| WIKI | FAQ | Tech FAQ | |
 http://csua.com/feed/ | |
| ||||||
| 4/3 |
| 2006/12/15-21 [Politics/Domestic/SocialSecurity, Finance/Investment] UID:45452 Activity:moderate |
12/15 Shadow Statistics-- Ben Bernanke, Fed chairman, recently delivered
an upbeat view of the U.S. economy. It was cheerful, optimistic...
and delusional.
http://prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=53549
http://www.usatoday.com/money/2006-08-02-deficit-usat_x.htm
\_ Ok, assuing one buys this, what does one invest in? Stocks are
out, real estate (at least around here) is over-inflated.
India's economy is over-heated. I don't trust the Chinese
govt., so I don't want to invest there. Gold? Euro stocks?
Japan?
\_ AK's and canned food.
\_ I just dumped money in Canada, perhaps too late as Canada
has been solid for years now, but I think still a safe
play. Japan also looks promising, although it has looked
that way for years.
\_ If you believe in what this guy is saying, you should
head to the hills and try living as a subsistance farmer.
He makes some valid points, but waaaaay overstates his
case imho.
\_ you don't think Japan's economy and Chinese economy is not
interwind? You think Chinese economy exist in a vaccum? |
| 4/3 |
|
| prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=53549 "That is, I was born in Poland, but my father is Irish." The official government statistics hide many warts on the face of the US economy. Like makeup dabbed on an aging film star, they are an attempt to cover the wrinkles and present a veneer of youth. Like plastic surgery and tummy tucks, it is what stars do to keep up appearances. What if you learned that inflation were closer to 7% than to the official 3%? What if unemployment were closer to 12%, rather than the official 5%? What if the economy were actually contracting, as opposed to growing? What follows is a partial peek at the economy - sans makeup. And, more importantly, what it means for you and your hard-earned dough. It was the genius of writer George Orwell that he chose to build his dystopia on the foundations of language and information - how it is used to deceive, manipulate and control. His chilling novel 1984 stands out precisely because it is only a distortion of things that are happening now and that have always happened. Orwell's dystopia is a mirror in a funhouse, as you see enough of your own world in this disturbing reflection. Thankfully, there are still some people doing the important work of getting at the truth behind the official statistics - piercing the veil of Newspeak, sweeping away the cobwebs of sham. John Williams is an economist dedicated to doing just that. His Shadow Government Statistics reveals the extensive rot under the floorboards of the US economy. Let's take the official inflation rate, tracked using the consumer price index, or CPI. The idea behind the CPI is to have a fixed basket of goods and track how the prices of these things change from year to year. It only gained prominence after World War II, as a way to adjust autoworkers' labor contracts, a practice that soon spread. Over time, its importance grew and more people looked to it as a gauge of general price inflation - and, hence, to get a feel for the health of the economy. The thing is, the way the CPI is calculated changed dramatically over the years. Politicians have figured out that these statistics are useful in winning elections. Ergo, nearly every administration has altered the calculation. Every effort to change the CPI, by design, aims to make the economy look "better" than it looked before the changes. The accumulation of these changes creates a huge difference over time. It's like making a series of small changes to a ship's course in the midst of a long voyage. Soon, you wind up way off course, miles and miles from where you think you are. chart below on William's Web page shows the extent of the difference, which is just massive. The rate of inflation using only the pre-Clinton era CPI is closer to 7%! The "Experimental C-CPI-U" is another innovation, introduced by the Bush administration to lower the CPI yet again, once again to paint a kinder portrait of the old hag known as the US economy. But it's about more than just making the economy look better. For example, since increases in Social Security payments link to the CPI, a lower CPI also saves the government money. According to Williams, if you used the CPI when Jimmy Carter was president, you'd get Social Security checks 70% higher than today's levels. The government also duped all those people who thought it was such a great idea to buy TIPS (Treasury inflation-protected securities). Changes in the CPI determine the interest paid on these bonds. The higher the CPI, the more interest paid to bondholders. Some people loved the idea, figuring here was a bond that would keep pace with inflation. Given the government manipulates the CPI, you can be sure the interest rate paid will not keep pace with inflation - nor has it ever. The manipulation of the CPI explains the great disconnect between what the man in the street feels when he pays his bills and what the confident, well-dressed Fed chiefs and politicians try to tell him. The cost of living is rising a lot more than they want you to believe. At a 7% annual rate of inflation, the cost of living would double in about 10 years. Looked at differently, the purchasing power of your dollar will fall in half. The government, since the time of the Kennedy administration, has been changing the definition of "unemployed." Again, many small changes over time lead to dramatic end results. According to