GDP Data Fudging is Getting Downright Absurd

[Virgil Showlion]

If you're wondering how on Earth a market-goosing headline print of 5.0% quarterly growth syncs with the reality around you, wonder no more. It doesn't.

In addition to several other longstanding tricks the BEA has now entrenched into GDP reporting, they've taken the fraud to a whole new level in Q2 and Q3 2014.

www.zerohedge.com/news/2014-12-23/exposing-deception-how-us-economy-grew-140-billion-q3-due-data-revisions





The article is somewhat technical, hence a layperson's summary is as follows:

The Fed is desperate to increase interest rates for a variety of reasons. In order to do so, there needs to be (at least the appearance of) financial stability, particularly in US stock and bond markets. Since reality has been less than forthcoming with such stability, they've resorted to increasingly desperate measures to fake the most highly publicized data points, such as initial job and GDP prints.

Over the past six months, their trick has been as follows: Due to the way GDP calculations work, any money not in Americans' savings is accounted as being in circulation in the broader economy, which is one of the components of the GDP. Savings tend to be difficult to measure, and the practice of how the BEA measures them has changed in subtle ways many times. Recently, they discovered that due to a change in the way they computed savings, Americans had several hundred billion less "saved" than previously estimated.

Here's where the magic comes in. Rather than taking the incremental differences in savings from each month in 2014 and incrementing the GDP for the corresponding month with the assumption that GDP + Savings = constant, what the BEA has done is aggregated all of those savings decreases (i.e. revisions) and added them to the GDP for November. The net result is that what would originally have been reported as a tepid sub-2.5% growth is heralded as a blistering 5% headline number. If you additionally factor in the entrenched fudges, the actual number drops to a little over 1.3% annualized.

Stocks are shooting into the stratosphere. Mission accomplished.

As the article also points out, one of the grand ironies is that the principal reason for the savings losses over 2014, according to the BEA, is the PPACA. Hence what we're seeing is that increased personal expenditures on the PPACA throughout 2014 are responsible for more than 50% of the "growth" imputed to November of this year.

You want it to get even more absurd? They'll very likely do the very same thing in December and January. Anything, no matter how contrived, to make the economy appear stable enough for their means.

I thought the UK was out to lunch by including illegal drugs and prostitution in their GDP calcs, but in terms of sheer magnitude of fudging, they're rank amateurs compared to Uncle Sam.

Don't drink the Kool-Aid! Don't walk around chirruping "How about that 5.0% GDP print." You will be perpetuating a lie. Lies will make people feel good for a while, but eventually reality comes roaring back with a vengeance as it did in 2007. Love the truth, as complicated, nasty, and counter-cultural as it may be.

[Deleted]

Don't walk around chirruping "How about that 5.0% GDP print"

I feel very safe promising not to do that.

[Virgil Showlion]

Dec 23, 2014 12:33:27 GMT -5 laterbloomer said:

Don't walk around chirruping "How about that 5.0% GDP print"

I feel very safe promising not to do that.

Canadian numbers aren't nearly as fudged. Or as stellar.

[Deleted]

Dec 23, 2014 13:04:46 GMT -5 Virgil Showlion said:

Dec 23, 2014 12:33:27 GMT -5 laterbloomer said:

I feel very safe promising not to do that.

Canadian numbers aren't nearly as fudged. Or as stellar.

I'm pretty sure I won't be going around chirping about them either

[ArchietheDragon]

As long as the street likes the numbers it is good enough for me. 

[Virgil Showlion]

Dec 23, 2014 13:06:45 GMT -5 ArchietheDragon said:

As long as the street likes the numbers it is good enough for me. 

Make sure you don't miss the top. Will the last one out please turn off the lights.

The broader stock market (e.g. the Russel 3000) isn't even doing that well in 2014. It seems to be the blue chip stocks getting all the Fed attention.

While I can't tell you where stocks or bonds will go in 2015, I can tell you that one of the two is eventually going to lose out spectacularly. Probably stocks, but we shall see.

[ArchietheDragon]

Dec 23, 2014 13:13:02 GMT -5 Virgil Showlion said:

Dec 23, 2014 13:06:45 GMT -5 ArchietheDragon said:

As long as the street likes the numbers it is good enough for me. 

Make sure you don't miss the top. Will the last one out please turn off the lights.

The broader stock market (e.g. the Russel 3000) isn't even doing that well in 2014. It seems to be the blue chip stocks getting all the Fed attention.

While I can't tell you where stocks or bonds will go in 2015, I can tell you that one of the two is eventually going to lose out spectacularly. Probably stocks, but we shall see.

This time it is different. 

[The Captain]

Dec 23, 2014 13:04:46 GMT -5 Virgil Showlion said:

Dec 23, 2014 12:33:27 GMT -5 laterbloomer said:

I feel very safe promising not to do that.

Canadian numbers aren't nearly as fudged. Or as stellar.

Since you've already done an outstanding job of making your southern neighbors feel so, "relieved", care to post the Canadian equivalents so we have yet another reason to jump out a window?

[djAdvocate]

Dec 23, 2014 13:04:46 GMT -5 Virgil Showlion said:

Dec 23, 2014 12:33:27 GMT -5 laterbloomer said:

I feel very safe promising not to do that.

Canadian numbers aren't nearly as fudged. Or as stellar.

i don't chirp.  i figure out how to profit from things like this.

[ArchietheDragon]

Dec 23, 2014 13:43:59 GMT -5 djAdvocate said:

Dec 23, 2014 13:04:46 GMT -5 Virgil Showlion said:

Canadian numbers aren't nearly as fudged. Or as stellar.

i don't chirp.  i figure out how to profit from things like this.

