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Rigging the GDP statistics

Posted by Jeff (ILoveCapitalism) at 5:06 am - August 5, 2013.
Filed under: Debt Crisis,Depression 2.0,Economy,Liberal Lies

I’ve commented before on how the government has changed its methods over the years for calculating the economic stats, to make itself look better.

For example, consumer price inflation has been running about 8-9% per year under the 1980 method. I don’t claim the 1980 method is right; but the government claims only 1% CP inflation from its newer methods, and that number violates many people’s first-hand experience of rising prices and declining living standards.

Or with unemployment: by 1930s methods, it has been running 15-20%, which means we are already in the Great Depression 2.0. Again, I don’t view the older method as sacred; but that number fits many people’s experience better (as they have been forced into permanent unemployment, part-time work, etc.) than the government’s claim of 7.4% unemployment.

The people who change the statistical methods always have excellent-sounding reasons. There’s just one problem. Their changes always run in one direction, to make the government look better.

Somehow, they never adopt changes that could make things look worse. The latest example is GDP (Gross Domestic Product). Last week, the government published new data from new formulas for calculating GDP.

Guess what? The changes make the government look better. Suddenly, America’s GDP is supposed to be $550 billion higher. Which improves America’s debt-to-GDP ratio magically; that is, even though nothing has changed in reality.

But some of the changes they made are unreal, almost too silly to believe. The first ZH link above provides neutral-sounding descriptions from Bloomberg. Peter Schiff gave clearer and more colorful descriptions, in a preview back in April:

In the simplest terms, GDP is calculated by combining a nation’s private spending, government spending, and investments (while adding trade surplus or subtracting trade deficits). Business spending on R&D, a portion of which comes in the form of salaries, has traditionally been considered an expense that does not explicitly add to GDP. But now… the $400 billion spent annually by U.S. businesses on R&D will count towards GDP…[such as] the cost of producing television shows, movies, and music…Supporters of the change often hold up the blockbuster television comedy Seinfeld as an example. Given that the show’s billions in earnings far exceeded its initial costs, they argue that the production expenses should be considered “investments” (like R&D) and be added into GDP.

In other words: The money blown on developing artworks, such as movies – many of which earn nothing and are worth nothing – was traditionally not counted as GDP. And now, it is going to be counted as GDP. Schiff continues:

In essence, the new methodology is an exercise in double accounting. For instance, suppose a company employs an accountant who works in the sales department, who is then transferred to the R&D department at the same salary. He still counts beans but now his salary will be billed to the R&D budget rather than sales. In the old methodology, the accountant’s impact on GDP would come only from [his spending his salary]. Going forward, he will add to GDP in two ways: from his personal consumption and his salary’s addition to his company’s R&D budget. The same formula would apply to a trucker who switches from a freight company to a movie production company (for the same salary). If he moves refrigerators, he only adds to GDP through his personal spending [of his wages], but if he hauls movie lights, his contribution to GDP is doubled. It makes no difference if the movie bombs…

Another change that will artificially boost GDP concerns how government salaries will be counted…The new system magnifies the GDP impact of government pensions, which are a principal component of public sector compensation. Going forward, the pensions will be calculated not from actual contributions, but from what governments have promised. Under the old system, if a state had a $10,000 pension obligation but only contributed $1,000, only the $1,000 would be added to GDP. Under the new system the entire $10,000 would be counted. So now governments can magically grow the economy simply by making promises they can’t keep.

Emphasis added. Schiff’s article has a lot more; RTWT. Or if you prefer video rants, Schiff has a good one from last week, here.

The point is that many (if not all) of these GDP formula changes are baloney. But, baloney with a purpose: making the government look better. America’s GDP is magically larger, and its debt-to-GDP ratio is magically lower, even though nothing is any different than it was the day before.

That is what America is coming to.

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32 Comments

  1. Not all baloney? I didn’t read one here that wasn’t baloney, nor have I read one change to the GDP formula that wasn’t bs anywhere. You’re too easy on the government lads and lasses. They’re actively and transparently changing the figures – just as was and is done with surface instrumental temperature records in the AGW dispute – to make themselves and their programs look better. Period. Liars, damned liars and statisticians.

    Comment by Ike — August 5, 2013 @ 10:32 am - August 5, 2013

  2. “Hiding the decline” seems to be kind of SOP when the left needs to hide their policy failures.

