U.S.
Government Economic Numbers Are Not What You Think They Are!
By Victor Sperandeo with
the Curmudgeon
U.S. Government economic numbers are not what you
think they are!
by Victor Sperandeo with the Curmudgeon
Introduction:
As Ive stated many times in these posts, one cannot
trust ANY U.S. government economic numbers unless you can prove them
yourself. Such skepticism is especially
true in election years like 2020.
The U.S. GDP estimates come from the Bureau of
Economic Analysis (BEA). To make these numbers look good, BEA misleads,
mischaracterizes and concocts estimates that deceives the public in order to
paint a positive picture of the economy.
U.S. Government Skullduggery:
The scam today is the $2.4 Trillion of federal
government coronavirus stimulus programs (an excellent summary of the
U.S. economic stimulus program for businesses can be read here).
For example, the CARES program allocated up to
$46 billion for loans and loan guarantees for air carriers, other
related businesses, and businesses critical to maintaining national
security. These are the same airlines
that spent all their earnings buying back their own stock. Incredibly, that $46 Billion gift is
counted as an increase in U.S. GDP.
The government handout to the airlines is not
supposed to be reoccurring, but maybe it will be if the airlines continue to be
in financial difficulty?
Foreboding Signs of Economic Trouble:
Here are a few other signs of U.S. economic weakness:
60 percent of Resturants have permanently closed
as of July 25th says Yelp and The Hill. However, that percentage is surely higher
now with the restriction prohibiting indoor dining in many states, like
California.
A WSJ editorial (9/12-13/2020 print edition)
titled A Plea to Save New York editorial states:
The Partnership
for New York City has estimated that a third of small businesses will
close permanently. New York Citys unemployment rate was 19.8% in July, one
of the highest rates in the country.
This damage will be felt for years.
As noted in our companion piece, Global
Economies Rebound, but wont reach Pre-Coronavirus levels till 2022,
airlines are flying at greatly reduced capacity, cutting jobs and retiring
aircraft. For example, United Airlines will eliminate 16,000 jobs next month as
it shrinks operations.
Also, many retail stores are closed, require
reservations to enter or are permitting only 1 to 3 customers in the store at
any one time (after a temperature check plus health related Q&A).
Have a look at this eye opening chart of World Trade,
courtesy of Bloomberg. It speaks for
itself:
I could bore you with many more of the impossible
growth realities being projected, but instead urge you to look behind the
numbers.
Guess Whats Included in U.S. GDP?
Did you know that the phantom deficit spending
programs (like income handouts to corporations) and printed fiat currency
(that was created out of thin air by the Fed) are counted as part of U.S.
GDP?
The Fed balance sheet on 2/12/20 was $4.182 trillion
but on 6/10/20 it was $7.010 an increase of +$2.828 trillion or +68%!
Also, the Feds bond purchases, like investment grade
corporate bonds, broad market index bond ETFs and High Yield Bond ETFs,
created profits for BlackRock (iShares ETFs), State Street Global Advisors (JNK
ETF) and other investment banks offering such corporate bonds and ETFs.
Doublines Jeffery
Gundlach had this to say about the Feds buying of such bonds:
The Federal
Reserve is presently acting in blatant non-compliance with the Federal Reserve
Act of 1913. An institution violating
the rules of its own charter is de facto admitting that said institution has
failed and is fundamentally broken.
.
Sidebar: Fed Buying U.S. Debt at Auctions
Do you realize that the Fed buying Treasuries and
Mortgage bonds is equivalent to the U.S. government selling the same debt
twice?
·
First when the Treasury sells
bonds/notes/bills in the new issues open market auction.
·
Then again, when the Fed buys
those fixed income securities from its primary
dealers with freshly printed (aka keystroke) fiat dollars.
If Abbott and Costello arranged this sharade it would
be a comedy routine like Whos on First.
.
CBO Estimates of U.S. GDP and Budget Deficits:
The CBO (Congressional Budget Office) Update
to the Budget Outlook 2020-2030, September 2020 projects
that from 2020 to 2030, annual real GDP will be 3.4% lower, on average, than it
projected in January. The annual unemployment rate, which was projected to
average 4.2%, is now projected to average 6.1%.
CBO projects a federal budget deficit of $3.3
trillion in 2020, more than triple the shortfall recorded in 2019. At 16% of GDP, the deficit in 2020 would be
the largest since 1945.
In fiscal year 2021 (the so-called mystical V
Recovery year), the deficit is projected to be $1.8 trillion or 8.6% of GDP.
Thereby, the real 2020 U.S. government deficit
is actually the sum of: $3.3 trillion fiscal deficit + 2.9 trillion bond buys
by the Fed + $6.2 trillion in federal government stimulus payments +
off balance sheet spending or somewhere north of $12.4 trillion!
Each of those numbers is historic in its own
way. It puts the U.S. on a course to
eclipse World War II-era highs in the budget deficit, national debt and
handouts. Of course, the Federal
Reserves balance sheet is at an all-time high and likely to climb higher in
the months ahead.
Victors Conclusions:
All the above fiscal and monetary stimulus is not
recurring and so its contribution to GDP is a mirage.
What is permanent is the millions, if not tens of
millions of small businesses that are now dead and buried. Their capital and
jobs are gone and will never see the so called V recovery, which the
Curmudgeon and I dont believe will happen. (John Williams of ShadowStats has
been forecasting a L shaped economic recovery for some time).
Many of the small business survivors and workers
urgently await the next stimulus package thats been stalled by party line
Congressional differences.
Do you believe in the tooth fairy? Good luck with all the propaganda you will
read, see, and hear!
Closing Quote:
To understand what is really happening in the economy
vs what you might read or hear, please reflect on this quote:
Appearances to the mind are of four kinds. Things
either are what they appear to be; or they neither are, nor appear to be; or
they are, and do not appear to be; or they are not, and yet appear to be.
Epictetus 50
AD-135 AD
Good health, good luck and till next time
.
The Curmudgeon
ajwdct@gmail.com
Follow
the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has
been involved in financial markets since 1968 (yes, he cut his teeth on the
1968-1974 bear market), became an SEC Registered Investment Advisor in 1995,
and received the Chartered Financial Analyst designation from AIMR (now CFA
Institute) in 1996. He managed hedged equity and alternative (non-correlated)
investment accounts for clients from 1992-2005.
Victor
Sperandeo is a historian, economist and financial innovator who
has re-invented himself and the companies he's owned (since 1971) to profit in
the ever changing and arcane world of markets, economies and government
policies. Victor started his Wall Street
career in 1966 and began trading for a living in 1968. As President and CEO of
Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and
development platform, which is used to create innovative solutions for
different futures markets, risk parameters and other factors.
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