sábado, 30 de maio de 2009

Aulas Macro III e Economia Internacional

1. Temos aula regular na segunda, 1.6., Economia Internacional, 17:00 horas 2. Temos aula regular na terça, 2.6., Macro III, 21:00 horas 3. Não tem aula na quarta, 3. 6., Economia Internacional, por causa da liberalização para participar no programa do CACEF 4. Não tem aula na quinta, 4.6., Macro III, por causa da minha viagem para participar numa banca de doutorado na UFSC em Florianópolis

As orígens da crise

John B. Taylor identifica a política monetária excessiva como a causa da crise:

"... Monetary excesses were the main cause of the boom. The Fed held its target interest rate, especially in 2003-2005, well below known monetary guidelines that say what good policy should be based on historical experience. Keeping interest rates on the track that worked well in the past two decades, rather than keeping rates so low, would have prevented the boom and the bust. Researchers at the Organization for Economic Cooperation and Development have provided corroborating evidence from other countries: The greater the degree of monetary excess in a country, the larger was the housing boom.

The effects of the boom and bust were amplified by several complicating factors including the use of subprime and adjustable-rate mortgages, which led to excessive risk taking. There is also evidence the excessive risk taking was encouraged by the excessively low interest rates. Delinquency rates and foreclosure rates are inversely related to housing price inflation. These rates declined rapidly during the years housing prices rose rapidly, likely throwing mortgage underwriting programs off track and misleading many people..."

Leia mais

sexta-feira, 29 de maio de 2009

O caminho da hiperinflação

Metas de inflação no modelo de demanda e oferta agregada

Inflation targeting in a modified aggregate demand and supply model

Emprestimos do consumidor Americano

Gastos do consumidor Americano

Gastos do consumidor Americano em % do PIB Consumo pessoal e investimentos residenciais

Recuperação econômica bloqueada

A alta carga da dívida do consumidor bloqueia a recuperação econômica:

May 29 (Bloomberg) -- "... The harsh reality is that the once-mighty U.S. consumer is setting out on a long, debt-reduction marathon that will mute economic recovery in America and among its major trading partners...

The issue with consumers: Their balance sheets are a bloated mess with household debt still unsustainably high at more than 130 percent of income. Getting the ratio down to a more realistic sub-100 percent level -- never mind the 60 percent to 70 percent range seen in the 1960s and 1970s -- involves serious consumption cutbacks. With consumers accounting for about 70 percent of the U.S. economy, this one-time engine of growth may easily become a dead weight..." --

quinta-feira, 28 de maio de 2009

A orígem da crise financeira

John B. Taylor: "... My research shows that government actions and interventions -- not any inherent failure or instability of the private economy -- caused, prolonged and dramatically worsened the crisis. The classic explanation of financial crises is that they are caused by excesses -- frequently monetary excesses -- which lead to a boom and an inevitable bust. This crisis was no different: A housing boom followed by a bust led to defaults, the implosion of mortgages and mortgage-related securities at financial institutions, and resulting financial turmoil.
Monetary excesses were the main cause of the boom..." -- http://online.wsj.com/article/SB123414310280561945.html Background analysis: http://www.stanford.edu/~johntayl/FCPR.pdf

Yield curve analysis

Use este link para observar (mover a linha vermelha) as mudanças no "yield curve" -- a estrutura das taxas de juros -- desde 2000. Observe que no top da bolsa de valores no Julio 2007 a curva era "flat" (quase horizontal) e como desde este tempo a curva se torna cada vez mais "steep". Fonte: http://stockcharts.com/charts/YieldCurve.html

quarta-feira, 27 de maio de 2009

Hiperinflação USA

May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”--

Leia mais

segunda-feira, 25 de maio de 2009

A posição da economia brasileira no mundo

As 12 maiores economias em PIB (trilhões 2008)

A posição do Brasil no BRICs

Taxa de pobreza Percentagem da população que vive com menos de 1,25 US dólar em paridades de poder de compras

A posição do Brasil no BRICs

Investimento estrangeiros diretos no exterior Investimentos estrangeiros diretos no país

