Skip to main content

Recession in real terms

Talk of a US recession is heating up again, and this time it seems people are taking the prospect of a slowdown more seriously.

In fact, most observers seem to have dropped the infantile "r-word" code and are now using the full word "recession". This is a grown-up step for them.

But while the mainstream is only now just catching on to the idea of an "impending" recession, there are some, like Jim Rogers and Marc Faber, who say the US is already in a recession and probably has been for some time.

The problem in identifying the true onset of a recession is that the data which most people use to measure economic growth has been manipulated. Governments routinely massage the data to make things appear better than they actually are.

So, you have unrealistic inflation numbers (especially in view of rampant money supply creation worldwide) and false GDP numbers. As a result, no one relying on fudged data can accurately assess the onset of recession or periods of true economic growth.

Here's how Marc Faber summed it up in a recent interview.

"Well, personally, I think that the US, if you measure economic statistics properly –and the government is lying blatantly – the US went into recession 3 months ago. And I’m saying the government is lying blatantly, because they take nominal GDP and then they fiddle around with inflation figures. I mean none of your listeners have an inflation rate of less than 5 to 6% per annum. You just can’t exclude food and energy prices and healthcare costs from the CPI, from the cost-of-living increases.

So nominally the US economy may still be growing, but inflation adjusted –in other words, in real terms – we’re already in a recession. And most US households, except for the super rich, are today no better off than they were five or seven years ago. Their income gains have all been eaten up by cost increases by inflation."

As Frank Barbera and Peter Schiff pointed out in a recent Financial Sense Newshour broadcast, any argument about whether or not a recession is coming is silly, as economic data from privately gathered sources is totally consistent with recession. Compare this with government data which understates inflation and overstates GDP.

Meanwhile, the banks are acting like they know what's coming. As the Financial Times reports, leading US banks like Citigroup and Merrill Lynch have taken a "$21 billion bail out" from foreign investors.

Follow the money; they're taking these cash infusions because they need to shore up their balance sheets to survive a recession and any further shocks to the financial system.

"Vikram Pandit, Citi's new chief executive, said the size of the fundraising was intended to ensure that the bank remained well capitalised even in the face of a serious US downturn. "There is no doubt we're in the midst of a very challenging environment," he said."

So as I see it, that's where we're headed. What are your thoughts?

If you'd like to know more, check out the links to the recent FSN broadcast and listen to the interview with Marc Faber, if you haven't already. See you Friday.

Popular posts from this blog

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.