The Round Rock Wealthbuilder's Meetup Message Board › John Williams: How to Survive the Illusion of Recovery (Part 1)
|Dan Caldwell - Wea...||
Round Rock, TX
Source: JT Long of The Gold Report (2/8/13)
There is no economic recovery, and there are no signs that a recovery is coming, says Shadowstats.com author John Williams. In this Gold Report interview, he blames mal-adjusted inflation statistics for creating an alternate reality that overestimates economic activity in a way that is unsustainable. Williams warns that eventually the painful truth will be so difficult that even government manipulation won’t be able to deny it and that is when hyperinflation will take its toll on those who have not taken his advice for preserving purchasing power and securing wealth.
The Gold Report (TGR): The last few years have been very volatile for investors, particularly resource equity investors. The mainstream media, citing government statistics of improved employment rates and housing starts, called an end to the recession and is forecasting a slow recovery in 2013. You are looking at the same indicators, but coming up with different numbers. Let’s start with the unemployment rate. What are you seeing and why is it different than what we are hearing everywhere else?
John Williams: I contend that the economy effectively hit bottom in June 2009, followed by a period of somewhat volatile stagnation, and it is beginning to turn down anew. There never was a recovery and no economic data shows the type of recovery that the official gross domestic product (GDP) report is showing. The GDP shows levels of activity now that are above where the economy was before the recession. It’s been above that level now for more than a year. No other major economic series has shown a full recovery, shy of perhaps inflation-adjusted retail sales, which is due to a problem with the inflation rate used to adjust the series. Generally, the illusion of recovery has resulted from the government’s use of understated inflation.
TGR: Are you predicting a double-dip recession?
JW: It’s more like the pattern a fellow would take going off a ski jump. A plunge and then moving forward, maybe up a little bit and then plunging anew. The economy officially will be recognized as a double-dip recession at some point, but in reality it’s all part of the ongoing economic crisis that we’ve seen for the last five or six years.
TGR: One of the indicators people look at to determine the existence of a recession is the unemployment rate. Why you are seeing a different number for that than some of the officially announced numbers?
JW: Unemployment is a matter of how you define it. The government has six measures of unemployment. The headline number is the third level of unemployment (U3). That measures people actively seeking work in the last four weeks. That doesn’t mean just reading newspaper want ads; it is people mailing resumes and doing interviews. That number was reported at 7.9% for January, but that’s not the common experience. The broadest measure that the government has is U6. That includes the people defined as unemployed in U3 plus what they call "discouraged workers" and those who are working part-time for economic reasons, people who are underemployed. U6 was at 14.4% in January.
If you accounted fully for all discouraged workers, not those who have been discouraged for less than a year as counted by the Bureau of Labor Statistics for U6, you'd find that the unemployment rate is up around 23%. The recession has gone on for so long that people have given up looking for work, but those individuals still consider themselves to be unemployed. If there were jobs available, they would take them, but the government doesn't count them in the headline labor force statistic. That is why the official unemployment rate is shrinking while the number of people who want to work, but can't find a job, has actually increased.
TGR: Now that loans are more difficult to get, are you predicting that retail and housing probably aren't going to bounce up in 2013?
JW: Exactly. The only type of loan growth to consumers has been in government lending of student loans. It has not been in the types of loans that drive auto or retail sales. With the shortfall in income, there's no way the consumer could support sustainable growth in consumption and without that you don't have sustainable growth in the GDP.
That is why we haven't had an actual recovery in inflation-adjusted GDP. Also, there is no recovery pending, and that has all sorts of terrible implications for the financial markets and the current fiscal circumstances in the United States.
TGR: What does all of this mean for the stock market? If people believe the government numbers and have a false vision of the economy, does that really hinder investors if the rest of the market believes those same positive numbers? Don't we always hear that stocks move based on perception rather than reality?
JW: For some time, I don't think stocks have been moving based on anything tied to reality; the market has had no appearance of being rational. There are other factors at work here with the result of some very unusual trading activity. What will happen, eventually, is that underlying economic reality will become undeniable, and even official reporting will be revised to a pattern of contraction, an official double-dip recession. That likely will not be good news for stocks.