    Comment by V the K — August 5, 2013 @ 10:53 am - August 5, 2013

  3. Maybe the government has been changing methods over the years, but the Obama Administration has gone overboard, tweeking the number. We might even say they are cheating, to hide the truth of their failure and proclaim progress. A 7.4% unemployment is ridiculous. In reality it is about 14%. Those who have stopped receiving benefits and have completely given up looking for work are not included as among the unemployed. They´re treated as though they have been taken up in a space ship or worse, dead! They´ve become non-persons. Obama and his administration need to be called out on this. If and when ObamaCare goes into full effect, those disappeareds probably will show up in the statistics to prove the pretended success of the Affordable Care Act.

    Comment by Roberto — August 5, 2013 @ 12:40 pm - August 5, 2013

  4. Let’s not forget the ‘Labor Participation Rate’ which is now in the low 60’s (62.5?), the lowest rate since the early 80’s.
    If anyone actually thinks that this economy is improving: by this fact alone, you’re an idiot.

    It’s getting worse.

    Comment by Jman1961 — August 5, 2013 @ 1:51 pm - August 5, 2013

  5. “For example, consumer price inflation has been running about 8-9% per year under the 1980 method”

    ILC,
    We have spoken about our differences on this before, but I would just point out that according to a lot of the “shadow-statistics” on inflation, that if they are true, there was no housing bubble in the lead-up to the 2008/9 crack-up. On this view, housing prices were just reflecting increases in nominal prices that the rest of the market was not picking up on. Is that your view?

    Also, shadow-stats appears to be the support for the u/e claim. I did some research on this, and found a couple of sites that might interest you. If you check here the author makes a pretty strong case that the comparison is faulty. I will say that I also read this, which suggests that GD statistics over-estimated U/E in the 30s. I am unsure how accurate this is. The BLS also didn’t have data of the sort that John Williams would be comparing until 1940, when the time series started. Its an interesting document.

    Here is the bottom line for the skeptics piece:

    “The graphic presented in the question is comparing what is essentially John Williams’ (U6 + “Other Factors”) Unemployment rate to Darby’s Unemployment rate, which is significantly less than the U3 Rate for the same era. The creator of the graphic is cherry-picking the highest numbers they could find for 2008-2012, and the lowest numbers (lower than what the BLS would calculate) they could find for the Great depression.

    Ultimately, NO – the two cannot be compared. They are not only calculated in a wildly different fashion, but there’s a significant amount of dishonesty by omitting Robert A. Margo’s preference for Lebergott’s numbers over Darby’s because Lebergott’s were calculated using practically the same method that the BLS uses.

    As far as I am able to tell, unemployment rates in the Great Depression peaked at double the highest rate from 2008-2012 when you compare the same measurements.”

    One commentator argued in opposition:
    “No they are not a direct analogy, but neither is the labor force today similar to the labor force during Great Depression. Comparing apples to oranges and saying that “the fact that they are the same is a lie” is just as wrong as saying “they are the same” – they are still not comparable. During FDR time, we didn’t have this made-up source of employment that we did in the last 4 years (public service employees we can’t afford to employ so we simply borrow unprecedented amount of money to keep them employed); any comparison must account for THAT if it accounts for public works projects.”

    You might like that last argument, but as you can guess, I don’t think it is persuasive at all.

    Comment by Passing By — August 5, 2013 @ 2:34 pm - August 5, 2013

  6. Of course the game is rigged, the House always wins.

    A wise, old and experienced corporate Comptroller once told me, when it comes to the corporate-books, don’t ask me “the question”. Tell me “the answer”-desired and I’ll tell you how to phrase the question. Number never lie, you just have to arrange them “properly”.

    Comment by Ted B. (Charging Rhino) — August 5, 2013 @ 4:28 pm - August 5, 2013

  7. Unfortunately, Cas, your lies haven’t changed one bit since the first time you attempted this.

    Mainly because, as before, you are not intelligent enough or educated enough to do anything other than repeat false left-wing talking points.

    All you’re doing is blathering and attempting to derail a thread because you don’t like the facts involved. Intelligent discussion is taking place, and you are here flinging feces.

