Great Depression Online Archive Issue:

The Smoke and Mirrors of Stimulus

Great Depression Online
Long Beach, CA
November 03, 2009

Inside This Issue You Will Discover…

*** Garbage In, Gospel Out
*** GDP Garbage
*** The Smoke and Mirrors of Stimulus
*** And More

“Facts are stubborn things, but statistics are more pliable.” – Mark Twain

Garbage In, Gospel Out

‘Garbage in, garbage out,’ say the computer geeks.  Of course, this is nothing profound; it’s just mere logic.  What you put into something is what you get out.  That’s how the world works.

Petronius, a Roman courtier during the first century reign of Nero, had a sardonic sense of his fellow man when he said, “Mundus vult decipi, ergo decipiatur.”  “The world wants to be deceived, so let it be deceived.”

Of this basic truth, devoted number crunchers have added a new twist to the ‘garbage in, garbage out’ maxim calling it ‘garbage in, gospel out.’

~~~~~~The Truth About Black Monday~~~~~~

Black Monday: Ancient History Or Imminent Future?  
By Nico Isaac

What does the U.S. stock market now have in common with the famous crash of 1929?  This news excerpt and chart from some of Bob Prechter’s latest analysis reveals startling…

Read More

~~~~~~~~~~~~~~~~~~~~~~~~~

Here at the GDO we’re strongly suspicious of statistics for this very reason.  While we believe in numbers and calculations, we’re skeptical of how the numbers were collected and how they came to be.  What were the protocols?  Can we see their chain of custody?  Can we decipher the footnotes?

When it’s all said and done were they massaged by politics, refabricated by the state, and distorted to deceive the world?

GDP Garbage

Last Thursday the Commerce Department reported the nation’s GDP grew at an annual rate of 3.5 percent last quarter.  The stock market went wild…with the DOW running up a 200 point celebration.

By Friday investors had paused long enough to consider just what the 3.5 percent GDP was comprised of.  In their deliberation, they concluded it was garbage.  By the end of the day the market had given back Thursday’s gains and then some…with the DOW dropping 249 points.

What was it that turned Thursday’s elation into Friday’s desolation?

In short, it was the facts – the growth was fabricated.  GDP was primarily comprised of durable goods and residential real estate, categories both supported by massive government stimulus like the Cash-for Clunkers and first time home buyer tax credit programs.  

According to Michael Shedlock at http://globaleconomicanalysis.blogspot.com, “Cash-for-Clunkers added a one-time contribution of 1.66 percentage points to GDP.  Auto sales have since collapsed so all the program did is move demand forward.

“Government spending increased at 7.9 percent in the third quarter which is certainly nothing to cheer about.

“Personal income decreased $15.5 billion (0.5 percent), while real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent last quarter.  Those are horrible numbers.

“The savings rate is down, which no doubt has misguided economists cheering, but people spending more than they make is one of the things that got us into trouble.”

Here’s the summation…

“The government sloshed trillions around and yet disposable income is down, jobs are horrendously weak, and the only reason GDP rose is wasteful government spending, cash-for-clunkers and extremely unaffordable housing tax credits whose effect is soon going to start diminishing even though the program was just extended.”

The Smoke and Mirrors of Stimulus

Wall Street may finally be catching on to the fact that the seven-month rally grossly exceeded even the most wildly optimistic hopes for an economic recovery.  At the same time, the smoke and mirrors of stimulus does nothing to help the average man on the street.  Rather it temporarily puffs up the GDP so government economists can proclaim the recession is over.

Last Friday the White House claimed 640,329 jobs had been created by the stimulus bill.  For the reasons above, we’re suspicious of this number.  But even if it’s true, it accounts for just 9 percent of the 7 million jobs lost since the depression began.

Small businesses and entrepreneurs will ultimately provide the new jobs that provide new economic growth, not government stimulus.  But small business growth may stall out for awhile on a rocky reef.  For the financial ship has once again run aground.

On Sunday CIT Group, one of the leading lenders for small businesses, filed for Chapter 11 protection.  This marked the fifth largest corporate bankruptcy filing in U.S. history, behind such epic flops as Lehman Brothers, Washington Mutual, WorldCom, and General Motors.

“The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” said Jeffrey M. Peek, Chairman and CEO.

Nonetheless, we presume their lending business may be a tad stifled by the bankruptcy filing.  Alas credit will be tight for many small businesses just as they attempt to capitalize on the holiday shopping season.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  The bankruptcy of CIT Group may be the event that triggers the next leg down of the U.S. stock market…and a repeat of 1930.  What does the U.S. stock market now have in common with the famous crash of 1929?  This news excerpt and chart from some of Bob Prechter’s latest analysis reveals startling…

Read More

 

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