thursday's figures showed the August rate had been revised up from 12.0 percent to 12.2 percent…


Analysts said the "revising away" in August of previous falls dented hopes of the labour market having bottomed out.


Economic data can be and is commonly used as a political tool. The EU is just the latest example of this. In the US we’ve seen this same game played out using GDP numbers.


The reason for this is that all “adjusted” GDP data involves a “deflator” metric that is meant to adjust for inflation. The Feds often use an inflation adjustment that is even lower than their official Consumer Price Index metric (which is already massaged to downplay inflation) in order to make GDP growth look greater.


Consider this simple example. Let’s say that the US GDP grew by 10% last year. Now let’s say that inflation also grew by 10%. In this scenario, real inflation adjusted GDP growth was ZERO.


However, announcing ZERO GDP growth is a major problem politically. So what do the Feds do? They claim that inflation was just 8%, and BOOM you’ve got 2% GDP growth announced for a year in which real GDP growth was actually zero.


Using nominal GDP, it’s clear the US is back in recession as the year over year change has brought us to a reading of sub-4. Every time this has happened in the last thirty years the US economy has been in recession.



Economic metrics have become effective tools for political propaganda. Don’t fall for them.


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Best Regards,


Phoenix Capital Research