    That’s typical. Liberals like yourself really don’t have any intellectual or moral capacity; you’re simply selfish children who are looking for any reason to steal from others.

    Comment by North Dallas Thirty — August 5, 2013 @ 4:30 pm - August 5, 2013

  8. (Ouch) I’m old enough to remember that it was Carter who changed the way unemployment was calculated because he felt that the government bean counters were trying to make him look bad. So, he wrote into law the way it was counted, and voila!, the unemployment numbers went down.

    If we counted unemployment using the same method that Carter didn’t like the real numbers would be much, MUCH, higher than they currently are. And, yes, it would blow most folks’ mind – even the MSM would not be able to hide it.

    Comment by Charles — August 5, 2013 @ 5:13 pm - August 5, 2013

  9. Here’s a long (21:37) but pretty interesting explanation by Peter Schiff of what these statistics mean, and how they’re being deliberately manipulated to (SURPRISE!) paint a much more positive picture of our economy than what reality and facts suggest.

    I’d like to think that the eternally insipid thing at #5 could learn something from this, but since I live in the real world and am not prone to hallucinations, I know that this isn’t even a remote possibility.

    Comment by Jman1961 — August 5, 2013 @ 5:16 pm - August 5, 2013

  10. ILC,

    With regards to GDP, the question remains of whether this will have an impact, once estimates are made for previous quarters. It should lift those quarters estimates commensurately. I grant that the estimates might be off, but I think this is a good faith effort to try and make sense of the US superiority in amassing intellectual capital since the end of WWII. It could make government look bad as we go forward and if intellectual capital formation falls.

    Jman1961 & NDT,
    If you wish to engage the issues that ILC raised and which I have been addressing, with me, that would be great. When you say, Jman1961, that you “live in the real world and am not prone to hallucinations” could you please bring a little more of that real world to the economic issues you raise. Thus, of participation (#4)–I agree, it is a cause for concern but is the number alone enough for you to claim that the sky is falling? Perhaps you can share with us the amount of that participation fall that economists attribute to the accelerating level of retirements from the workforce that people are making as our population of baby boomers are retiring? Or for students going to or going back to school to get more skills, etc.? We do want these “former” members of the labour force to have better skills and retire as appropriate, right? And that would ameliorate some (not all) of your concern, right, … as well as being a more balanced presentation of the situation.

    And, NDT, though I have little expectation of a coherent and rational argument from you (I take #7 as the usual sign of things to come), I remain ever hopeful that you will do so.

    Comment by Passing By — August 5, 2013 @ 6:32 pm - August 5, 2013

  11. The fun of this, Jman, is how easy it is to poke the monkey Cas and send it into a screaming frenzy of feces-flinging in its pathetic attempts to derail the thread.

    You quoted a statistic, perfectly referenceable and comparable. The screaming monkey Cas started flinging feces of “perhaps” all over the wall as a distraction and demanded that you clean up its intellectual bowel movements.

    Instead, we just laugh.

    The screaming monkey Cas is just covered in feces it pulled out of its rear. It quotes no facts, it provides no evidence, it just flings intellectual sh*t everywhere and demands that you prove it wrong.

    This is the type of subhuman “intellect” produced by liberalism. Stupid monkey Cas is incapable of doing even the most basic research before opening its mouth or following the simplest rules of building an argument based on evidence. It simply shrieks and desperately flings feces in the hopes of exasperating others and driving them away so that it “wins” the argument.

    This is why it is hilarious to watch the monkey Cas whine about “coherent” and “rational”. The monkey Cas has never made any argument on this blog that would remotely qualify as either. Instead, the monkey screams and makes messes that it demands others who are more educated, more intellectual, and more rational clean up as it does its little monkey dances.

    Charles and Ted did a magnificent job of continuing forward with relevant and referenced information. The monkey is going to continue to shriek, but you and I have caged it and neutralized it.

    Comment by North Dallas Thirty — August 5, 2013 @ 11:50 pm - August 5, 2013

  12. Hi NDT,
    Do you make an argument? Jman “quoted a statistic, perfectly referenceable and comparable. ” That’s a statement.
    Yes, NDT, he did. But the point I raised was to examine this statistic he used. Isn’t that the point of ILC’s post? He argues that government wants to use statistics to make itself look good. Jman uses it to assert that the government is doing bad. OK. I don’t mind him doing that; I just ask him to examine the statistic he uses to condemn this government and what it has (or hasn’t done) with a little nuance. And you respond, NDT, by getting all screamy and mean and stuff with me for asking him. Boo hoo; woe ways me. NDT is being a meany…. Sniffle.

