27 August 2010

John Williams on the Revised GDP Number

John Williams' comments on the GDP number were short and to the point. I am still not on board with his hyperinflation forecast preferring to stick with a pernicious stagflation, although what he sees is certainly possible, as is a Japan style deflation. That is what 'fiat' is all about.

The correlation in stocks across the various indices today is remarkably uniform. Do you need to buy a vowel?

John Williams of ShadowStats

Economic Data Will Get Much Worse.

The kindest thing I can say about a stock market that rallies on the "stronger than expected" news that annualized growth in second-quarter GDP was revised from 2.4% to just 1.6%, instead of to the expected 1.4% (keep in mind those numbers are quarterly growth rates raised to the fourth power), or that gyrates over meaningless swings in seasonally-distorted weekly new unemployment claims, is that it is irrational, unstable and terribly dangerous.

As the renewed tumbling in the U.S. economy throws off statistics suggestive of a continuing collapse in business activity, as a looming contraction in third-quarter GDP becomes increasingly evident to all except Wall Street and Administration hypesters, who professionally never admit to such news, it would be quite surprising if the financial markets did not react violently, with a massive sell-off in the U.S. dollar contributing to and coincident with massive sell-declines in both the U.S. equity and credit markets.

Recognition is growing rapidly of the re-intensifying economic downturn. Yet, little analysis so far has been put forth to public as to some of the unfortunate systemic implications of this circumstance. The problems range from extreme growth in the federal government's operating deficit, tied to reduced tax revenues and to bailout expenditures for the unemployed, bankrupt states and continuing banking industry solvency issues, to U.S. Treasury funding needs to pay for same. The latter issue promises eventual heavy Federal Reserve monetization of Treasury debt, with resulting inflation problems and eventual hyperinflation (see the Hyperinflation Special Report).