The CAN$ is diving compared to the US$.   A little bit of foreign currency trading and you will be rolling in loonies. 

[djAdvocate]

Dec 23, 2014 13:46:42 GMT -5 ArchietheDragon said:

Dec 23, 2014 13:43:59 GMT -5 djAdvocate said:

i don't chirp.  i figure out how to profit from things like this.

The CAN$ is diving compared to the US$.   A little bit of foreign currency trading and you will be rolling in loonies. 

30% swing in just a couple of years.  ca CHING!

[Virgil Showlion]

I'm not saying there aren't a thousand ways of making money (although every FX trade, etc. does have a counterparty). But vigilance alone won't spare retail investors' stock portfolios when this thing peaks. You'll need to be among the first ones to know when to get out and where to park your money in the interim.

[djAdvocate]

Dec 23, 2014 16:48:44 GMT -5 Virgil Showlion said:

I'm not saying there aren't a thousand ways of making money (although every FX trade, etc. does have a counterparty). But vigilance alone won't spare retail investors' stock portfolios when this thing peaks. You'll need to be among the first ones to know when to get out and where to park your money in the interim.

agreed.  retail investors tend to perform even worse than the institutional investors and brokers do.

[Value Buy]

Dec 23, 2014 13:17:45 GMT -5 ArchietheDragon said:

Dec 23, 2014 13:13:02 GMT -5 Virgil Showlion said:

Make sure you don't miss the top. Will the last one out please turn off the lights.

The broader stock market (e.g. the Russel 3000) isn't even doing that well in 2014. It seems to be the blue chip stocks getting all the Fed attention.

While I can't tell you where stocks or bonds will go in 2015, I can tell you that one of the two is eventually going to lose out spectacularly. Probably stocks, but we shall see.

This time it is different. 

"THIS TIME" is always different.

Until, THE NEXT TIME.

[Value Buy]

Dec 23, 2014 12:24:42 GMT -5 Virgil Showlion said:

If you're wondering how on Earth a market-goosing headline print of 5.0% quarterly growth syncs with the reality around you, wonder no more. It doesn't.

In addition to several other longstanding tricks the BEA has now entrenched into GDP reporting, they've taken the fraud to a whole new level in Q2 and Q3 2014.

www.zerohedge.com/news/2014-12-23/exposing-deception-how-us-economy-grew-140-billion-q3-due-data-revisions





The article is somewhat technical, hence a layperson's summary is as follows:

The Fed is desperate to increase interest rates for a variety of reasons. In order to do so, there needs to be (at least the appearance of) financial stability, particularly in US stock and bond markets. Since reality has been less than forthcoming with such stability, they've resorted to increasingly desperate measures to fake the most highly publicized data points, such as initial job and GDP prints.

Over the past six months, their trick has been as follows: Due to the way GDP calculations work, any money not in Americans' savings is accounted as being in circulation in the broader economy, which is one of the components of the GDP. Savings tend to be difficult to measure, and the practice of how the BEA measures them has changed in subtle ways many times. Recently, they discovered that due to a change in the way they computed savings, Americans had several hundred billion less "saved" than previously estimated.

Here's where the magic comes in. Rather than taking the incremental differences in savings from each month in 2014 and incrementing the GDP for the corresponding month with the assumption that GDP + Savings = constant, what the BEA has done is aggregated all of those savings decreases (i.e. revisions) and added them to the GDP for November. The net result is that what would originally have been reported as a tepid sub-2.5% growth is heralded as a blistering 5% headline number. If you additionally factor in the entrenched fudges, the actual number drops to a little over 1.3% annualized.

Stocks are shooting into the stratosphere. Mission accomplished.

As the article also points out, one of the grand ironies is that the principal reason for the savings losses over 2014, according to the BEA, is the PPACA. Hence what we're seeing is that increased personal expenditures on the PPACA throughout 2014 are responsible for more than 50% of the "growth" imputed to November of this year.

You want it to get even more absurd? They'll very likely do the very same thing in December and January. Anything, no matter how contrived, to make the economy appear stable enough for their means.

I thought the UK was out to lunch by including illegal drugs and prostitution in their GDP calcs, but in terms of sheer magnitude of fudging, they're rank amateurs compared to Uncle Sam.

Don't drink the Kool-Aid! Don't walk around chirruping "How about that 5.0% GDP print." You will be perpetuating a lie. Lies will make people feel good for a while, but eventually reality comes roaring back with a vengeance as it did in 2007. Love the truth, as complicated, nasty, and counter-cultural as it may be.

Now Virgil, play nice!

You know our liberal comrades here know, if it coming from President Obama's team, it has to be true.

They would never deceive their peeps.

[djAdvocate]

Dec 23, 2014 22:46:28 GMT -5 Value Buy said:

Dec 23, 2014 12:24:42 GMT -5 Virgil Showlion said:

Now Virgil, play nice!

You know our liberal comrades here know, if it coming from President Obama's team, it has to be true.

They would never deceive their peeps.

i think zerohedge's analysis is accurate.  but i don't think that their opinion is.  does that make sense?

[Deleted]

Dec 23, 2014 16:48:44 GMT -5 Virgil Showlion said:

I'm not saying there aren't a thousand ways of making money (although every FX trade, etc. does have a counterparty). But vigilance alone won't spare retail investors' stock portfolios when this thing peaks. You'll need to be among the first ones to know when to get out and where to park your money in the interim.

I'm already out, and parked in non-qualified variable rate annuities with contracted minimums of 3% and 4% from the early 1990's. You used Zerohedge as a reference...swoon...It's been a while.

[tallguy]

...and you will be rolling in loonies.

Isn't just the one sufficient for here?  Really??