Williams, if you back out the changes, you get an unemployment number closer to 12%! Let's look at the federal deficit - basically, the amount of money the government is losing every year. However, this excludes unfunded Social Security and Medicare obligations. That's more than 10 times the so-called "official" deficit. By Williams' calculations, you could raise the tax rate to 100% - dump everyone's salaries into the US Treasury - and still have a deficit. Years of such deficits have created a mountain of obligations for the US government. As Williams says, "The fiscal 2005 statement shows that total federal obligations at the end of September were $51 trillion; If the US government were a private corporation, its bankruptcy would be beyond dispute. This is why Social Security and Medicare are not going to exist in the not-too-distant future. As Williams says, "There is no way the government can pay the Social Security or Medicare it has committed to." The government reported only a 11% increase in the fourth quarter. Even in an election year, and despite the government's best efforts to paint a pretty face, all it could muster was a measly 11%. More likely, the economy actually contracted 2% in the fourth quarter. As Williams points out, it's all disclosed in the footnotes in the government's reports. All he is doing is backing out many of the changes to more realistically compare these numbers with the numbers of the past. The great HL Mencken, a scathing attack dog of idiocy in all its forms, wrote about "damning politicians up hill and down dale for many years as rogues and vagabonds, frauds and scoundrels." In the meantime, we'll have to make do with Williams and his cogent analysis of government skullduggery. Oddly enough, these insights do not change our approach here in the pages of Capital & Crisis. In fact, Williams' work reinforces several things we've already covered in past letters. To wit: Yields on real estate investment trusts (REITs) and utilities - to say nothing about the bond market - appear even more pathetic against an inflation rate of 7%. If the slumbering bond market awoke to the reality of a 7% inflation rate, there would be a sell-off the likes of which this country has never seen. And the US dollar is a doomed currency over the long haul. Bernanke, the self-professed student of the Great Depression, accepts the mainstream view that the Fed's great mistake then was not to flood the system with dollars. Expect the printing presses to run day and night at full capacity when the trouble starts. Trying to pin down the economy in precise numbers is futile anyway. Investing using macro statistics is like trying to find the nearest post office with a globe. The basic idea I want to leave you with is this: The economy is far weaker than generally portrayed. Most investors ignore the rat's nest of risks and invest indiscriminately in stocks - without proper due diligence. As investors, we need to stick to our fundamentals more carefully than ever. Opinions expressed are not necessarily those of David W Tice & Associates, LLC. The opinions are subject to change, are not guaranteed and should not be considered recommendations to buy or sell any security. |
| www.usatoday.com/money/2006-08-02-deficit-usat_x.htm Print | By Dennis Cauchon, USA TODAY The federal government keeps two sets of books. The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005. The set the government doesn't talk about is the audited financial statement produced by the government's accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005. Congress has written its own accounting rules -- which would be illegal for a corporation to use because they ignore important costs such as the growing expense of retirement benefits for civil servants and military personnel. Last year, the audited statement produced by the accountants said the government ran a deficit equal to $6,700 for every American household. The number given to the public put the deficit at $2,800 per household. A growing number of Congress members and accounting experts say it's time for Congress to start using the audited financial statement when it makes budget decisions. They say accurate accounting would force Congress to show more restraint before approving popular measures to boost spending or cut taxes. "We're a bottom-line culture, and we've been hiding the bottom line from the American people," says Rep. "It's not fair to them, and it's delusional on our part." The House of Representatives supported Cooper's proposal this year to ask the president to include the audited numbers in his budgets, but the Senate did not consider the measure. Good accounting is crucial at a time when the government faces long-term challenges in paying benefits to tens of millions of Americans for Medicare, Social Security and government pensions, say advocates of stricter accounting rules in federal budgeting. "Accounting matters," says Harvard University law professor Howell Jackson, who specializes in business law. We need a good number so politicians can have a target worth looking at." The audited financial statement -- prepared by the Treasury Department -- reveals a federal government in far worse financial shape than official budget reports indicate, a USA TODAY analysis found. The difference is equal to an entire year's worth of federal spending. Congress and the president are able to report a lower deficit mostly because they don't count the growing burden of future pensions and medical care for federal retirees and military personnel. These obligations are so large and are growing