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How Long Can Economic Reality be Ignored?
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Trump and Hitlery have come out with the obligatory “economic plans.” Neither them nor their advisors, have any idea about what really needs to be done, but this is of no concern to the media.

The presstitutes operate according to “pay and say.” They say what they are paid to say and that is whatever serves the corporations and the government. This means that the presstitutes like Hitlery’s economic plan and do not like Trump’s.

Yesterday I listened to the NPR presstitutes say how Trump pretends to be in favor of free trade but really is against it, because he is against all the free trade agreements such as NAFTA, the Trans-Pacific and Trans-Atlantic partnerships. The presstitutes don’t know that these are not trade agreements. NAFTA is a “give away American jobs” agreement, and the so-called partnerships give away the sovereignty of countries in order to award global corporations immunity from laws.

As I have reported on many occasions, the Oligarchs’ government lies to us about everything, including economic statistics. For example, we are told that we have been enjoying an economic recovery since June, 2009, that we are more or less at full emploment with an unemployment rate of 5% or less, and that there is no inflation. We are told this despite the facts that the “recovery” is based on the under-reporting of the inflation rate, the unemployment rate is 23%, and inflation is high.

GDP is measured in current prices. If GDP rises 3% this year over last year, the output of real goods and services might have risen 3% or prices might have gone up by 3% or real output might have dropped but is masked by price increases. To know what really happened the nominal GDP number has to be deflated by the amount of inflation.

In times past we could get a reasonable idea of how the economy was doing, because the measure of inflation was reasonable. That is no longer the case. Various “reforms” have taken inflation out of the measures of inflation. For example, if the price of an item in the inflation index goes up, the item is taken out and a cheaper item put in its place. Alternatively, the price rise is called a “quality improvement” and not counted as a price rise.

In other words, by defining inflation away, price increases are transformed into an increase in real output.

The same thing happens to the measure of unemployment. Unemployment simply isn’t counted by the reported unemployment rate. No matter how long and hard an unemployed person has looked for a job, if that person hasn’t job hunted in the past four weeks the person is not considered to be unemployed. This is how the unemployment rate is said to be 5% when the labor-force participation rate has collapsed, half of American 25-year-olds live with their parents, and more Americans age 24-34 live with parents than independently.

Finanial reporters never inquire why government statistics are designed to provide an incorrect picture of the economy. Anyone who purchases food, clothing, visits a hardware store, and pays repair bills and utility bills knows that there is a lot of inflation. Consider prescription drugs. AARP reports that the annual cost of prescription drugs used by retirees has risen from $5,571 in 2006 to $11,341 in 2013, but their incomes have not kept up. Indeed, the main reason for “reforming” the measurement of inflation was to eliminate COLA adjustments to Social Security benefits.

Charles Hugh Smith has come up with a clever way of estimating the real rate of inflation—the Burrito Index. From 2001 to 2016 the cost of a burrito has risen 160 percent from $2.50 to $6.50. During these 15 years the officially measured rate of inflation is 35 percent.

And it is not only burritos. The cost of higher education has risen 137% since 2000. The Milliman Medical Index shows medical costs to have risen far above official inflation from 2005 to 2016. The costs of medical insurance, trash collection, you name it, are dramatically higher than the official rate of inflation.

Food, tuiton and medical costs are major outlays for households. Add zero interest on savings to the problem of coping with major cost increases when real incomes are stagnant and falling. For example, grandparents cannot help grandchildren with their student loan debt when zero interest rates force grandparents to draw down their savings in order to supplement essentially frozen Social Security benefits during a time of high inflation. Savings are being taken out of the economy. Many families exist by paying only the minimum payment on their credit card balance, which means that their debt grows monthly.

Real economists, if there were any, looking at the real economic picture would see an economy collapsing into widespread debt deflation and impoverishment. Debt deflation is when consumers after they service their debts have no discretionary income left with which to drive the economy with purchases.