    Anyway, NDT, all fun aside, given that all you have done in this thread is to fling invective, it just sounds like you don’t have an actual argument to make. I say again–if you can actually offer a coherent and rational argument on the issues I have raised–feel free. If you or Jman think I am off-base in #10 about the points I raise on Jman’s post, explain why. Otherwise the points stand unchallenged. And calling me all kinds of poopy doesn’t change that, NDT.

    Comment by Passing By — August 6, 2013 @ 2:07 am - August 6, 2013

  13. I thought #5 was a fair comment (if still not right, haha), and I’m going to respond to it accordingly.

    according to a lot of the “shadow-statistics” on inflation, that if they are true, there was no housing bubble in the lead-up to the 2008/9 crack-up. On this view, housing prices were just reflecting increases in nominal prices that the rest of the market was not picking up on. Is that your view?

    Like I said, I don’t vouch for the 1980 method. So, I’m open to an argument that consumer price inflation hasn’t been running up at 8-9%. But…1%, per the government’s newer methods? Come on. The truth is probably somewhere between.

    As to the role of housing prices: It’s very interesting that the government swapped home prices *out* of the CPI during the bubble (replacing them with Owner Equivalent Rent, which was rising more slowly)…and, after the bubble burst and homes declined and rents started rising more, they swapped home prices back in. That’s one piece of the jigsaw puzzle, of how they keep fudging the numbers.

    So, if true CP inflation has been higher than the government has said, since they started jiggering the numbers…then yes, on a true-inflation-adjusted basis, the housing bubble wasn’t quite so large. But, after all, it was still large enough to make them drop home prices from the official CP calculation, for a few years.

    I also read this, which suggests that GD statistics over-estimated U/E in the 30s.

    John Williams’ graph distinguishes clearly between U3, U6 and his method. The question is, which of those is the 1930s method most nearly comparable to?

    I don’t have time right now to sort that out. I can only note that (1) it’s a worthy question; and (2) if unemployment was over-estimated in the 1930s, that would tend to support the idea of 1930s UE being comparable to ours. Ours is masked, to a degree that is historically unusual, by people dropping out of the labor force (Obama’s huge increases in the welfare and disability rolls) and perhaps also by part-time jobs.

    As for #10:

    With regards to GDP, the question remains of whether this will have an impact, once estimates are made for previous quarters.

    The charts that I’ve seen indicate higher (revised-upward) quarterly numbers, in any event. Also, I’m noticing the effect on the debt-to-GDP ratio. Maybe it’s only a few percentage points, but that’s how these changes work: the depth of problems is incrementally disguised.

    I think this is a good faith effort to try and make sense of the US superiority in amassing intellectual capital since the end of WWII.

    I can’t agree that failed movies (or failed R&D generally) is intellectual capital worth tracking. The larger point is that R&D is a business expense, not a product (the ‘P’ in GDP), and not even a capital investment (for producing other products). The money spent on R&D is already reflected in GDP statistics, when the employee then spends her salary. Counting the expense itself as GDP is double-counting.

    Furthermore, the changes make GPD even more of what I’ve been saying it is, for years: just a measure of spending, designed to prop up an ideology in which “more spending” will always be the answer to every economic problem, since the economic goalpost is defined (in circular fashion) by a measure of spending (GDP).

    Comment by ILoveCapitalism — August 6, 2013 @ 2:18 am - August 6, 2013

  14. P.S. It would do much to rectify these matters (that is, to make GDP a better goalpost, a better measure of national prosperity) if we calculated GDP net-of new debt.

    I’ve explained elsewhere how income actually isn’t income (i.e., not a real economic gain) if all you did was fake it by spending borrowed money on make-work (i.e., nothing genuinely productive).

    Borrowed money must be either paid back, or inflated away. If you spent the borrowed money on something that was productive (enough to be a net economic gain), the positive value of product/income should appear sooner or later in GDP. So, the cycle timing issues might not be exactly right, but subtracting debt from GDP (to see what your real gain/product was) is reasonable.

