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April 02, 2006

Street economics trump government statistics

The cost of homes has risen out of reach. Medical expenses are on the run. Costs are increasing everwhere and our wages are not keeping up. If you lose your job, you're lucky to find a new one. Yet government statistics say the economy is booming. What gives?

What gives is that the statistics are being massaged to hide the underlying weaknesses. I'm citing the findings of economist Walter J. Williams who has made a living on reading the fine print in government economic statistics. Shadow Statistics

If unemployment was calculated the way it was done during the 1930s, it would run about 12%. The first change in statistics was a "discouraged worker" category that treated unemployed separately. Now they are not counted at all.

The Consumer Price Index (CPI) would be about 8%. The original statistics measured the changes in a fixed basket of goods over time. The index was changed to allow substitutions that in effect measure the cost of survival. If the CPI was calculated the way it was during the Carter years, Social Security checks would be 70% higher. Secondly, if a product is improved, it is calculated to have gone down in price.

The Domestic Gross Product (GDP) overstates growth by 3% year to year. When inflations is understated, real growh is overstated. If you are a homeowner, you are considered to be paying yourself rental income. This in turn jacks up household income which is actually dropping.

Federal budget numbers are kept on a cash basis with no accruals made for future obligations. If set-asides for Social Security and Medicare were counted, the deficit would be $3.4 trillion, not the reported $616 billion. Total federal obligations at the end of September were $51 trillion, over four times the GDP.

If you comprehend what this means, get your debts and living expenses as low as you practically can. It looks like the economy is in the early stages of slipping into an inflationary recession. Wages won't keep up.

Posted by Ray Hewitt at April 2, 2006 04:38 PM

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