A posição do Brasil no BRICs

PIB per capita

A posição do Brasil no BRICs

Taxa de exportações em % do PIB

Economia Internacional: taxa de câmbio

quarta-feira, 20 de maio de 2009

O fantasma do dinheiro

Veja neste vídeo educacional como se cria dinheiro "ex nihilo" no sistema bancário fraccional: http://www.youtube.com/watch?v=vm3DixfL9o0

Festival da dívida

Clique para observar como a dívida do governo e do setor privado nos Estados Unidos cresce de um segundo por o outro: http://www.usdebtclock.org/

Japão: depois de 19 anos da política Keynesiana excessiva

Nem a taxa de juros de zero, nem gastos do governo sem limite podiam evitar que Japão novamento está entrando numa recessão forte: May 20 (Bloomberg) -- Japan’s economy shrank at a record 15.2 percent annual pace last quarter as exports collapsed and consumers and businesses cut spending... “There is a huge problem of over-capacity,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “That means capital spending is not likely to pick up.” ... http://www.bloomberg.com/apps/news?pid=20601080&sid=aESruA91JsS4&refer=asia

terça-feira, 19 de maio de 2009

Medo da deflação

“We are currently being very aggressive because we are trying to avoid” deflation, Fed Chairman Ben S. Bernanke told an Atlanta Fed conference on May 11. The central bank has cut short-term interest rates effectively to zero and engaged in what Bernanke calls “credit easing” to spur lending to consumers, small businesses and homebuyers. -- http://www.bloomberg.com/apps/news?pid=20601109&sid=auyuQlA1lRV8&refer=exclusive Dicas para pensar: 1. Analise por que esta política pode fracassar 2. Analise que modelo as autoridades monetárias tem na mente 3. Mostre os riscos quando se aplica este pensamento

Macro III - prova 2 - 21 de Maio 2009

Seguem recursos para a prova 2 em Macro III fórmulas gráficos dados explicações O tema da prova é "Depressões (incluindo recessões) e crises econômicas" A prova vai ser orientada analisar no modelo ISLM e DAOA a mudança das variáveis como definido nas fórmulas básicas. Objetivo da prova: Mostrar a capacidade do estudante de analisar as variáveis econômicas que podem causar depressões e crises econômicas e mostrar o mechanismo de transmissão com a ajuda das fórmulas básicas e os modelos gráficos ISLM e DAOA (para detalhes veja as páginas anteriores no blog incluindo a postagem do 18 do Maio com explicações). Exemplo: Usando a fórmula da determação de preços analise o efeito do aumento da taxa de salário e mostre o efeito no modelo DAOA (resposta: usando a fórmula P = (1 + μ) (W/A) um aumento de W implica um aumento do P. O efeito se mostra gráficamente no modelo DAOA como um delocamento da curva da oferta agregada por a esquerda. Para explicações veja as postagens abaixo:

Fórmulas básicas

M x V = Q x P = Y M = m x BM m = 1/r (M x V)/P = Q Q = QC(Y,i) + QI(i) + QG + QEX(e) – QIM(e,Y) Y = QC x Pc + QI x PI + QG x PG + QEX x PEX – QIm x PIM Q = f (K, AN) P = (1 + μ) (W/A) W = Ae Pe F (u, z) π = (p x q) – (wL + rK) π = p x F(K, AN) – wL - rK

Determinação da taxa de juros

Limite da política monetária

Armadilha de liquidez

Para a prova 2 em Macro III

Demanda e oferta agregada, as très partes da curva de oferta agregada em relação da capacidade:
horizontal - a taxa de salários tem mínimo
positivamente inclinada - elasticidade relativa de emprego, preços, e salários
vertical - a economia está aproximando-se no limite da fronteira de produção (com Q3 o limite, Q3 a utilização da capacidade média, e Q1 o mínimo dos salários

Taxa de juros de curto prazo Estados Unidos

US "Effective Federal Funds Rate" - a taxa de juros de curto prazo que está sob controle do Banco Central Americano - o "Federal Reserve System"
"Money Zero Maturity" - massa monetária sem prazo

