By Monty Pelerin, on February 27th, 2010
“No Recovery?” In the best Claude Rains fashion, “I am shocked, shocked!”
There is no economic recovery, and there will be no economic recovery this year and probably not next. Yet the media, mainstream economists and the Administration insist we are in the midst of one. Things are definitely getting better, at least according to them. This concerted propaganda effort is reminiscent of a major Madison Avenue advertising campaign designed to wear down the resistance of the targeted buyer. The campaign is not based in reality. Its success is dependent upon three things: 1) constant repetition; 2) the public’s short memory span; and 3) the public’s economic illiteracy.
As time passes, however, more data appears and contradicts the “advertising” message. Spinning the data becomes harder and harder to do. Daryl Montgomery provides an excellent article detailing the inconsistencies of the data with the claims of a recovery. He states:
A number of economic reports in the last few days indicate that the U.S. economy has not only not failed to recover from the recession, but continues to fall deeper into a hole. Banking, consumer confidence, employment numbers, durable goods and the housing industry – each representing a different aspect of the economy – are all sending out troubling signs. Despite the onslaught of negative data, mainstream economists continue to echo the official U.S. government view that “the recovery is still on track.”
For an old movie buff, each spinning provides a “Rains moment.” No, supporters do not express “shock” when
Continue reading The Claude Rains Recovery
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By Monty Pelerin, on January 5th, 2010
Four Horsemen of the Apocalypse
Despite the rising stock market, virtually everything else continues to deteriorate in the economy. An earlier post dealt with this anomaly.
There literally is not one thing that can be claimed as a positive. And that includes the phony GDP third quarter “improvement” and presumably a better (preliminary) number for the fourth quarter. Here is a quick (not all inclusive) list as to why things will get worse rather than better:
Bankruptcies and unemployment continue to increase.
Foreclosures are increasing and will get worse.
The Housing market will worsen as a result of more foreclosures and more mortgage resets in 2010
The Federal Government’s deficits continue to grow
Foreigner financing, necessary to support our deficits, is decreasing
The private sector continues to decline as evidenced by state income and sales tax collections
Private and state pensions continue to fall further behind actuarial soundness putting special pressures on local and state governments
States continue to spend beyond sustainable levels
Consumers will underspend for several years because of too much debt
Health care “reform” adds costs and problems to the out-years
Legislation passed and proposed causes small business to hunker down and refrain from expanding or hiring
The banking system continues to deteriorate
Credit is being increasingly withheld from small business and commercial real estate
The FDIC is out of money
Bailouts, promised to produce returns for taxpayers, are turning sour
Fannie and Freddie are now completely guaranteed by taxpayers
The FHA is repeating the same mistakes as Fannie and Freddie
There is no private mortgage market left; much of existing mortgage
Continue reading 2010 Will Be Worse
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By Monty Pelerin, on January 3rd, 2010
Sucker Born Every Minute
Below is a graph from the US Treasury Department. It tracks the rolling 12-month growth rates of taxes received. There are two points to be made:
Two of the three categories are down 30%; the other is down about 8%.
There is no indication that these figures have stopped going down.
The government is telling us that the recession is over. Forecasts for the 4th quarter GDP run as high as 5%
At best, this is surreal mathematics, probably unsaleable to a sixth grader (in private school). At worst, it is outright duplicity on the part of the government.
Simply put, there can be no recovery without private sector growth. The chart below clearly shows the private sector is not growing but continuing to shrink!
I have maintained in several posts that we are nearing an end point where the economy, government, the currency or a combination of the three occurs. If some of us can see this, surely many inside the government know it. After all, they are supposed to be smarter and certainly have access to better data. Because there are no options or ways out of what must happen, I have likened the government to a cornered, wounded animal that is willing to do ANYTHING to survive. Lying to the public is probably the least harmful thing they can do.
Two posts earlier today dealt with other data published by the government that make no sense, at least with respect to an economic recovery. These are Continue reading Some Recovery
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By Monty Pelerin, on December 21st, 2009 Despite what you hear and read, there can be no recovery until the private sector starts growing, and it has not.
The public sector produces no products, gets in the way and generally hinders the private sector from accomplishment. Here is what has happened in the third quarter as reported by Doug Noland: “No encouraging news on the fiscal front. Third quarter Federal government Receipts were down 11.2% from a year ago to $2.212 TN SAAR. Federal Expenditures jumped 12.7% to $3.555 TN SAAR. Compared to three years ago, Receipts were down 12% while spending was up 29%.”
Federal Government receipts, down 11.2% over the prior year, indicate a private sector still in steep decline. Federal spending soaring indicates a government out of control or desperate to “solve” or at least “hide” the problem via Keynesian economics. While government spending can pump the GDP statistics (for a while) and create “make-work” projects, this spending does not reflect real value to the economy as it would if it occured voluntarily (i.e., in the private sector).
A better way to understand this matter would be to drop the terms private and public sectors and replace them with productive and unproductive sectors. That would have the advantage of educating the public as to economic reality, which is why politicians will never deal in realistic terminology.
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By Monty Pelerin, on November 23rd, 2009 Meredith Whitney hits part of the problem precisely: the Fed cannot ease off purchases of mortgage-backed securities without a collapse of the housing market and the economy. She doesn’t deal with what happens if the Fed continues to support the housing market. This disguised quantitative easing necessary to support the housing market will lead to high inflation, possibly hyperinflation.
Mr. Bernanke, thanks to his and Mr. Greenspan’s prior meddling, is in a lose-lose situation. No matter which way he goes, he loses and so does the country. The tipping point has long past and there is no solution that can avoid one of these two ends.
Meredith Whitney Says Bank Stocks Are ‘Grossly’ Overvalued
By Josh Fineman and Thomas R. Keene
To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; Thomas R. Keene in New York at tkeene@bloomberg.net
Nov. 19 (Bloomberg) — Meredith Whitney, the analyst who has no “buy” recommendations on U.S. banks, said valuations on lender stocks are too high and what “scares” her most is the government stepping away from buying mortgage-backed securities.
“The banks are still grossly overvalued,” Whitney said today in an interview on Bloomberg Radio. “People are expecting something great to happen in 2010 and I think they are going to be severely disappointed.”
The Federal Reserve has begun slowing purchases in the $5 trillion market for so-called agency mortgage-backed securities after announcing in September that it would extend
Continue reading Meredith Whitney is Half Right
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Friedrich von Hayek
Friedrich von Hayek founded the Mont Pelerin Society.
“Monty Pelerin” is a pseudonym chosen by this blogger to convey general agreement with the philosophy, goals and spirit of the Mont Pelerin Society. No other connection exists between the blogger and the Society.
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