The reason that Americans have no income from their savings is that public authorities put the welfare of a handful of “banks too big to fail” above the welfare of the American people. The enormous liquidity created by the Federal Reserve has gone into the financial system where it has driven up the prices of financial instruments. There has been a stock market recovery but not an economic recovery.

In the past liquidity implied economic growth. When the Federal Reserve loosened monetary policy, the increase in consumer demand caused an increase in the output of goods and services. Stock prices would rise anticipating higher profits. But in recent years financial markets have not been driven by fundamentals, which are adverse, but by the liquidity that the Federal Reserve has pumped into the banking system in order to save a handful of over-sized banks and insurance giant AIG, all of which should have been allowed to fail. The liquidity had to go somewhere and it went into the prices of stocks and bonds, causing a tremendous asset inflation.


What sense does it make to have zero interest rates when high inflation is eating away the real value of money? What sense does it make to have high price/earnings ratios when the consumer market cannot expand? What sense does it make to have a stable dollar when the Federal Reserve has created far more dollars than the economy has created goods and services? What sense does it make to undermine the financial condition of pension funds and insurance companies with zero interest rates, leaving them with no fixed income hedge against the stock market?

It makes no sense. We are in a trap in which collapse seems the only way out. If interest rates reflected the real rate of inflation, the hundreds of trillions in derivatives would blow up, the stock market would collapse, unemployment could not be hidden with under-measurement, budget deficits would rise. What would public authorities do?

When crisis hits, what happens to corporations that used profits and borrowed money, that is, debt, to buy back their own stocks in order to keep the price high and, thereby, executive bonuses high and shareholders happy and disinclined to support takeovers? Chaos and its companion Fear take over from Contentment. Hell breaks loose.

Is more money printed? Does the money find its way into consumer prices? Do we experience simultaneously massive inflation and massive unemployment?

Don’t expect the presstitutes, the politicians, or Wall Street to confront any of these questions.

When the crisis occurs, it will be blamed on Russia or China.

(Republished from by permission of author or representative)
• Category: Economics • Tags: Federal Reserve, Unemployment 
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  1. Rob Payne says:

    I blame Bill Clinton. I used to work as an electro/mechanical designer-drafter in Silicon Valley. Jobs were plentiful, high paying, and easy to find. After Clinton was through with the economy you couldn’t find a job to save your life. I went around to various job-shops which used to place people like me as well as engineers and related jobs. I was told that they only placed janitors now. A friend owned a restaurant in Redwood City, CA. His customers were people in nearby office buildings. After Clinton the offices were all empty. You could drive around San Jose and where there used to be thriving manufacturing companies and all you saw were empty parking lots. What’s also interesting is why are the prices for houses rising? I bought a house in 2011 for 115,000. Zillow says it’s now worth 283,000 which is a total crock. Nobody in their right mind would buy my house for 283,000. I’ve been following the housing market in my area. There are lots of houses for sale, many have been sitting on the market for almost a year. I see quite a few houses that have dropped their prices from their original asking price, and a lot of houses proclaim they will be auctioned. From what I can see very few people are buying houses in my area (I’m no longer in Silicon Valley). It seems obvious that the prices of houses are being manipulated but unlike the last bubble there’s no rush to buy houses. We now live in the United States of BS.

  2. Rich says:

    I think we’ve got a long way to go before a collapse, although our quality of life will probably continue to decline. The US is a very wealthy nation and can live off that wealth for a long time, increasing taxes on the wealthy, providing workfare jobs and more civil service type jobs. The only thing I believe can destroy us, is an unnecessary war that turns out to be much worse than anticipated. Something like the Russo-Japanese War that helped bring down the Romanovs.

    • Replies: @Jus' Sayin'...
  3. The collapse is occurring here and now, in real time. But it’s in slow motion. We are the frogs who are being told continuously that the water is not getting hotter.

    The US is in a fragile position. It is not “incredibly rich” — not any more. It’s a facade, a holographic projection. The people at the top of the heap are clueless and can’t think of anything to do but keep up the pretence of recovery, of near full employment, of prosperity.

