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Economic Data and Statistics- Distortions, Deceptions and Outright Lies

Economics / Market Manipulation Apr 10, 2008 - 01:50 AM GMT

By: Money_and_Markets

Economics

Best Financial Markets Analysis ArticleMartin Weiss writes: Beware.

The greatest threat to your financial future is not the danger you see or the beast you know. It stems from all those realities that you don't see or don't know.


This great uncertainty is not your fault. Quite the contrary, I lay the blame squarely on ...

1. Washington's distortions of its most vital economic data ...

2. Wall Street's deceptive evaluations of most of your investments, and ...

3. The outright lies that officials of both Washington and Wall Street tell you on a daily basis to cover their tracks or protect their turf.

Take Friday's news, for example.

If you thought that the surge in the U.S. unemployment rate to 5.1% was a shock, consider John Williams' Shadow Government Statistics

First, Williams points out that the total job loss the government reported on Friday wasn't just 80,000. It was 147,000. Reason: The previous two months of job losses had been greatly understated, forcing the government to revise them by a combined 67,000.

Second, he argues that these huge revisions are no accident. They are the consequence of the government's continuing misuse of seasonal adjustments.

"If the process were honest," he writes in his Flash Update issued to paid subscribers on Friday, "the differences would go in both directions. Instead, the differences almost always suggest that the seasonal factors are being used to overstate the current month's relative payroll level, as seen last month and the month before."

Third, his analysis shows that the job numbers have a built-in bias based on a model that makes assumptions about birth and death rates. Without those distortions, he calculates there would have been additional job losses of 135,000 in February and 142,000 in March.

Fourth and most important, as you probably know, the government excludes "discouraged workers" from its count of the unemployed; and the definition of "discouraged" is highly questionable — anyone who has not looked for a job in just the past four weeks!

His conclusion: The true unemployment rate in America is not 5.1%. It's 13% , or over two and a half times worse than officially reported.

The government's distortions of other critical data are no less egregious, says Williams.

Inflation: The government reports that the Consumer Price Index (CPI) is essentially the same as it was two decades ago: It was approximately 4% in 1987, and it's near 4% right now.

But without the cumulative affect of a series of questionable adjustments made in recent decades, Williams calculates that the CPI has actually risen to almost 12%, or about three times higher than the official figures.

Economic growth: The government reports that, except for a brief interlude in the early 2000s, the U.S. economy has escaped recession throughout this decade, growing by 2% to 4% each year.

But Williams shows how, without the government's distortions of the GDP data , the opposite would be true: Except for brief interludes of mediocre growth in 2000 and 2004, the economy has been stuck in a recession throughout the entire decade.

These are vital stats that could make or break your financial future. To the degree that the shadow government stats are closer to the truth than the official versions, it means that ...

  • The value of your bonds is overstated because of a national complacency regarding consumer price inflation ...
  • The value of your stocks is overstated because of false optimism regarding the nation's employment and economic growth. And perhaps most dangerous of all ...
  • Trillions of dollars in derivatives — predicated on the true value of assets like stocks and bonds — could be even shakier than often feared.

This alone should be more than enough to send thousands of officials into the confessional and give millions of investors sleepless nights. But the unfortunate reality is that ...

On Top of Washington's Data Distortions, Wall Street Adds an Equally Dangerous Layer of Investor Deceptions

First, most of the derivatives owned by commercial banks, investment banks and so-called "non-bank banks" are kept off their balance sheets. This means that ...

The actual value and stability of the nation's largest and most important institutions are largely unknown — and probably greatly overstated.

Second, with only the rarest of exceptions, the hundreds of thousands of bond ratings issued by Fitch, Moody's, and Standard and Poor's are uniformly bought and paid for by the very same companies that are being rated. As I've written here many times, the result is that ...

There is a built-in bias in the entire system, causing inflated ratings, delayed downgrades and the continuing deception of millions of investors.

Third, brokers and brokerage firms, despite a clear self-interest to keep their clients in the stock market, are routinely allowed to play the role of "objective" advisers and managers. The result is that ...

Investors are almost universally encouraged to buy when they should be holding and to hold when they should be selling. Despite a plethora of guidelines, rules and laws created to encourage fairness, the very structure of the system continually promotes unfairness.

Lies, Lies, Lies

In this environment, the unrelenting pressure — even the mandate — to transform well-meaning public officials into chronic liars is undeniable, and the examples are many:

  • High-ranking government officials in the 1970s who swore the S&Ls were safe, even as thousands of thrifts were failing all around them.
  • FDIC and Federal Reserve officials in the 1980s who vehemently denied the threat to commercial banks, even as the bank failure rate surged to the highest since the Great Depression.
  • State insurance regulators in the 1990s who swore to the safety of annuities and life insurance policies, even as six million policyholders were being trapped in failed companies.
  • Major Wall Street firms of the early 2000s that consistently affirmed "hold" and "buy" ratings for the shares of hundreds of companies that were going bankrupt. (For our detailed study documenting these extreme deceptions, see our white paper, Crisis of Confidence on Wall Street .)
  • Auditing firms like Arthur Andersen, KPMG, and Deloitte and Touche that facilitated or even encouraged accounting distortions and cover-ups. (For the details, see our white paper submitted to the U.S. Senate .)

Today, the names and places may have changed. But the systemic deceptions have not.

This leaves you just two choices: Believe them and risk almost everything. Or strike out on an independent path to safety, protection and the potential for very substantial profits.

Good luck and God bless!

Martin

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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Comments

mike montagne
13 Apr 08, 14:26
Falsification of unemployment statistics

I published an article more than 10 years ago about the ongoing falsification of unemployment figures, likewise noting the singular disposition to prejudice the figures downward.

I salute your article on many counts; and perhaps should mention it falls short of two even more critical issues:

1. falsification or non-disclosure of the escalating multiplication of public and private debt;

2. and even more importantly, non-disclosure of the causes of perpetual multiplication of debt in proportion to our limited capacity to service illimitable debt (which we must understand if we are to solve our problems and avert eventual, inevitable collapse under insoluble debt).

I would be glad to explain further if anyone is interested; but in any case add that I take exception to the conclusion of the article, because if we step back just so little, what we can see is that we have all this strife over unearned taking. Wealth is not multplied; it is *produced* -- and whatever all this means, its real cause is the seeking of unearned wealth.

If that's all there is, then so much good data is all to waste, because it is a complaint against unearned taking -- in the end, advocating other unearned taking to prevail in the stead of that which it complains against.

Whatever happened, and whatever went wrong with the concept of *earned* wealth; and preservation of earnings?

Just something to think about, as we succumb to a system in which either are *inherently* ever less probable or possible.

Which, together with this advocation of unearned taking, is our real problem.


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