    So, fine… I’ll accept the recent GDP changes (that make it bigger, by counting R&D expenses and pension promises(!) as “product”), if we can also have changes that subtract new debt (both public and private).

    But that will never happen in a million years. Why? Because it would make GDP lower. It wouldn’t help the propaganda campaign.

    Comment by ILoveCapitalism — August 6, 2013 @ 2:33 am - August 6, 2013

  15. And the feces-flinging Cas monkey tries desperately to wipe its face and look respectable.

    Yes, NDT, he did. But the point I raised was to examine this statistic he used. Isn’t that the point of ILC’s post? He argues that government wants to use statistics to make itself look good. Jman uses it to assert that the government is doing bad. OK. I don’t mind him doing that; I just ask him to examine the statistic he uses to condemn this government and what it has (or hasn’t done) with a little nuance.

    Really, monkey?

    Where did you cite actual facts and linkable references to support your hypothesis for the need for “nuance”?

    Or did you just dump a big pile of “perhaps” poo on the floor and demand that everyone else prove you wrong?

    ILC and Jman put forward hypotheses and provided references, statistics, and analysis in support of them.

    Monkey Cas pooped a pile of “perhaps” feces and started flinging them around.

    That is because Monkey Cas is the typical narcissistic liberal “intellectual”, secure in the belief that it knows everything, that its pronouncements are absolute fact, and that society should be paying it six figures to spout its self-evident brilliance. It is the smug, condescending student at the back of the lecture hall that every day must interrupt the professor to drop the quadratic equation into a philosophy class, a quote from Nietzsche into a calculus class, or any of the other unrelated cocktail-party factoids that it has squirreled away like little acorns to prove it is a super-smart special snowflake like Mommie said.

    While everyone else rolls their eyes and recognizes it as a self-absorbed crashing bore.

    Most professors deal very easily with these kind by allowing Special Snowflake to demonstrate its knowledge — or more precisely, how little it remembers, understands, or has thought through its little factoids. Preferably up at the front of the class, where it can more readily be seen hanging itself.

    At this point, Special Snowflake quite often can recognize that learning and education are about understanding what you don’t know versus showing off what you do, and can
    develop the curiosity, respect for others, restraint, and focus on actually researching and understanding topics that are the core of intellectualism and the truly-educated individual.

    Or it can become a feces-flinging monkey who throws “perhaps” while it avoids facts like the plague, demands everyone else do its research for it, and who insists that is “just asking questions” when confronted on its disruptive self-aggrandizing behavior.

    As you have, Monkey Cas.

    Comment by North Dallas Thirty — August 6, 2013 @ 9:06 am - August 6, 2013

  16. ILC,
    “I thought #5 was a fair comment (if still not right, haha), and I’m going to respond to it accordingly.”
    That is progress 🙂

    “The truth is probably somewhere between.”
    Yes, but I think it is closer to the government’s position. I grant that there is a lot of “art” in the “science” of statistics, though.

    “It’s very interesting that the government swapped home prices *out* of the CPI during the bubble (replacing them with Owner Equivalent Rent, which was rising more slowly)…and, after the bubble burst and homes declined and rents started rising more, they swapped home prices back in. That’s one piece of the jigsaw puzzle, of how they keep fudging the numbers.”
    I did not know this. I have gone off to do a little research on this, and found that the BLS uses both indexes, based on whether you are a renter or an owner. I also found that the BLS is changing its sampling technique based on the new 2010 census data. Can you point me to something on line about this issue you raised?

    You raise a good point about debt to GDP ratios, because as GDP is revised upward, debt to GDP ratios will fall; that has political ramifications if adjustments to the measurement of debt are not made. I wonder how this issue will be dealt with by statisticians? As for failed movies, the way I look at it is that, even as some movies or songs bomb, others do not. Techniques developed in bombed movies (The Abyss by Cameron) reappear in hit films (like Terminator 2 by Cameron). The fact that R & D has been expensed in the past is not a winning argument for me, since I take the intellectual capital argument pretty seriously. If we are moving into an economy based on the value of information rather than manufacturing per se, we have to start coming to grips with this issue, because its impact on GDP is getting greater and greater as time passes. The one problem I have of course is how you accurately measure this sort of thing. And I am uncertain if the folks in charge have a good handle on that. As for the salary equivalence argument you raised–GDP is about the value of final goods and services. Its a measure that is easy to make sense of, when you can see the product that you are buying/selling; but how do we put a value on the apparently ephemeral?