  4. @Rich

    Adam Smith wrote, “There is a lot of ruin in a nation.” Venezuela has now provided a rough measure of how much “ruin” there was in that country. Other countries, e.g., Greece, are getting close. The business, political and economic elites in Europe and America seem intent on determining in absolute, numeric terms what “a lot” means for their nations.

    The economic systems of many European and American nations are running on life support. They have injected their instability into the international economic system. The political will to address current economic problems realistically is non-existent within individual nations and across the international economy.

    The situation is so bleak that I expect any major shock to the system — not just an unexpected and disastrous war — could topple the whole house of cards. Unfortunately the political result of such collapses is often the imposition of a fascistic, econ0mic regime like that which is now completing its destruction of Venezuela.

    • Replies: @Rich
  5. Renoman says:

    Of course we’re screwed, almost no one doses any real work! We’re all just pushing paper around robbing our neighbors. Take a look around at your neighbors and ask what do they do? You’ll find civil servants, people living off government hired service companies, insurance fraudsters, loan sharks, sales people, retired people and folks on welfare or some other subsidy program. You might get the odd Carpenter or other trades person who actually do something but even there it’s mostly remove and replace work, no real building.
    They stole it all and they sold it cheap.
    What fools we all were to trust them.

  6. When you stick to the facts – particularly the economic facts – you can and do write excellent pieces like this one. The facts are that nearly all Western governments support mass immigration policies and cheap labour, whilst cooking the books to make it appear inflation and unemployment are at low levels. This is the great conspiracy of our times.
    And you are right, when the system finally collapses – and not long now – they will blame Russia and China

    • Replies: @jtgw
  7. jtgw says: • Website

    Excellent analysis!

  8. jtgw says: • Website

    I think there’s a case to make that open borders might be a way for the upper classes to push off the day of reckoning a bit more, but PCR is absolutely rather that the root cause is inflation and manipulation of interest rates. With the general malinvestment in the system, it is impossible to know how much immigration our economy really demands. But with a healthy economy grounded in sound money, I don’t think immigration would be the problem it is now.

    • Replies: @Verymuchalive
  9. woodNfish says:

    Trump and Hitlery have come out with the obligatory “economic plans.” Neither them nor their advisors, have any idea about what really needs to be done…

    I call “BS!” on this statement, Roberts! Stop lumping Trump in with Hitlery just because you’re too f’ing lazy to do your homework! Trump’s economic plan has been on his website for at least a year, and he has a very good idea of what needs to be done – stop selling out the country and us, its citizens! He has a plan to create jobs and a tax plan that will help do exactly that and re-repatriate the cash our corporations are holding overseas because of the high corporate taxes here in the US. Trumps plan to halt illegal immigration will help get our own people back working is also an excellent idea.

    Roberts, if you are going to continue to lie then there is no difference between you and the presstitutes you like to berate!

  10. Rich says:
    @Jus' Sayin'...

    I hope you’re wrong, but I could see such a scenario playing out. Of course, we’ve been hearing doom and gloom for so long, it’s hard to believe the next one will be the big one. Remember, though, the US is no Venezuela. There’s a whole lot more wealth here.

  11. When the crisis occurs, it will be blamed on Russia or China.

    Of that you can be sure.

  12. mtn cur says:

    NAFTA was also a give away of small Mexican family farms to el patron, who already owned 80 % of the arable land anyway. Guys with ring hoes and a sack of heirloom OP corn cannot compete with subsidized corporate farms even as well as small American family farms, which is why Pedro had to come up here to do Manuel labor and feed his kids with food stamps, WIC and school feeding programs, which serve the toxic, plastic crap which corporate farms now produce and which supports the claim that ADM, Monsanto, Cargill, and Tyson etc. are paying their own way

  13. @jtgw

    Automation and technological change has and is replacing not only factory jobs but middle class service occupations as well, everything from travel agents to print journalists. Economists generally assume an increase in productivity of 2.25 % in industrial economies EVERY YEAR.
    The economy “really demands ” an immigration rate of zero.
    In ” a healthy economy grounded in sound money ” the effect would be even more marked. Even more humans would be replaced by non-human devices.

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