Reservas no setor bancário

Base monetária

Taxa de juros hipotecárias

Emprestimos dos consumidores

Grande Depressão

Franklin Delano Roosevelt, presidente dos Estados Unidos 1933-1945 "... didn’t know what to do about the Great Depression he inherited from Herbert Hoover, so he tried everything. He hiked taxes, spent more money, established monopolies, enforced cartels, filed antitrust lawsuits, promoted compulsory unionism, multiplied business regulations, denounced investors, and started welfare programs, public works projects, a big entitlement, on and on..." e assim a Grande Depressão continuou e piorou. Hoje, presidente Barack Obama está fazendo quase a memso coisa. veja: http://lewrockwell.com/orig4/powell-jim8.html veja também: "FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression" http://www.amazon.com/dp/140005477X?tag=lewrockwell&camp=14573&creative=327641&linkCode=as1&creativeASIN=140005477X&adid=00NEX5XN5F81EK6H0FQV&

segunda-feira, 18 de maio de 2009

A responsabilidade do economista

"The economist knows that a single error in his field may do more harm than almost all the sciences taken together can do good--even more, that a mistake in the choice of a social order, quite apart from the immediate effect, may profoundly affect the prospects for generations." F. A. v. Hayek http://www.mises.org/store/Trend-of-Economic-Thinking-The-P587.aspx

Collapso da economia Americana

"The Worst Is Yet to Come": If You're Not Petrified, You're Not Paying Attention... Video entrevista com Howard Davidowitz sobre a situação econômica nos Estados Unidos: http://finance.yahoo.com/tech-ticker/article/yftt_248398/%22The-Worst-Is-Yet-to-Come%22:-If-You%27re-Not-Petrified,-You%27re-Not-Paying-Attention?tickers=%255EDJI,%255EGSPC,DDR,XLF,GM,RWR

Grande futuro para os emergentes

"Prepare for War, the Death of capitalism and Bankruptcy of the US Government (not necessarily in that order)... Marc Faber forecast a litany of unpleasant events ahead. His key message is: buy real assets. He thinks it will take years for the global economy to recover, but when it does the effect of governments' printing money will ultimately reignite inflation.... I think we are living through a major transition in the world… the economic bloc of emerging countries will be more meaningful than before." -- Leia mais: http://www.cnbc.com/id/30759753

Dicas para prova 2 de Macro III

1. A equação de troco, também conhecida como equação de Fisher. Esta equação capta a teoria quantitativa da moeda. M x V = Q x P = Y Ampliamos a equação no lado esquerda definindo M como M = m x BM e m como 1/r, i.e.: m = 1/r Reformulamos a equação para obter o lado monetário e o lado de bens: (M x V)/P = Q Para o lado de direita da equação fazemos uma extensão para captar a teoria keynesiana: Q = QC(Y,i) + QI(i) + QG + QEX(e) – QIM(e,Y) Finalmente combinamos esta definição de Q (output) com a função de crescimento econômico do produto: Q = f (K, AN) Assim temos incluido o lado de demanda com o lado de oferta. 2. Definimos P (a determinação dos preços) como P = (1 + μ) W/A Onde W (salário) e definido como a função W = Ae Pe F (u, z) 3. O lado micro está incluído com a fórmula de lucro (π) das empresas: π = (p x q) – (wL + rK) 4. Lista dos símbolos M = massa monetária V = velocidade Q = produto P = nível de preços m = multiplicador montário BM = base monetária r = taxa de reservas bancárias C = consumo I = investimentos G = gastos do governo EX = exportações IM = importanções Y = renda nacional I = taxa de juros e = taxa de câmbio K = capital AN = trabalho efetivo W = taxa de salário μ = taxa de margem A = produtividade u = desemprego (unemployment) e = esperado (cursivo) π = lucro empresariais p = preço q = quantidade L = número de funcionários na empresa r = taxa de custos de capital 5. Análise Temos básicamente dois lados na economia: o lado de bens (e serviços): Q e o lado monetário (M xV)/P Podemos interpretar o lado de bens como a "oferta agregada" e o lado monetário como a "demanda agregada" e usar o modelo DA/OA para analisar depressões e crises. Para analisar depressões e crises econômicas usando a abordagem keynesiana (incluendo a armadilha de liquidez) usamos o modelo ISLM.

