U.S. Government Economic Numbers Are Not What You Think They Are!

By Victor Sperandeo with the Curmudgeon


U.S. Government economic numbers are not what you think they are!

by Victor Sperandeo with the Curmudgeon


As I’ve stated many times in these posts, one cannot trust ANY U.S. government economic numbers unless you can prove them yourself.  Such skepticism is especially true in election years like 2020.

The U.S. GDP estimates come from the Bureau of Economic Analysis (BEA). To make these numbers look good, BEA misleads, mischaracterizes and concocts estimates that deceives the public in order to paint a positive picture of the economy.

U.S. Government Skullduggery:

The scam today is the $2.4 Trillion of federal government coronavirus “stimulus” programs (an excellent summary of the U.S. economic stimulus program for businesses can be read here).

For example, the CARES program allocated up to $46 billion for loans and loan guarantees for air carriers, other related businesses, and businesses critical to maintaining national security.  These are the same airlines that spent all their earnings buying back their own stock.  Incredibly, that $46 Billion “gift” is counted as an increase in U.S. GDP.

The government handout to the airlines is not supposed to be reoccurring, but maybe it will be if the airlines continue to be in financial difficulty? 

Foreboding Signs of Economic Trouble:

Here are a few other signs of U.S. economic weakness:

“60 percent of Resturants have permanently closed” as of July 25th says Yelp and The Hill.  However, that percentage is surely higher now with the restriction prohibiting indoor dining in many states, like California.

A WSJ editorial (9/12-13/2020 print edition) titled “A Plea to Save New York” editorial states: 

“The Partnership for New York City has estimated that a third of small businesses will close permanently. New York City’s unemployment rate was 19.8% in July, one of the highest rates in the country.  This damage will be felt for years.”

As noted in our companion piece, “Global Economies Rebound, but won’t reach Pre-Coronavirus levels till 2022,” airlines are flying at greatly reduced capacity, cutting jobs and retiring aircraft. For example, United Airlines will eliminate 16,000 jobs next month as it shrinks operations. 

Also, many retail stores are closed, require reservations to enter or are permitting only 1 to 3 customers in the store at any one time (after a temperature check plus health related Q&A).

Have a look at this eye opening chart of World Trade, courtesy of Bloomberg.  It speaks for itself:

I could bore you with many more of the impossible growth realities being projected, but instead urge you to look behind the numbers.

Guess What’s Included in U.S. GDP?

Did you know that the phantom deficit spending programs (like “income” handouts to corporations) and printed fiat currency (that was created “out of thin air” by the Fed) are counted as part of U.S. GDP?

The Fed balance sheet on 2/12/20 was $4.182 trillion but on 6/10/20 it was $7.010 – an increase of +$2.828 trillion or +68%!

Also, the Fed’s bond purchases, like investment grade corporate bonds, “broad market index bond” ETFs and High Yield Bond ETF’s, created profits for BlackRock (iShares ETFs), State Street Global Advisors (JNK ETF) and other investment banks offering such corporate bonds and ETFs.

Doubline’s Jeffery Gundlach had this to say about the Fed’s buying of such bonds:

“The Federal Reserve is presently acting in blatant non-compliance with the Federal Reserve Act of 1913.  An institution violating the rules of its own charter is de facto admitting that said institution has failed and is fundamentally broken.”

Sidebar: Fed Buying U.S. Debt at Auctions

Do you realize that the Fed buying Treasuries and Mortgage bonds is equivalent to the U.S. government selling the same debt twice? 

·       First when the Treasury sells bonds/notes/bills in the new issues open market auction. 

·       Then again, when the Fed buys those fixed income securities from   its primary dealers with freshly “printed” (aka “keystroke) fiat dollars. 

If Abbott and Costello arranged this sharade it would be a comedy routine like “Who’s on First.”


CBO Estimates of U.S. GDP and Budget Deficits:

The CBO (Congressional Budget Office) “Update to the Budget Outlook 2020-2030,” September 2020 projects that from 2020 to 2030, annual real GDP will be 3.4% lower, on average, than it projected in January. The annual unemployment rate, which was projected to average 4.2%, is now projected to average 6.1%.

projects a federal budget deficit of $3.3 trillion in 2020, more than triple the shortfall recorded in 2019.  At 16% of GDP, the deficit in 2020 would be the largest since 1945.

In fiscal year 2021 (the so-called mystical “V Recovery” year), the deficit is projected to be $1.8 trillion or 8.6% of GDP.

Thereby, the real 2020 U.S. government deficit is actually the sum of: $3.3 trillion fiscal deficit + 2.9 trillion bond buys by the Fed + $6.2 trillion in federal government stimulus payments + off balance sheet spending or somewhere north of $12.4 trillion! 

Each of those numbers is historic in its own way.  It puts the U.S. on a course to eclipse World War II-era highs in the budget deficit, national debt and handouts.  Of course, the Federal Reserve’s balance sheet is at an all-time high and likely to climb higher in the months ahead.

Victor’s Conclusions:

All the above fiscal and monetary stimulus is not recurring and so its contribution to GDP is a mirage.

What is permanent is the millions, if not tens of millions of small businesses that are now dead and buried. Their capital and jobs are gone and will never see the so called “V recovery,” which the Curmudgeon and I don’t believe will happen. (John Williams of ShadowStats has been forecasting a “L” shaped economic recovery for some time).

Many of the small business survivors and workers urgently await the next stimulus package that’s been stalled by party line Congressional differences.                                                                                                                                

Do you believe in the tooth fairy?  Good luck with all the propaganda you will read, see, and hear!

Closing Quote:

To understand what is really happening in the economy vs what you might read or hear, please reflect on this quote:

“Appearances to the mind are of four kinds. Things either are what they appear to be; or they neither are, nor appear to be; or they are, and do not appear to be; or they are not, and yet appear to be.”

 Epictetus 50 AD-135 AD


Good health, good luck and till next time….

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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