weekend commentary - "So I'm charging you a higher price, American swine"
manic Mogambo on an extraordinary roll ...
(snip)"And the mood will get more sour because of the trend of growth in GDP, which was, not long ago, piddling along with 5% GDP trend of growth, then trending down to 3.5% growth, and now, in the second quarter, trending down to a measly 2.9% growth in GDP.
A hand goes up in the front row. The snotty little reporter from the Times asks "Why is this so bad? GDP is forecast to have positive growth, and so how can that be bad, you stupid Mogambo idiot (SMI)? Or is your economic analysis as stupid as you look?"
Instantly, at the sound of the insult, my hand instinctively reaches under my jacket, clawing for my trusty Klingon blaster, or a Romulan disrupter, or even an Earth pistol, hopefully one with big, hollow-point slugs so this Earthling's head will make a big splash of an explosion as an object lesson to all the other reporters! I laugh maniacally "Hahahaha! You want a little Mogambo jihad, you little bastards? You got it!" Suddenly, my hand coming up empty, I am horrified to find that, for some reason, I am completely unarmed!
Scrambling for another course of action, I quickly feign cool nonchalance, and politely, but icily, say "Because, butthead, raw GDP is the way they measure GDP, which is the total of money made from final sales. Some of that is, of course, the result of higher prices, or are you too stupid to realize that?"
Then, to make sure that he got the point, I threw a chair at him, screamed death threats at them all, and the place exploded in pandemonium. If he had not been so rude to me, I would have explained that the reason that this is so important is that, by example, if last year the raw GDP number came from selling one widget for a buck (a $1 GDP), and this year raw GDP was one widget sold for two bucks (a $2 GDP), the economy looks like it doubled! GDP went from $1 to $2! But in reality, it did not actually grow; only one lousy widget was made and sold! The only thing that changed was the price of the widget, which is inflation itself.
So if you want to know how the REAL economy is going in the exciting world of GDP and widget-making, you have to reduce the raw GDP figure by the rate of inflation.
Uh-oh!! Those of you familiar with the Mogambo Theory Of Soundtracks (MTOS) recognize the sense of foreboding doom as, suddenly, the soundtrack is filled with low, rumbling horns making screechy, horrible, dis-chords, and the penetrating sound of doomed souls wailing in economic and financial despair. Obviously, this is where it gets very interesting!
See, if the rate of inflation that you use to deflate the raw GDP number is too low (like it is now!), then the estimate of real, inflation-adjusted GDP is too high! The economy looks like it is going great, but it is, obviously, not. It's just that prices are rising!
So, if GDP is predicted to grow only 2.9%, with the assumption that inflation is only 3%, then the error is huuuUUUuuge when you use the 3% inflation to go back to get the raw GDP number, and then deflate by the actual rate of inflation (probably somewhere between 4.1% and 10%).
When you do that, you get a result that is so horrible, so terrifying to see that, like looking at a Gorgon, my brain is literally turning to stone, and all I can do is claw at my own head and cry out in anguish, "Not only are we in recession, as real GDP growth is actually negative, but we have been in one for years and years! Gaaahhh!"
To repeat: We are, and have been, in a recession, according to the new inflation number!
And if being in a recession is not bad enough, stocks and bonds and housing were going up in price all those years, even though we were actually in a recession, and they should have gone down, so they are now insanely over-priced! We're all freaking doooooomed!
The government is alarmed at this, because this is exactly the kind of thing that sets The Mogambo off, and pretty soon there is bound to be another "Unfortunate Mogambo Incident (UMI)", meaning that the elected halfwits have NOT solved "The Mogambo Problem" as they promised in campaign speeches.
And another reason that the government is alarmed about this "trimmed mean PCE" inflation thing is that, as Doug Noland reports in his Credit Bubble Bulletin column at PrudentBear.com, "Total Spending is running 7.6% ahead of last year, with Social Security up 4.7%, National Defense 6%, Medicare 13.7%, Interest 22.2%, and Health 1.5%."
Note with dread, my Precious Mogambo Darling (PMD), that Interest Expense is the fastest growing item in the budget, multiplying at 22% a year! What was it that I said earlier? Oh, yeah, I remember now! "We're all freaking doooooooooomed!"
And with inflation rising, and since (theoretically) interest rates will rise in response, this 22% rise in Interest Expense will soon seem like chicken feed when combined with the magnitude of new government deficit-spending necessary to extend the stock market boom, and the bond market boom, and the housing boom, and the boom in government spending from these absurdly elevated levels!
And (as you can tell by the way my voice is tragically breaking), it gets worse and worse, as all this new money will show up as a further rise in prices, where already it is getting bad, as we learn from Bloomberg.com by reading that the Labor Department said "Prices of goods imported into the U.S. rose more than expected in August, led by increases in oil, natural gas and metals." The ugly specifics were that "Last month's 0.8 percent increase in import prices followed a revised 1 percent gain in July."
Not unexpectedly, "A Commerce Department report on Sept. 12 showed the U.S. trade deficit unexpectedly surged to a record $68 billion in July as imports increased and exports declined."
The increase in these imports, and the decline in exports, can be explained simply by the fall in the U.S. dollar, which is falling because the despicable Federal Reserve keeps on creating more money and credit with every gasp of its fetid breath. Thus, things that we buy from foreigners cost more, simply because the each dollar buys less!
And because imports were up in price, we can conclude that foreigners are saying, in a literal translation, "Bah! No need-um American dollars be paid in, him guaranteed down in value to go, and so I would be taking a big stupid risk of taking a big stupid loss between the time I got paid in dollars and the time I got rid of that dollar crap! So I'm charging you a higher price, American swine, on top of the higher price due to the change in the exchange rate as your ridiculous dollar falls in value!"
Then we see why food is more expensive, too, as they report that while "Prices of U.S. exports rose 0.4 percent for a second month," which is bad enough, the salient point was that "Prices for farm exports rose 1.0 percent, while those for non-farm exports rose 0.4 percent." One percent! In one month! 12% annual inflation in food prices? Yow!
So how much has the dollar fallen? They continue "The U.S. dollar has fallen 2.9 percent this year against a trade-weighted basket of currencies of trading partners. From a year earlier, prices of imported goods rose 6.6 percent, compared with a 7.2 percent increase in July."
7.2% annual fall in purchasing power of the dollar! People should be rioting in the streets! This is the worst news you could imagine! Worse than learning that The Mogambo is moving in next door!"(snip)