Estados Unidos: Mercado de imóveis em crise

As cidades mais afectadas da crise immobilária com as percentagens onde a dívida do objeto é maior do valor de mercado.
Fonte: http://finance.yahoo.com/real-estate/article/107041/House-Price-Drops-Leave-More-Underwater

sexta-feira, 15 de maio de 2009

Fase crítica da política monetária

May 13 (Bloomberg) -- The Federal Reserve may soon need to raise interest rates, said John Taylor, the former Treasury official who devised the “Taylor Rule,” a formula for rate- setting based on the outlook for inflation and growth. “My calculation implies we may not have as much time before the Fed has to remove excess reserves and raise the rate" ... “Low interest rates led to the acceleration of the housing boom,” he said. “The boom then resulted in the bust, with delinquencies, foreclosures and toxic assets on the balance sheet of financial institutions in the United States and other countries.” Taylor said that though policy makers were well intended, they were mistaken in trying to “fine-tune” the economy after about a quarter of a century during which long and deep recessions had been avoided... Taylor said the Fed’s growing balance sheet is a “systemic risk” because it may be difficult to unwind quickly enough without igniting inflation. The Fed’s balance sheet has more than doubled since last September to about $2 trillion as it purchased government and corporate debt to help unfreeze credit markets and support banks’ demand for cash..." Vale ler o artigo completo para entender o debate atual sobre a política monetária: http://www.bloomberg.com/apps/news?pid=20601068&sid=aV6Pt8zrE3bI&refer=economy para traduzir use http://www.google.com/language_tools

Prova 2 em Macro III

1. Revisão: Terça, 19 de Maio 2. Prova: Quinta, 21 de Maio 3. Tema da Prova: Crisis e Depressões 4. Livro de texto: Blanchard Cap. 13 e 22 5. Temas: a) Contexto histórico e atual de crises econômicas e financeiras b) Modelos matemáticos (veja postagem abaixo das fórmulas básicas) c) Modelos gráficos (ISLM e DA/OA) Comentário: Esta prova demanda relativamente pouco em decorar, apenas alguns fórmulas e dois modelos gráficos. O que é necessário para esta prova é obter um entendimento dos asuntos. As perguntas da prova vão ser orientadas para o entendimento e a aplicação dos modelos.

Ford e General Motors: por que funcionam no Brasil?

South of the equator, Ford and GM prosper Detroit News Auto Writer Bryce Hoffman and photographer John T. Greilick visited Brazil and Argentina to research this series on the South American auto boom and how it's affecting lives in both hemispheres. http://detnews.com/apps/pbcs.dll/article?AID=/99999999/AUTO01/708210301/-1/SPECIAL&template=THEME&theme=AUTOS-SOUTH-AMERICA

quinta-feira, 14 de maio de 2009

Eclipse of the Americas

"... The first Summit of the Americas, in 1994, was a moment of great promise. Thirty-four countries of the Western Hemisphere -- including the United States, plus many newly democratic states busily opening their economies -- signed a declaration affirming their mutual commitment to representative democracy and social justice and to negotiating a single Free Trade Area of the Americas (FTAA). But by the second summit, four years later, that promise had already begun to dim. Brazil showed less interest in hemispheric free trade than in consolidating a subregional trading bloc, and the ambitious goal of free trade for all was sidelined and eventually abandoned. The fourth summit, in Argentina in 2005, was dominated by noisy counterdemonstrations (headlined by Venezuela's Hugo Chavez) that overshadowed any official business. The fifth Summit of the Americas, held in Trinidad and Tobago last month, marked the further eclipse of the original inter-American dream -- an open, U.S.-led network of stable democracies with free markets, effective governments, and strong social policies. In the presence of a rock-star U.S. president, Chavez behaved himself, famously approaching Barack Obama to say, "I want to be your friend." But at the conclusion of the weekend conclave, Chavez and his political allies (members of his Bolivarian Alternative for Latin America, or ALBA) refused to sign the summit communiqué -- a rare break in the protocol of such normally heavily choreographed meetings. For the last year, diplomats had been working closely to negotiate word changes with Bolivia, Ecuador, Honduras, Nicaragua, and Venezuela, with the understanding that the edits would result in consensus. Not signing the final communiqué -- intended to serve as a plan of action for future inter-American collaboration -- was a public act of betrayal and an open rebellion against any revival of a true inter-American system...-- http://www.foreignaffairs.com/articles/65081/richard-feinberg/the-eclipse-of-the-americas