    “So, fine… I’ll accept the recent GDP changes (that make it bigger, by counting R&D expenses and pension promises as “product”), if we can also have changes that subtract new debt (both public and private).”
    Let me think some more about the debt idea. As for the pension stuff, I don’t know enough about that change to have an opinion on it at the moment. I will do some reading.

    Comment by Passing By — August 6, 2013 @ 2:31 pm - August 6, 2013

  17. Isn’t the “spending is GDP” narrative just the “Broken Window Fallacy” retold?

    Comment by Juan — August 6, 2013 @ 5:57 pm - August 6, 2013

  18. Figures don’t lie, but liars can figure.

    Garbage in, garbage out.

    “There are three types of lies — lies, damn lies, and statistics.”
    ― Benjamin Disraeli

    “Facts are stubborn things, but statistics are pliable.”
    ― Mark Twain

    “Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns- the ones we don’t know we don’t know.”
    ― Donald Rumsfeld

    ILC’s point is that when the method for measuring, say, inflation keeps changing and different results occur from the latest method, how does one “compare” the results over a vast time when the numbers are all derived from using different methodology.

    Passing Gas, typically, wants to play games with which method is closer to “correct” according to how much methane Passing Gas has built up at the time and the purpose it serves the interior structure of Passing Gas for Passing Gas by Passing Gas.

    ILC points out an anomaly or two and Passing Gas wants to argue the unknown unknowns. Pathetic.

    Comment by heliotrope — August 7, 2013 @ 8:58 am - August 7, 2013

  19. Let me think some more about the debt idea

    No, **that** is progress. 😉 (Provided that real thinking is going to happen.)

    Comment by ILoveCapitalism — August 7, 2013 @ 12:29 pm - August 7, 2013

  20. Hi Heliotrope,
    Thanks for sharing your views. I agree, one of ILC’s points was to do as you say. It wasn’t the only thing that he was saying or open to exploring, hence why ILC was kind enough to respond to my questions. I’ll ask you the same question I asked ILC, that came from reading and mulling his second paragraph:

    If you think that inflation has been running far higher than the government’s estimate for years, Heliotrope, then you would also appear to hold that there was no (or very little) housing bubble in the lead-up to the 2008/9 crack-up. On this view, housing prices were just reflecting increases in nominal prices that the rest of the market was not picking up on. Is that your view, Heliotrope?

    Comment by Passing By — August 7, 2013 @ 1:07 pm - August 7, 2013

  21. “**that** is progress. 😉 (Provided that real thinking is going to happen.)”

    Just as long as you realize that I may come to a different conclusion to you! 🙂

    Comment by Passing By — August 7, 2013 @ 1:09 pm - August 7, 2013

  22. Anecdotally, I can state that the housing bubble was real for me in Southern California as I watched our house rise in “value” $10,000 per month during 2006 to 2008. That’s well beyond the rate of inflation.

    Comment by Juan — August 7, 2013 @ 7:38 pm - August 7, 2013

  23. Their changes always run in one direction, to make the government look better.

    Like the way whenever the MFM make factual errors in a story, the errors are always on the side of making conservatives look bad.

    Comment by V the K — August 7, 2013 @ 9:55 pm - August 7, 2013

  24. OMG! The White House is lying to us! I’m stunned. /snark

    Comment by creeper — August 8, 2013 @ 8:37 am - August 8, 2013

  25. Is that your view, Heliotrope?

    No.

    Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon by Gretchen Morgenson caused the 2008 economic crisis. Here is the point of the book:

    The New York Times’s Pulitzer Prize-winning columnist reveals how the financial meltdown emerged from the toxic interplay of Washington, Wall Street, and corrupt mortgage lenders.

    In Reckless Endangerment, Gretchen Morgenson, the star business columnist of The New York Times, exposes how the watchdogs who were supposed to protect the country from financial harm were actually complicit in the actions that finally blew up the American economy.

    Drawing on previously untapped sources and building on original research from coauthor Joshua Rosner—who himself raised early warnings with the public and investors, and kept detailed records—Morgenson connects the dots that led to this fiasco.

