April, 2009

Don't Believe the Spin that the Economic and Banking Crisis Is Subsiding!

On the Friday evening, April 10, 2009 Lou Dobbs Tonight Show, Lou Dobbs said the following:

"Well, as you know, I've said throughout there will be no depression and that economic recovery will begin in the latter part of this year. We are pleased to report to you tonight that two new surveys by economists are in agreement. A 'Wall Street Journal' survey of economists shows a consensus that this recession will end in September. And the blue chip economic indicator survey showing 86 percent of economists now believe that the recession will end in the second half of this year. And here are more positive economic indicators that most of the media is ignoring. Our trade deficit has fallen to the lowest level since November of 1999. Factory orders have risen for the first time in seven months. New home sales are also up, rising unexpectedly. And orders for durable goods have rebounded, rising for the first time in seven months. All of this having a positive effect on the stock market which is up just about 25 percent over the past five weeks."

Dobbs' comments are similar to those of many other "spin-masters" in the media, government, banking and business worlds who desperately want the American people to believe that everything will be okay in short order and that, as President Franklin Roosevelt said, "the only thing that we have to fear is fear itself."

First, let's address Dobbs' specific comments above to see if they truly are reasons for optimism. As you will see in the commentary which follows, his comments are only a portion of the "real story."

Yes, our trade deficit for February, 2009 fell to the lowest level since November, 1999. However, the deficit was still $26 billion for the month. Further, the reduction was due to a sharp decline in imports because unemployed and debt-ridden American consumers have had to sharply curtail their spending on items of all sorts.

Yes, factory orders rose 1.8% in February, 2009 for the first time in seven months. However, after six consecutive monthly declines, we will need to see several months of advances before we can become optimistic that "the worm has turned." Said another way, one month doesn't constitute a trend.

Yes, new home sales unexpectedly rose 4.7% in February, 2009. However, February's new home sales were the second worst month on record going back to 1963 with only January, 2009 being a worst month.

Yes, durable goods orders rose 3.4% in February, 2009 for the first increase in seven months. However, the increase was largely attributable to a 32.4% increase in orders for military aircraft and parts. Unless we are in an all-out world war, these types of orders don't recur on a monthly basis so they tend to distort or skew monthly results for a given month.

Yes, the stock market is up about 25% over the past five weeks. However, even during the Great Depression from 1929 to 1939 (early 1940's for some countries), the stock market had several rebounds of over 20%. Given the amount of money that the U.S. Government has thrown at its numerous problems, the situation must, indeed, be quite dire for only a 25% rebound to have occurred so far.

Rather than blindly accept what we hear and read from "spin-masters and cheerleaders" such as Dobbs, Jim Cramer, Larry Kudlow and others in the media, government, banking and business fraternities, I would like to offer a few comments and questions about our financial state of affairs for your consideration. They are as follows:

1. Why should we believe any consensus opinion from a group of economists that the recession will end in September, 2009 or at some other time in the second half of 2009? After all, we were not told that the current recession, which officially began in December, 2007, was, in fact, a recession until December 1, 2008. If it takes one full year after a recession has started for these "blue chip" economists to even realize that we are in a recession, how can we possibly feel comfortable that their current estimates for an ending date to the recession are accurate?
   
   
2. The U.S. Government said that our national unemployment rate (so-called U-3 rate) climbed to 8.5% for March, 2009. The U-3 rate is the one that the government and media officials emphasize because it presents " bad news in the best light." The reality of the national unemployment situation is as follows:
   
   
   1. The U.S. Government monthly unemployment report also includes a statistic known as the U-6 unemployment rate which includes part-time workers who are seeking full-time employment as well as discouraged workers (i.e. workers who want to work full-time, have looked for full-time work in the past but are not currently looking for work). The national U-6 unemployment rate for March, 2009 was 15.6% (over 20% in several states) or almost double the U-3 rate of 8.5%. Remember- this is from the U.S. Government's own data;
      
      
   2. If you factor out the various changes made to and biases in the way the U.S. Government calculates unemployment data(refer to www.shadowstats.com), the March, 2009 unemployment rate is actually 19.8%. By comparison, the unemployment rate during the Great Depression from 1929-1939 was generally acknowledged to be 25% to 30%;
      
      
   3. Since the recession began in December, 2007, approximately 4.3 million jobs have been lost with about 2.7 million of those jobs having been lost in the last four months alone. Job losses have consistently been in the 650 thousand to 750 thousand range for each of these four months. It certainly doesn't appear, from the U.S. Government's own data, that the employment situation is improving;
      
      
3. A record 32.2 million Americans (one out of every ten) now receives food stamps;
   
   
4. In the next three to six months, the U.S. will experience stunning financial and job losses in the fields of commercial and industrial real estate (retail stores, shopping malls, etc.), insurance companies, state and municipal governments, etc. as the problems expand beyond residential real estate and banking;
   
   
5. Massive investment losses have been sustained by public (over $1 trillion) and private (over $500 billion) pension funds in 2008 and so far in 2009. In the case of public pension funds, the shortfalls will necessitate more contributions from already strapped taxpayers via higher taxes, higher retirement ages for many workers and/or bigger deductions from employee paychecks. In the case of private pension funds, the shortfalls will require greater contributions from already tapped out employers, higher retirement ages for many workers and/or bigger deductions from employee paychecks. If employers go bankrupt, the U.S. Government's Pension Benefit Guaranty Corporation, which will probably require more government funding, will be called upon to, hopefully, guarantee employees' pensions;
   
   
6. The U.S. Government and the Federal Reserve have now spent, lent or committed almost $13 trillion in an effort to overcome the longest lasting recession (now in its 17th month) since the 1930's. By way of comparison, the total GDP (gross domestic product) of the U.S. was just over $14 trillion in 2008. Worse yet, there are clear signs coming from the business, banking, and government fraternities that a lot more money than $13 trillion will be needed to solve the various problems confronting the U.S.;
   
   
7. The U.S. Government is projecting a budget deficit of between $1.75 and $2 trillion for fiscal 2009 which ends September 30, 2009 and budget deficits averaging almost $1 trillion annually until 2019. Worse yet, even before these projected deficits for fiscal 2009-2019, the U.S. Government has, based on GAAP (Generally Accepted Accounting Practices), a negative net worth of $59.3 trillion dollars (IT'S BANKRUPT) and total federal obligations of $65.5 trillion. The $65.5 trillion exceeds the GDP (Gross Domestic Product) of the ENTIRE WORLD!
   
   

I urge every American to critically assess every statement, written or oral, by members of the media, government, banking and business brotherhoods. Do not accept anything at face value! Act as if your very survival depends on a correct interpretation of the messages being delivered-because it does!

In closing, I'd like to leave you with the following words from noted author Carl Sagan:

"One of the saddest lessons in history is this: If we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. The bamboozle has captured us. Once you give a charlatan power over you, you almost never get it back."