DDP Newsletter, January 2014 Vol. XXXII, No. 1
[published April 2014]
Although the Obama Administration and its loyal press organs speak of the “economic recovery,” it is the weakest since World War II.
In 2013, the Bureau of Economic Analysis (BEA) revised the manner of calculating the gross domestic product (GDP). The adjustments make the Obama recession look milder, and the recovery stronger (WSJ, 7/31/13, http://tinyurl.com/l7cp65m).
“One of the biggest changes is how the agency measures what it calls the ‘knowledge economy’ through investments in research and development and entertainment and the arts. Previously, that spending was included as intermediate components during the production of other goods or services, but now they will be measured as fixed assets…. Including these intangible assets will boost the country’s overall growth level…. For example, research and development and entertainment added $471 billion to the revised $16.2 trillion overall economy.”
Presumably, millions spent on R&D by bankrupt “green” enterprises will still be an “asset” contributing to GDP.
The BEA will now consider compensation to reflect the value of the pension promises made by the employer, rather than the employer’s cash contributions to the pension fund. This device revises the personal savings rate up one percentage point, to 4.7% for the period between 2002 and 2012.
“This is all about keeping GDP up to date and relevant,” said BEA Director Steven Landefeld (ibid.). Promises are now an asset.
In his State of the Union message, Barack Obama boasted that the federal budget deficit has been cut by more than half since 2009, to “only” $600 billion. However, figures from the Government Accountability Office (GAO) show spending of $3.8 trillion and revenue of $2.8 trillion. And if the government used Generally Accepted Accounting Principles (GAAP), the real deficit might reach $7 trillion, states Hunter Lewis.
According to GAO figures, U.S. government assets were $2.97 trillion in 2013, while liabilities total $19.88 trillion. The government’s cash position of $206 billion, about 1.1% of the public debt, isn’t enough to cover interest payments for a year (Simon Black, cited in James Cook Market Update, early April 2014).
(Assets include aircraft carriers, five of which were docked together in Norfolk, Virginia, on Feb 8, 2014, like on Battleship Row at Pearl Harbor on Dec 7, 1941. They were ordered there from the Middle East for “routine inspection” by the Commander-in-Chief.)
Beginning in 2009, the Federal Reserve tried to stop the economic decline by injecting money into the economy, writes Richard Maybury. According to the St. Louis Fed, $2.8 trillion has been added to the monetary base. Most still remains in the banking system. “However, it exists, piled up in the financial Alps, ready to avalanche down on us.” In 2013, it apparently began affecting stock and real estate prices, perhaps a signal that monetary velocity is about to take off (Early Warning Report, January 2014).
The full extent of current inflation is not yet seen in literal price hikes, but packages are smaller or partly empty, and peanut butter jars have concave rather than flat bottoms.
U.S. credit market debt stands at $59 trillion. At 3.5 times GDP, it represents a “vast aberration of bubble finance,” compared with the healthy ratio of 1.5 that prevailed for more than a century before 1971, writes David Stockman (LewRockwell.com, 4/1/14, http://tinyurl.com/n6d44tj). Household mortgage borrowing was ratcheted up by periodic Fed reflations from a pre-1970 debt: wage and salary ratio of about 80% to a peak of 210% in 2007. The ratio has fallen back slightly to around 180%.
What happened in 1971 was that Richard Nixon, in consultation with Milton Friedman, unilaterally ended the 1944 Bretton Woods agreement with its regime of anchored money and global financial discipline, based on the solemn promise to exchange gold for dollars at $35/oz. At this time, the U.S. dollar became the world’s reserve currency. Before we got central bank floating money, there was no need for currency hedges or interest rate swaps. Now we have modern equity gambling halls, a home mortgage churning machine, and various ways for dealers to arbitrage central banking inefficiencies and anomalies. The FIRE (finance, insurance, real estate) sector increased from 14% of GDP in 1970 to 22% now. Stockman calls it the “infrastructure of bubble finance.”
The “renewed optimism” that is reportedly stimulating more consumer borrowing is not shared abroad. China and most of the world have ended new dollar purchases for their FOREX reserves. China executed the second largest dump in U.S. Treasury bonds in history in March (Cook, op.cit.). [This issue is being written out of order in April.]
Likely a measure of silent desperation, the U.S. government was on course to seize some 400,000 tax refunds from people whose relatives owed a debt to Social Security, sometimes dating back to the middle of the last century. The collection efforts began after a single line in the 2008 farm bill lifted the 10-year statute of limitations on debts owed to government, though it said nothing about collecting from the survivors of a dead debtor. About $2 billion in tax refunds had been intercepted before an April 14 Washington Post report (http://tinyurl.com/ltevajw) triggered such public outrage that the collections have been suspended—for now, pending agency review.
Arguing that “the earth belongs to the living, not to the dead,” there is a movement to declare that the U.S. public debt is “not our debt” (LewRockwell.com 3/27/14, http://tinyurl.com/k6y3mmo). There is a small movement advocating a “Jubilee America” for a “controlled default” on the U.S. public debt, to forestall a later forced default at a much higher debt level (www.AmericanDefenseProject.com).
The ceiling on the debt has been “suspended”; it has not yet reached a peak. More and more Americans are dependent on the bankrupt system. Eleven states are called “death spiral states” by William Baldwin, as they have more “takers” (government dependents, including civil servants) than “makers” (private sector workers). He warns against investing or buying a home there (Forbes 11/25/12, http://tinyurl.com/cxb4wzg).
NO-EXCUSE FOOD STORAGE: DO IT NOW!
As commenters point out, this plan to “feed a family of 4 for 1 year, for less than $300” (http://tinyurl.com/n4eh5zh) has enough calories for only 2-3 months, especially if you have to work hard, but it has excellent advice on what to buy, how to store it for decades, and how to fit it into your tiny apartment. Make your shopping list and get started. You can order buckets and gamma-seal lids, Mylar bags, and oxygen absorbers from www.lexingtoncontainercompany.com. The recipe for bean soup calls for rice, barley, kidney beans, lentils, split green peas, garbanzos, salt, and bouillon cubes. Additional items might include instant oatmeal (freeze for 3 days to kill bugs), dried onion, cornbread mix, coffee, and 10 lbs of jelly beans (they don’t melt). Print out the comments too!
Be sure to have abundant salt. Besides seasoning, salt can be used to preserve food long-term, make cheese or milk last longer, extinguish grease fires, test eggs for freshness, reduce itching, remove stains, prevent ant invasions, care for teeth (mix with baking soda), and get rid of poison ivy, (see http://tinyurl.com/kv38nxd or www.survivopedia.com/saltsurvival/ for details).
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