    Morgenson and Rosner draw back the curtain on Fannie Mae, the mortgage-finance giant that grew, with the support of the Clinton administration, through the 1990s, becoming a major opponent of government oversight even as it was benefiting from public subsidies. They expose the role played not only by Fannie Mae executives but also by enablers at Countrywide Financial, Goldman Sachs, the Federal Reserve, HUD, Congress, the FDIC, and the biggest players on Wall Street, to show how greed, aggression, and fear led countless officials to ignore warning signs of an imminent disaster.

    Character-rich and definitive in its analysis, this is the one account of the financial crisis you must read. (Release date: May 24, 2011)

    I have no patience with the tactic of using the term “Housing Bubble” to stoke a “conversation” that leads to a predetermined “cause and effect” conclusion.

    It gives great latitude to Passing Gas to keep shifting the “meaning” and scope of “Housing Bubble” in order to pound away at the predetermined “conclusion” Passing Gas is peddling.

    The 2008 “financial crisis” was rife with soured schemes by the Boston FED, Wall Street “banks” and their “derivatives” trash, and mainly Freddie and Fannie jeopardizing the full faith and credit of the United States to cover subprime trash adjustable rate mortgages with pre-purchase equity loans covering down payments and staggering unrealistic monthly payments tailored to suck in economic imbeciles by setting them up in a something for nothing fairy tale dose of financial witchcraft.

    And, the house of cards collapsed. But while it lasted, it caused a housing market shortage, a building boom and put a lot of people upside-down in their mortgages.

    We are still working our way through the process of “short sales” as banks try to unload their repossessed inventory in a manner that best protects the size of their losses.

    If, Passing Gas, you care to look at the tangled web of deceit and corruption that is behind the 2008 financial crises, you would not be playing such a patently simple game of cause and effect.

    Comment by heliotrope — August 8, 2013 @ 10:02 am - August 8, 2013

  26. I think some game-playing with the terminology has happened here, which should be corrected.

    The housing bubble was itself a process of inflation.

    When the government creates inflation (by artificially lowering interest rates and/or printing money), the effects on prices do NOT hit uniformly (everywhere at once). In our case, the government does it in such a way that the excess money goes first to (1) government spending and (2) the financial asset markets.

    Stocks were in recovery from an earlier inflationary bubble-crash, so the money landed in a different asset for a few years. Housing was being ‘pushed’ by the factors heliotrope describes above, since the 90s. It was ready for a bubble phase, and the excess money landed there and made it a bubble.

    Then, when the housing bubble burst, the money moved and we got the present bond bubble (with long-term bond prices at unheard-of highs), and the money has also begun to cycle back into stocks again. But none of those things are tracked in the CPI (consumer price) calculation. By design. So that the government can continue to say “Look, no inflation!”

    That the government manipulates the CPI to understate inflation is proven by the many, blatant examples of such manipulation. One example is, again, that they took home prices out of the CPI calculation when home prices were rising (and so would increase the CPI number) – and then put home prices back into the CPI when they were falling (and would help lower the CPI number).

    Thus, the question “If real inflation has been higher than the government says, doesn’t it mean that the real housing bubble was smaller?” is a false question, based on a false understanding of how inflation works. It is not an either-or situation. The housing bubble *was* inflation; inflation that the government chose to exclude from the statistics (i.e., to never call “inflation”).

    Had market interest rates prevailed in those years (i.e., had the government let them be at 4-7% and not pushed them artificially down to 1%), the housing bubble could not and would not have happened – not even with all those other characters gunning to make it happen.

    The bad role played in the housing bubble by Fannie, Freddie, the CRA / federal bank regulators, etc. was real, and is worth discussing and documenting. But the biggest villain of all, in the housing bubble, was the Federal Reserve Bank.

    You could argue that a good price-inflation index would look at prices all over the economy – including the assets markets (stocks, bonds, housing). Under such an index, the housing bubble would appear as a distortion in which home prices increased faster than prices for food, gas, etc. (which also definitely increased, during that same period).

    Or, you could forget about trying to track price inflation and just track REAL inflation, the underlying inflation that causes all of the other inflationary symptoms, which is: monetary inflation. How much money the government and the banking system are creating from thin air.