"Superfood" Açaí

May 14 (Bloomberg) -- Rising U.S. sales of acai, a purple Amazon berry promoted as a “superfood” on Oprah Winfrey’s Web site, are depriving Brazilian jungle dwellers of a protein-rich nutrient they’ve relied on for generations. U.S. consumers are turning a “a typical poor people’s food into something like a delicacy,” said Oscar Nogueira, who specializes in the fruit at Embrapa, Brazil’s agricultural research company. Spending on acai-based products by Americans seeking to lose weight, gain energy or slow aging doubled to $104 million last year, according to SPINS, a Schaumburg, Illinois-based market research firm. Since U.S. demand took off early this decade, the fruit’s wholesale price in Brazil has jumped about 60-fold, Embrapa data show...-- http://bloomberg.com/apps/news?pid=20601109&sid=ai8WCgSJrhmY&refer=home

segunda-feira, 11 de maio de 2009

Próximas Provas

Economia Internacional: Segunda Prova. Quarta. 13 de Maio 2009 Macro III: Segunda Prova. Quinta 21 de Maio 2009

quinta-feira, 7 de maio de 2009

Economia Internacional

Economia Internacional - Revisão para prova Teoria da Política Comercial O papel das tarifas Custos e benefícios Outras Formas de Proteção: Quotas, controles cambiais, proibição de importação, monopólio estatal, leis de compras de produtos nacionais, depósitos prévio à importação, acordos voluntários de restrição às exportações, e, especificamente, tipos de barreiras não-tarifárias (como regulamentos sanitários e de saúde, normas técnicas, padrões de segurança, dificuldades relativas à documentação, inspeção, critérios culturais, ...) Modelo: Custos e benefícios da tarifa O consumidor perde excedente O produtor ganha excedente O governo ganha receita A perda de excedente do consumidor é mais de que a ganha em excedente do produtor e da receita do Governo Isto significa de que tarifas constituem uma forma de redistribuição em favor dos produtores em detrimento dos consumidores. A moderna teoria da escolha pública explica que isto é o resultado de que os interesses específicos estão mais fortemente seguidos no processo político de que os interesses gerais. A diferença entre custos e benefícios do protecionismo entre um país grande e um país pequeno: se um país grande impõe tarifas sobre a importação de um bem, os exportadores de este bem sofrem custos quando os beneficio se distribuem para todos outros países importadores deste bem. Política Comercial na Prática Instituições OMC – objetivos Entre as novas instituições surgem FMI, BIRD e o GATT (desde 1995 WTO – OMC) dedicado ao livre comércio. Funções do OMC: servir como corte para resolver disputas comerciais ao lado de Gerenciar os acordos multilaterais de comércio Administrar o entendimento sobre soluções Servir de fórum para as negociações Supervisionar as políticas comerciais Cooperar com outras organizações internacionais - Proteção à Indústria Nascente (Friedrich List) Exemplos: Estados Unidos e Alemanha Protecionismo com integração econômica de livre comércio Comparação entre o modelo de Friedrich List (Protecionismo com Integração) e o modelo de Raúl Prebisch (Substituição de Importações) Diferença entre o modelo adotado por Alemanha/Estados Unidos/União Européia e o modelo “desenvolvimentista” do CEPAL na América Latina A crise do período 1914-1945: “Políticas de Empobrecimento do Vizinho” – 30 anos de protecionismo na Europa e o resto do mundo. Balanço de Pagamentos Conceitos básicos Análise econômica do balanço de pagamentos Análise microeconômica: D, O, P, M (demanda, oferta, preço, mercado) Análise macroeconômica: C, I, G, NX, CF, R, S, TA, i, e, ... (consumo, investimentos, gastos do governo, exportações liquidas EX-IM, Reservas, mudança das reservas, poupança, impostos, taxa de juros nacionais e internacionais, taxa de câmbio ...) BP = Conta corrente (bens, serviços, renda e transferência unilaterais) + Fluxos de Capitais + Erros e Omissões + Variação das reservas internacionais Em forma reduzida para facilitar análise econômica: BP = NX + CF + ΔR = 0 Com NX = EX – IM CF = CIM – CEX ΔR: débito (!) se as reservas internacionais (R) aumentam, e crédito se as reservas internacionais baixam Nota: Com Δ R seja zero Segue BP = NX + CF = O Assim - NX = CF NX = - CF Para manter as reservas, as duas contas (NX e CF) precisam se balançar Análise macroeconômica do balanço de pagamentos: Y = C + I + G + EX – IM Y = C + SPR + TA I + G + NX = SPR + TA (EX – IM) = (SPR – IPR) + (TA – G) EX – IM : setor externo SPR – IPR: setor privado TA – G: setor público Condição do equilíbrio Economia fechada sem governo Y = C + I Y = C + S I = S Economia aberta com governo Com SPR (poupança privada) e TA – G (popança governamental) = poupança nacional S = SPR + SGOV SGOV = TA – G S = I + NX NX = S – I (EX – IM) = (S – I) Modelo do Programa do FMI EX (e) – IM (e, Y) = S (Y) – I (i) + TA – G BP = NX (e, Y) + CF (i, i*) Desvalorizar a moeda (e), aumentar a taxa de juros (i), baixar os gastos governamentais (G) Conceitos de aprender e entender: Tarifas, excedente do consumidor, excedente do produtor, país pequeno, país grande, quotas, depósito prévio à importação, barreiras não-tarifárias, acordos voluntários de restrição às exportações (AVRE), GATT, WTO, OMC, indústria nascente, List, Prebisch, substituição de importações, CEPAL, Cepalismo, desenvolvimentismo, política de empobrecimento do vizinho, termos de troca, países periféricos, balanço de pagamentos, transações correntes, balanço comercial de bens, balanço comercial de serviços, balanço as rendas, transferências unilaterais correntes, conta capital e financeira, reservas internacionais, ....

