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Bogus U.S. Recovery

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So you thought things were getting better in the US? A hard-hitting lesson from Paul Craig Roberts explains that it’s quite the contrary as the US Government use a method of rigged inflation figures to manipulate the data. Last week the US Bureau of Economic Analysis announced its advance estimate that in the last quarter of 2011 the economy grew at an annual rate of 2.8% in real inflation-adjusted terms, an increase from the annual rate of growth in the third quarter.

What the presstitute media did not tell us is that almost the entire gain In GDP growth was due to “involuntary inventory build-up,” that is, more goods were produced than were sold.

Net of the unsold goods, the annualized real growth rate was eight-tenths of one percent.

And even that tiny growth rate is an exaggeration, because it is deflated with a measure of inflation that understates inflation. The US government’s measure of inflation no longer measures a constant standard of living. Instead, the government’s inflation measure relies on substitution of cheaper goods for those that rise in price. In other words, the government holds the measure of inflation down by measuring a declining standard of living. This permits our rulers to divert cost-of-living-adjustments that should be paid to Social Security recipients to wars of aggression, police state, and banker bailouts.

When the methodology that measures a constant standard of living is used to deflate nominal GDP, the result is a shrinking US economy. It becomes clear that the US economy has had no recovery and has now been in deep recession for four years despite the proclamation by the National Bureau of Economic Research of a recovery based on the rigged official numbers.

The government has given the appearance of growth by manipulating the inflation figures. Checkout John Williams’s ShadowStats website for more info on the real inflation figures.

For example, according to the government’s own data, payroll employment in December 2011 is less than in 2001. Meanwhile, there has been a decade of population growth. The presstitute media calls the alleged economic recovery a “jobless recovery,” which is a contradiction in terms. There can be no recovery without a growth in employment and consumer income.

Real average weekly earnings (deflated by the government’s CPI-W) have never recovered their 1973 peak. Real median household income (deflated by the government’s CPI-U) has not recovered its 2001 peak and is below the 1969 level. If earnings were deflated by the original methodology instead of by the new substitution-based methodology, the picture would be bleaker.

Consumer confidence shows no recovery and is far below the level of a decade ago.
How does an economy recover without a recovery in consumer confidence?

Housing starts have remained flat since 2009 and are below their previous peak.

Retail sales are below the index level of January 2000.

Industrial production remains below the index level of January 2000.

To repeat, the only indicator of economic recovery is the GDP deflated with an understated measure of inflation.

When you pull back the veil, the US economy reveals the real reason for growth over the past few decades, rather like the Wizard being exposed in the “Wizard of Oz”.

The Federal Reserve under Alan Greenspan compensated for the absence of US consumer income growth with a policy of easy credit and a policy of driving up home prices with low interest rates. This policy allowed people to refinance their homes and to spend the inflated equity in their homes that Greenspan’s policy created.

In other words, an increase in consumer indebtedness and dissavings drove the economy in the place of the missing growth in consumer incomes.

Today, consumers are too indebted to borrow, and banks are too insolvent to lend. Therefore, there is no possibility of further debt expansion as a substitute for real income growth. An offshored economy is a dead and exhausted economy.

 

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Court Ruling Potentially Devasting For Greek Banks

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A court has ruled in Greece that an employed woman can have her untenable debt owed to the banks written off. Normally this has only been allowed for Greeks who have found themselves unemployed. This could have massive implications for the Greek banks and many people could now follow a similar route and force the troubled banks to write off their loans.

Sunday’s Kathimerini understands that the Justice of the Peace Court in Hania based its decision on a 2010 law that allows judges to give protection to people struggling to meet their financial commitments. Until now, the legislation has only been used to give debt relief to unemployed people or those with no substantial income.” This means that virtually every indebted person in Greece, regardless of employment status will rush into court rooms, demanding equitable treatment and a similar debt write down. It also means that the Greek bank sector, already hopelessly insolvent, is about to see its assets, aka loans issued to consumers, about to be written off entirely. And since the ultimate backstopper of the entire Greek financial system is the ECB, the creeping impairments will have no choice but to impact, very soon, the mark-to-market used by both the ECB and the various national banks. Finally, how long before other courts in Europe express solidarity with their own citizens and proceeds with similar resolutions?  

Source: ZeroHedge

California To Run Out Of Money In A Month

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With Europe getting most of the headlines lately some of the stories in the US are slipping under the radar but one story run by ZeroHedge grabbed my attention. California, which could be considered the 8th largest economy in the world and has been struggling for a very long time faces running out of money shortly.

the insolvent state of California, whose controller just told legislators has just over a month worth of cash left. From the Sacramento Bee: “California will run out of cash by early March if the state does not take swift action to find $3.3 billion through payment delays and borrowing, according to a letter state Controller John Chiang sent to state lawmakers today. The announcement is surprising since lawmakers previously believed the state had enough cash to last through the fiscal year that ends in June.” ….uh, oops?

Draghi To Push LTRO to €1.5 Trillion

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So good is the job Mario Draghi doing with the LTRO that there are reports that he is about to add another €1 trillion in February to the existing €500 billion in loans. The LTRO is being used effectively in buying up sovereign bonds and keeping things at bay.

Alberto Gallo from RBS said Draghi’s €489bn loans to banks at 1pc for three years (LTRO) is having all kinds of toxic side-effects, which is disturbing given that the Financial Times splashed today that the banks may draw down another €1 trillion at the second LTRO in late February

The banks are certainly stepping up purchases of Club Med and Irish sovereign bonds, the so-called Sarkozy “carry trade”. They also bought 62pc of the latest debt issue by the EFSF rescue fund in January, up from a quarter in the previous issue.

This might explain why it’s so hard to get credit in the economy. Like that’s going to help the recovery. 😉

While the banks are buying more sovereign debt, they are cutting credit to the rest of the economy, with falls of 2.4pc in Italy and Portugal in December, and 0.8pc for the eurozone as a whole.

Source: Ambrose Evan-Pritchard

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