so fast that budget surpluses of the late 1990s actually were deficits when the costs are included. The Clinton administration reported a surplus of $559 billion in its final four budget years. In addition, neither of these figures counts the financial deterioration in Social Security or Medicare. Including these retirement programs in the bottom line, as proposed by a board that oversees accounting methods used by the federal government, would show the government running annual deficits of trillions of dollars. The Bush administration opposes including Social Security and Medicare in the audited deficit. Its reason: Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes. Policing the numbers The government's record-keeping was in such disarray 15 years ago that both parties agreed drastic steps were needed. Congress and two presidents took a series of actions from 1990 to 1996 that: Created the Federal Accounting Standards Advisory Board to establish accounting rules, a role similar to what the powerful Financial Accounting Standards Board does for corporations. Added chief financial officers to all major government departments and agencies. Required annual audited financial reports of those departments and agencies. Ordered the Treasury Department to publish, for the first time, a comprehensive annual financial report for the federal government -- an audited report like those published every year by corporations. These laws have dramatically improved federal financial reporting. Today, 18 of 24 departments and agencies produce annual reports certified by auditors. When the House passed its version of a budget this year, it included Cooper's proposal asking Bush to add the audited numbers to the annual budget he submits to Congress. The request died when the House and Senate couldn't agree on a budget. The Federal Accounting Standards Advisory Board, established under the first President Bush in 1990 to set federal accounting rules, is considering adding Social Security and Medicare to the government's audited bottom line. Recognizing costly programs Adding those costs would make federal accounting similar to that used by corporations, state and local governments and large non-profit entities such as universities and charities. It would show the government recording enormous losses because the deficit would reflect the growing shortfalls in Social Security and Medicare. The government would have reported nearly $40 trillion in losses since 1997 if the deterioration of Social Security and Medicare had been included, according to a USA TODAY analysis of the proposed accounting change. That's because generally accepted accounting principles require reporting financial burdens when they are incurred, not when they come due. For example: If Microsoft announced today that it would add a drug benefit for its retirees, the company would be required to count the future cost of the program, in today's dollars, as a business expense. If the benefit cost $1 billion in today's dollars and retirees were expected to pay $200 million of the cost, Microsoft would be required to report a reduction in net income of $800 million. This accounting rule is a major reason corporations have reduced and limited retirement benefits over the last 15 years. The federal government's audited financial statement now accounts for the retirement costs of civil servants and military personnel -- but not the cost of Social Security and Medicare. The new Medicare prescription-drug benefit alone would have added $8 trillion to the government's audited deficit. That's the amount the government would need today, set aside and earning interest, to pay for the tens of trillions of dollars the benefit will cost in future years. Standard accounting concepts say that $8 trillion should be reported as an expense. Combined with other new liabilities and operating losses, the government would have reported an $11 trillion deficit in 2004 -- about the size of the nation's entire economy. The proposal to add Social Security and Medicare to the bottom line has deeply divided the federal accounting board, composed of government officials and "public" members, who are accounting experts from outside government. "Our job is to give people a clear picture of the financial condition of the government," board Chairman David Mosso says. "Whether those numbers are good or bad and what you do about them is up to Congress and the administration." The four government members, who represent the president, Congress and the Government Accountability Office, oppose the change. The retirement programs do "not represent a legal obligation because Congress has the authority to increase or reduce social insurance benefits at any time," wrote Clay Johnson III, then acting director of the president's Office of Management Budget, in a letter to the board in May Ways of accounting Why the big difference between the official government deficit and the audited one? The official number is based on "cash accounting," similar to the way you track what comes into your checking account and what goes out. That works fine for paying today's bills, but it's a poor way to measure a financial condition that could include credit card debt, car loans, a mortgage and an overdue electric bill. It measures income and expenses when they occur, or accrue. If you buy a velvet Elvis painting online, the cost goes on the books immediately, regardless of when the check clears or your eBay purchase arrives. Cash accounting lets income and expenses land in different reporting periods. Under cash accounting, a $25,000 cash advan... |