quarta-feira, 6 de maio de 2009

Provas Economia Internacional e Macro 3

Para prova II em Economia Internacional: Carvalho/Silva Cap. 4, 5, 6 (veja link para "revisão abaixo) Para prova II em Macro 3: Blanchard Cap. 13, 22, 23 Proposta para Prova II em Economia Internacional: 13 de Maio Proposta para Prova II em Macro 3: 21 de Maio Hoje nossa aula em Economia Internacional vai ter lugar na sala 110 Did 3

Novo libro sobre a Grande Depressão

The Politically Incorrect Guide to the Great Depression and the New Deal. By Robert P. Murphy. Regnery, 2009. 199 pages. Robert Murphy demonstrates in this excellent book a penetrating ability to explain the essence of fallacious economic doctrines. As he notes, three theories offer competing explanations of the Great Depression: the Keynesian account, which stresses a lack of aggregate demand; Milton Friedman's monetarism, which ascribes the severity of the early years of the Depression to a drastic cut in the money supply by the Fed; and, of course, the Austrian theory that Murphy himself favors... Leia mais: http://www.lewrockwell.com/gordon/gordon61.html

sexta-feira, 1 de maio de 2009

Soros: a crise continua

NEW YORK (Reuters) - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis. Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union. He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system. "We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom." -- http://www.reuters.com/article/email/idUSTRE51K0A920090221 Para traduzier copie o texto o use a janela em google translate: http://translate.google.com/

Prognosticando a chegada de uma "depressão hiperinflacionária"