    Comment by ILoveCapitalism — August 8, 2013 @ 11:25 am - August 8, 2013

  27. Clear and concise, ILC.

    You may recall that many banks switched over to using the Freddie/Fannie market by using their templates to make loans (read: do the paperwork) and sell (read: dump) them within 30 days to the “aggregators” of sub-prime garbage working in harmony with the FED which rewarded said banks with special rates and privileges for doing so. Meanwhile, the Wall Street “banks” bundled this crap into “derivatives” and peddled them hither and yon and made a “small” commission (percentage wise) on sales in the billions. Ponzi would be jealous.

    The same rogues who built the house of cards and the main players that led to the “too big to fail” fiasco are still the major players doing slight of hand reorganizing. While Martha Steward went to prison for doing what Congressmen do daily with inside information, not a single pirate in Congress, the Federal Government or the Wall Street “banks” was even fined.

    Comment by heliotrope — August 8, 2013 @ 12:17 pm - August 8, 2013

  28. And Passing Gas passes on.

    Comment by heliotrope — August 10, 2013 @ 8:59 am - August 10, 2013

  29. Heliotrope, let us not forget that the same rogues who built the house of cards and then demanded bailouts are all part of the insider, Ivy-League elite progressive caste that are Obama’s most ardent supporters.

    Comment by V the K — August 10, 2013 @ 11:08 am - August 10, 2013

  30. Hi HT
    On the road.
    Will answer when back from camping
    Love
    PB

    Comment by Passing By — August 10, 2013 @ 5:29 pm - August 10, 2013

  31. Will answer when back from camping

    When did Section 8 start subsidizing campsite fees?
    I thought it was supposed to be for rent only.

    Or is this simply a ruse because you haven’t been able to come up with so much as a half-assed response (your forte) and you need more than the three days that have already passed since you last fouled the thread?

    Comment by Jman1961 — August 10, 2013 @ 5:52 pm - August 10, 2013

  32. Heliotrope and Jman1961,
    Thank you both for your interest in wanting to hear what I had to say about the points you raised, Heliotrope.

    Heliotrope,
    “[Y]ou would not be playing such a patently simple game of cause and effect.” Could you please point out where you think my prior comments in this thread talk about the cause and effect of the housing bubble? I raised an issue concerning the measurement of inflation and asked if there was in fact a housing bubble, given some high claims for inflation in the period. ILC understood me and answered accordingly–by the way–he thinks I am wrong about the issue. You raised the issue of cause and effect of the housing bubble (GM quote, etc) at #25, Heliotrope.

    ILC,
    I am having problems getting around this claim: “One example is, again, that they took home prices out of the CPI calculation when home prices were rising (and so would increase the CPI number) – and then put home prices back into the CPI when they were falling (and would help lower the CPI number).” I have checked here and here to find some way to verify what you say, but I cannot.

    The BLS apparently moved from an “asset price method” (housing prices) to a rental equivalence approach to owner-occupied housing in 1983/1985. Since then, they have tweaked it, but that change happened early, and they haven’t looked back. Currently they use owner equivalent and primary residence rent in the sample. Could you point me to something that might clear up my confusion about what you meant by this claim?

    “Thus, the question “If real inflation has been higher than the government says, doesn’t it mean that the real housing bubble was smaller?” is a false question, based on a false understanding of how inflation works. It is not an either-or situation. The housing bubble *was* inflation; inflation that the government chose to exclude from the statistics (i.e., to never call “inflation”).”

    Something that supports your claim here would be this: “More important, the CPI does not include sales price of homes. Instead, it calculates the monthly equivalent of owning a home, which it derives from rents. This is very misleading, since rental prices are likely to drop when there is high vacancy, usually when interest rates are low and housing prices are rising. Conversely, when home prices are dropping due to high interest rates, rents tend to increase. Therefore, the CPI gives a false low reading when home prices are high (and rents are low). This is why it did not warn of asset inflation during the housing bubble of 2005.”

    Let me think about how best to answer you, as I have some things to do right now. But out of curiosity, if we factor in all the various things you discussed so as to get a “good price-inflation index” as you suggest (including asset prices), what would that look like for the period from 2000 to the present? Has someone done this set of calculations? I would be interested to know.

    Comment by Passing By — August 12, 2013 @ 6:37 pm - August 12, 2013

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