Great Depression Online Archive Issue:

Smelling The Roses

Great Depression Online
Long Beach, CA
May 30, 2008

Inside This Issue You Will Discover…

*** It’s Already Happening
*** Smelling The Roses
*** Pay More Get Less
*** And More

It’s Already Happening

“The only way the economy is not going to recede is if someone cooks the books.” – Don Alpert, Managing Director – Westwood Capital

We find these sentiments to not be entirely accurate.  First we believe the economy already is receding.  And second, we believe the books are already being cooked.

On the first point, we’re in agreement Warren Buffet, one of the richest men on the planet, who shared his thoughts over the weekend while in Germany.  AP reports from Berlin…

“Warren Buffett, whose business and investment acumen has made him one of the world’s wealthiest men, was quoted in an interview published Sunday as saying the U.S. economy is already in a recession.

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“Asked by Germany’s Der Spiegel weekly whether he thinks the U.S. could still avoid a recession, he said that as far as the average person is concerned, it is already here.

“‘I believe that we are already in a recession,’ Buffet was quoted as saying.  ‘Perhaps not in the sense as defined by economists.  …But people are already feeling the effects of a recession.’”

He also added that…

“It will be deeper and longer than what many think.”

Here we won’t fail to mention that yesterday the Commerce Department released GDP data for the first quarter of 2008.  It showed a miraculous expansion rate of 0.9%. 

We know that, as defined by economists, you can’t technically be in a recession if you still have positive growth.  But if you want to get technical, this point is a mere technicality.  We put more credence in experience than in numbers.  Which brings us to our second point…that the books are already being cooked.

Smelling The Roses

The fun thing about numbers is that if they don’t support what you want them to, you can fudge them.  And it’s okay to do so as long as you state your assumptions in the footnotes.  In fact, fabricating misinformation has become an impressive art.

To keep the core inflation rate down just strip out the cost of food and gas.  And, whenever possible, apply “seasonal adjustments” to the price of gas…just be sure the price is always adjusted down.  Then there is the “hedonic pricing method,” which works well to tinker with price inflation numbers.  Namely, it tinkers them down.  And, of course, there’s the “birth/death model” that works magic on the unemployment rate…it practically makes it disappear.  Punch in the lofty numbers and they come out short and dumpy.

But the problem with fudging the numbers is that, over time, layer after layer of small adjustments pile up until they bear little resemblance with reality.  You pause to look around and smell the roses, but instead of a satisfying sweet perfume, your nose burns from the scent of rot and decay.  In other words, you experience a world that’s dramatically at odds with the rosy numbers reported by the Bureau of Labor Statistics.

Pay More Get Less

For example, the BLS reported a seasonally adjusted CPI of 0.2% for the month of April.  But that’s hardly the gentle price inflation people are experiencing.  Just talk to retiree Irene Arnold, of Butler, Wisconsin.  She was asked by AP Business Writer, J.W.Elphinstone, what her experience has been…

“‘You go to the store and you can’t get too many groceries for your money,’ said Arnold, who is cutting back on pricier items like meat, milk and fruit.  ‘It seems like you don’t have to have too much in your basket and the cost is really high.”’

And then there’s Becky Deidrich, a 43-year-old accountant from Franklin, Wisconsin…

“She wonders how high gas will go.  ‘I don’t think it’s over yet.  And I think it’s going to have a lasting effect on consumers,’ she said.

“Gas prices hit another record high on Tuesday at almost $3.94 a gallon -- just a day after the unofficial start of the summer driving season, according to a survey of stations by AAA and the Oil Price Information Service.”

Higher prices and a receding economy….  Some call that stagflation.  Others call it misery.  Whatever you call it, and regardless of what the BLS numbers say, to quote Warren Buffett…  “It will be deeper and longer than what many think.”

Sincerely,

M.N. Gordon

Great Depression Online

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