JOHN WILLIAMS: HYPERINFLATIONARY DEPRESSION AHEAD Wednesday, 29 April 2009 Howard Ruff interviews John Williams of Shadow Statistics blog John Williams publishes the Shadow Government Statistics newsletter (www.shadowstats.com). He is an amazing professional economist with a great grasp of the real economy. He and I have arrived at the same conclusions about almost everything in the economy, despite the fact that we approach it from totally different directions: me from the fundamentals, and he from a real technical and numbers point of view. I am now in John’s home in Oakland, California, looking past the government numbers to get his views on the world as it really is. Shadow Government Statistics reconstructs published government statistics the accurate way we used to do it that reflects reality, rather than the way these numbers are now manipulated, and comes up with different conclusions about the economy, such as the Consumer Price Index (CPI), and other revealing areas published by government. I trust John’s numbers because the government has been manipulating and restating these numbers for purely political purposes. HJR: John is it necessary to recreate government statistics to show what you feel is reality, and how have you recreated them? I’d like some examples. JW: Howard, I’ve been a consulting economist for about 27 years. I found early on that to make meaningful forecasts I had to have accurate information. It was evident early on that there were big inaccuracies in government reporting I surveyed at a convention of the National Association of Business Economists. Some economists have to make real-world forecasts, as opposed to economists who are employed by Wall Street to come to up with happy stories to encourage people to buy stocks and bonds. I asked them what they considered the quality of government statistics to be. Most thought the numbers were very poor quality. Political manipulation tends to increase in election years. I talked to the chief economist for a large retail chain, and he told me that the retail sales reports were absolutely no good, but he thought the money-supply numbers were pretty good. Next was an economist for a major bank. He said the money-supply numbers were not very good, but he thought the retail-sales numbers are pretty good. The more someone knew about a given statistic, the greater the problems there were with the numbers. Over time public perceptions increasingly varied from what the government was reporting because government kept changing methodologies, and usually tended to build an upside bias to the economic statistics of unemployment or the GDP – the broad measure of economies – and a downside bias in the Consumer Price Index, a popular measure of inflation. When it became popularly used in auto-union contracts after WWII, the concept of the Consumer Price Index was fairly simple. But they wanted to measure changes in the cost of living, and they needed to maintain a constant standard of living. That was the traditional definition; the way the CPI had been designed. That held pretty much in place until we got into the 1990s when Alan Greenspan and Michael Boskin, the head of The Council of Economic Advisors for the first Bush Administration, started talking about how the CPI really overstated inflation. The rationale was that when steak goes up in price, people buy more hamburger instead of steak; therefore you should reflect the substitution in the CPI. That is not the concept of a constant standard of living; it is the concept of a declining standard of living that has no value to anyone other than politicians in Washington. They succeeded in reducing the reported level of inflation, which reduced cost-of-living adjustments in Social Security checks. Because of the changes in the 1990s, our Social Security checks are about half what they should be! There have been different definitions over time. The government itself publishes six levels of unemployment from what they call “U-1” through “U-6.” The popularly followed measure is called “U-3.” Right now they say it is around 8.6 percent. The broadest measure published by the government deletes “the discouraged workers” and people who are marginally attached to the economy. This is close to 16 percent. The key there is the “discouraged workers,” people who consider themselves to be unemployed. They know whether or not they have jobs. The Discouraged Worker hasn’t been out looking for work because there are no jobs to be had in his area. Up until 1994, those discouraged workers wouldn’t have to specify how long they had been discouraged. After that, if they were discouraged, the government wouldn’t add them. I add them into my numbers, and it totals around 20 percent unemployment. The popular number for the Great Depression is 25 percent unemployment rate and 34 percent among non-farm workers. We are mostly a non-farm economy. HJR: During the Bush Administration, we heard all the happy talk about how well the economy was doing because of the cuts in tax rates. Is that really just happy talk or was the economy really doing well under Bush? JW: We actually had a pretty bad recession in the early’90s, longer and deeper than popularly reported. Near the end of Bush’s first term at the time of the re-election race, a senior Commerce Department officer talked with a senior executive in the computer industry and asked him to boost the reporting of computer sales to the Bureau of Economic Analysis, which prepares the GDP report. They did; it boosted the GDP, the broad measure of the economy, and George Bush touted the strong economy. But some felt he was out of touch with reality. The average guy has a pretty good sense of reality and knows whether or not economic conditions are good, or if inflation is up or down, which is why people have a difficult time accepting the government’s numbers. They have gotten so far away from common experience that people just don’t find them credible. In terms of the GDP, clearly retail sales and industrial production were showing us a deepening recession long before the government reported it with the GDP. In fact, you didn’t show a contraction in the GDP until the second quarter of 2008. Officially the recession, according to the National Bureau of Economic Research, started back in December, 2007. If the GDP numbers accurately reflected what