I’ve been complaining for quite some time that the understated Inflation overstates GDP. John Williams of ShadowStats notes the same thing, and tracks it accordingly:
>
graphic courtesy of Shadow Government Statistics
>
This is why its so important to accurately report economic data for policy makers:
In theory, the Fed (looking at that blue line) could have both cut sooner where appropriate and raised rates sooner when signs of inflation became apparent. Instead, they relied on modeled data that was faulty. Hence, our current situation.
UPDATE: May 8, 2008 4:08pm
Angry bear states that SGS’ GDP estimates radically understate growth, and I do not totally disagree with his assessment.
The SGS data is an extreme measure of inflation and growth, and I am not suggesting that model is perfect, or even very precise. However, we do know that BLS tends to go the opposite way, understating inflation and overstating growth. Reality likely lies somewhere in between the two — real GDP growth in the 1980s and 90s, punctuated by the 1990 and 2001 recessions.
I have been arguing that the growth this cycle was significantly inflated. The Economy was reflated with cheap cash and plenty of credit. Hence, the overstatement of growth (and its more of a knock on the Fed Chief at the time than the President.
>
Thanks, Paul!
WTF?! So what are you saying, we have been in an 8 year recession?? That would be some history there. Approach Great Depression levels there Barry. Where are the bread lines? Where are the masses of unemployed?
Simply not believable. I’ve long argued that 2003 was a recession year as a back to back recession period like 1981-82 was to the 1980 recession.
And I could believe we’ve been in a recession starting sometime in 2006, but a 8 year great depression? Not believable, which is why shadowstats is just another blogger. They need to hit the books again and adjust that line.
So, here’s a question. If the real inflation rate in China, Russia, Dubai, India, etc, etc is closer to 20%, (and it is) are their economies actually growing? Are people gaining against the tide? A little mystery meat to think about. How much has the global economy actually grown in the last six years or have we simply reshuffled the deck?
So, here’s a question. If the real inflation rate in China, Russia, Dubai, India, etc, etc is closer to 20%, (and it is) are their economies actually growing? Are people gaining against the tide? A little mystery meat to think about. How much has the global economy actually grown in the last six years or have we simply reshuffled the deck?
yes ..an 8 year growth and wage recession with living on debt to keep the party rolling..
OK, if GDP is money supply times velocity, then are we overstating money supply here, or velocity, or both? Or what? I find this confusing. What is not getting counted? Or double-counted?
What is interesting about the data is the derivatives (ie differential) of both sets are identical. Therefore, one could make good decisions from GDP data if only the delta was used to drive decisions. Psychologically this is how people react.
But not the divergence in the last few years. The above relationship breaks down.
We’ve been in an economic mirage since 1992 ????
ugghhh
Some ask how the economy can be so “well off” and still be in a long term recession…
Trillions in debt?
Yet another reason why “shadowstats” is probably less accurate than the gov’t.
And I see nowhere, except in the past few years, where, as noted above, the derivative breaks down, where the Fed should have done anything different. Actually, if you believe shadowstats over the gov’t and don’t buy the direction argument for rates, the Fed’s rates have been way way way too high over the past 25 years almost.
It’s patently ludicrous. Period.
One article I read claimed that the last YOY change in the total Fed debt was around $700B, no matter what the official lying deficit number was. In a $13T economy, that means that over 5% of the YOY growth was actually borrowed money spent by the Fed Gov, which ignores state and local borrowing, and consumer borrowing. This is not from growing production in the US. The Chinese and OPEC have been happily lending us whatever we want at low interest rates, since we spend it all with them. If you look at GDP this way, it is believable that we have been in an eight year recession. To see the end, learn from the Sopranos. The mark who borrows from the smiling loan sharks to maintain his lifestyle may feel prosperous for awhile, until the threats come to break his legs.
Doesn’t look right. Looks like 0% aggregate growth since 1982, maybe 1%/yr at best… and that could not be. It’s one of the reasons that though I think inflation is understated, I have been reluctant to give any airtime to Shadow Government Statistics.
If that graph is believable (and it’s not) then interest rates should have been around 0% for the last twenty-five years. That’s worse than the ridiculous crap that the gubmit puts out.
Sorry Barry, but for someone with a keen eye for misleading presentations of statistics, you seem to have a blind one for William’s.
The SGS contracting-GDP data is obviously inconsistent with credible non-GDP stats: ISM, Unemployment claims, corporate profits — I could go on and on. The problem is that he seems to throw it out there as gospel, when clearly there is something wrong with his adjustment to the CPI. As I wrote before, this is unfortunate: kool-aid drinkers that take government data at face value get to dismiss all skeptics by discrediting the SGS data.
It seems here is bunch of bulltards here… FED did not get the wrong model data… FED knows this, they just try to hide it so there WOULDN’T be a RUN ON THE MARKET! All they want is to prop market up and up… FED is bull’s whore…
Or think of it this way:
Perhaps productivity gains have created a circumstance in which payroll gains are reduced because the only need is to make up for attrition – in that event the actual GROWTH goes into the hands of holders of equity.
If this is onto something, then how much of that money has been reinvested in the United States economy in ways that promote payroll growth?