was happening, it would have at least shown the contraction two or three quarters before that. Other indications show that the recession really began in late 2006. HJR: Let me get to a practical issue. What kind of economic activity should we support? For example, the conservatives will say we should cut tax rates to boost the economy. What does your research show? JW: Cutting taxes is always a good idea. The private sector can do more with the money than the government can. Right now we are in a deep and deepening recession which will probably be called “a depression” before it ends. By depression, I mean a ten-percent contraction in overall economic activity. When the government is reasonably solid, it can cut taxes. It can even increase spending without disrupting the system. Right now we have a system where with the money poured into the banking system, and the “stimulus” by way of spending and tax cuts, is on top of record deficits. If you look at the real numbers on the deficits, based on numbers published by the federal government, we really should look at it how it used to be. In the late ‘70s, the ten biggest accounting firms and congress said they could design an accounting system where the government will report its books the same way a company does. They finally got that into effect in 2000. Since then, instead of running deficits in the range of a couple of billion dollars, on a Generally Accepted Accounting Principal (GAAP) basis, the deficit has averaged $4 trillion a year. It was over $5 trillion in 2008 and will top $8 trillion this year. This is unsustainable! You could not raise taxes enough to bring that into balance. If you wanted to bring it into balance, you’d have to eliminate Social Security and Medicare payments. It can’t be done. HJR: Right now, Obama is spending money – I won’t say like a drunken sailor, because a drunken sailor spends his own money – but he is throwing trillions of dollars at the economic downturn, assuming it will stimulate us out. My personal opinion is that they are only stimulating government growth, and some day the average person may get a job, but his employer will be Uncle Sam. What is the end result of creating all this money and throwing it at the problem? JW: It will not stimulate the economy. The cost of all this is inflation. We will see inflation levels not seen in our lifetime by as early as the end of this year. Eventually we will see liabilities of $65 trillion – more than four times U.S. GDP, more than global GDP. There will be a hyper inflation where the dollar becomes worthless, where the paper is worth more as wall paper than as currency. HJR: They couldn’t even use the money as toilet paper because it is a bad absorber of water. So we will have hyper-inflation. How can we protect the value of our assets, assuming that people have some discretionary money? Should they buy growth stocks because they are cheap, assuming “buy low, sell high?” Or are there better alternatives? JW: We are headed into a hyper-inflationary depression that will become a Great Depression. When hyper inflation hits, it will disrupt the normal flow of commerce and turn it into a Great Depression. What about paper assets based on the dollar? You want to get into something like gold or silver –physical gold or silver, not paper. Perhaps get some assets outside the dollar. It’s a time to preserve your wealth and assets, not to start speculating on the stock market. There is a lot of volatility ahead. Over the long term, gold and silver are your best hedges. HJR: That sounds like the familiar tune I’ve been singing for several years. I’ve been publishing for 33 years. About 11 of those years I have been bullish on gold and silver as investments. When I abandoned gold in the early ‘80s, I was excommunicated from the gold-bug church because I was supposed to stay faithful to gold, but then the metals weren’t the right place to put your money. As a financial adviser, if I don’t have subscribers in the right investments, they will lose money and not renew their subscription to The Ruff Times. So I have a financial interest in being right. Yogi Berra said, “It’s déjà vu all over again.” the same thing is happening that I saw in the ‘70s that drove the prices of gold and silver to unprecedented highs – only more so now. They are creating more money than they ever thought of creating back then. We are using words like “trillions,” which we never used before. I’m not just looking at it as an investment and a place to make money. I am looking at it as a possible way to preserve the real value of your assets so you are not left destitute with a pile of worthless paper. You showed me a display of Zimbabwe currency, where multi-billion dollar notes started out as $2-bill notes. We could face the same thing. The world is littered with worthless dead-paper currencies with an average life span of about 75 years. It’s always the same: we make too much of it ever since we created paper currency with the printing press, and creating too much of it to buy votes, diminishing its value. A subscriber who wrote to me recently asking me that if the government and the bankers can manipulate the price of gold and silver, so couldn’t they do that for many years and gold and silver would go nowhere? History doesn’t record a single example when a society inflated the dominant currency even near the quantities we are creating dollars now without destroying its value. Gold and silver, not being anyone’s debt or obligation, is where people ought to put their money. I have been watching your work now for more than two years. I am amazed that you and I have arrived at the same conclusions from different sides of the street. I’ve learned a lot from your view of the numbers, and I’m a fundamentalist. One reason I like you is because you agree with me. We like people who agree with us. Thanks so much for sharing your time and expertise with us. JW: Thank you very much, Howard. I greatly appreciate the interview. I also appreciate your work. Indeed, we are in very broad and general agreement on where things are headed here. I have followed your work for many years; in fact, your writings back in the 1970s were part of my education as to the nature of the real world. Again, thank you, sir! Last Updated ( Wednesday, 29 April 2009 http://carolynbaker.net/site/content/view/1075/1/