The Illusion of an Economic Recovery

By Greg Hunter’s USAWatchdog.com  (Revised)

Last Friday, the government reported the gross domestic product (GDP) number for the first quarter, and it was 2.2%.  That was .8% lower than the 4th quarter’s 3% growth rate.  It was a big disappointment because most economists were expecting growth numbers closer to the 3% range.  The New York Times reported the economy thwarting numbers with a political bent that said, “The economic recovery slowed more than expected early this year, raising fears of a spring slowdown for the third year in a row and giving Republicans a fresh opportunity to criticize President Obama’s policies. . . . “When you look at the report in the totality, I think it shows that the private sector is continuing to heal from the financial crisis,” said Alan Krueger, chairman of the president’s Council of Economic Advisers. . . . Representative Kevin Brady, a Republican from Texas and vice chairman of the Joint Economic Committee, called the numbers “beyond disappointing.”  (Click here to read the complete NYT report.) 

The real story here is not the political football the economy has become, but the lack of solid numbers to tell what’s really going on.  This happens because the government does not accurately adjust the so-called growth of the nation’s economy for inflation.  If inflation was accounted for squarely, there would be almost no recovery according to economist John Williams of Shadowstats.com.  Friday, Williams said, “Indeed, the “recovery” is an illusion that has been created as a direct result of methodological changes in government inflation reporting of recent decades. . . . the faux growth problem is in the use of understated inflation estimates in deflating a number of economic series.” (Click here to go to the homepage of Shadowstats.com.) 

To prove his point, Williams put together two graphs of GDP.  The first does NOT account for inflation accurately, but in a way Williams says is the government’s “Headline Real GDP” reporting.  Look how the economy falters in 2008 and 2009, and then the economy is up, up and away again in 2010, 2011 and 2012.  Looking at the government’s calculation for inflation (Headline Real GDP–1st graph,) you would think the economy is definitely heading in the right direction.  

When you look at the nation’s GDP and factor in the effects of true inflation (Inflation-Corrected–2nd graph,) you get a totally different picture.  Look at the big drop-off in 2008 and 2009.  Then, look at the almost nonexistent so-called “recovery.”  There is simply not much of a recovery.  Williams repeatedly says the economy is “bottom bouncing.”   I think the “Inflation-Corrected” graph below demonstrates this description.

Everyone wants to be optimistic about the economy, but when that optimism is based on bad data, it could set up ordinary Americans for disaster.  People might go further into debt instead of preparing for another downturn.  Williams goes on to say, “Underlying economic reality does not have positive implications for the system.  Ongoing economic stagnation and renewed contraction will mean much-worse-than-anticipated federal budget deficits, U.S. Treasury funding needs and banking-system solvency issues.  Despite current protestations to the contrary, the Fed likely will be forced into a new round of easing in an effort to support the still-faltering banking system. . . . Any such action also likely will provide a trigger for heavy selling of the U.S. dollar and upside pressure on domestic inflation.” 

Maybe this is why Fed Chief Ben Bernanke implied QE 3, or more money printing, was still very much a possibility last week.  A Reuters report said, “We remain entirely prepared to take additional balance sheet actions as necessary to achieve our objectives,” Bernanke told reporters. “Those tools remained very much on the table and we would not hesitate to use them should the economy require that additional support.”  (Click here for the complete Reuters story.)  Inflation-adjusted data shows there has been little improvement to the GDP since 2009.  My guess is the Fed will be forced to print money to keep the illusion of economic recovery going.

Comments
  1. MasterLuke

    There was this movie called groundhog day I saw when I was a kid. I haven’t seen it in 20 years, but I think it had a happy ending. Anyways, I keep looking a the U.S. economy and I keep seeing the same old downward spiral. I don’t think, for most people, it will have a happy ending. Though, I guess its all about perspective. The people who are awake will probably be able to react. The people who are asleep will get screwed.

    • Greg

      Wise words Master Luke!
      Greg

  2. Jim H

    Where is Congress on anything that matters? Oh look, Joseph Kony murdering babies! Now where was I?

  3. Richard Martin

    You will only see a real change in this type of activity when the people wake up and start screaming. I just don’t see it happening. People have become too complacent in their own little worlds. They think the government can fix anything and they need not worry about such things as the dollar or inflation. War is a thing that affects other people and there isn’t anything they can do about it anyway. Why worry about such trivial things?

    I can post articles like this one to my Facebook page and not get a single like or reply. But let someone post something about that dancing show or American Idol and it gets liked to death with 40 replies. I can make a post about the 15 trillion dollar federal deficit and not get a look but you let someone make a post about pink slime and that is the worst thing ever, the government needs to do something about that.

    It makes me sick.

    • jay

      Richard Martin.
      Well put. I have the same trouble with the chemically induced, dumb down, people as you do. Dont feel like your alone. There are millions that feel your pain.
      I once was asked why i dont worrie about thieves stealing from me?
      My reply was i cant stop living free just because slavery exist.

    • wisefool

      Don’t be too disappointed in the people. Our lethargic, complacent, narcissistic attitudes are part of a delicate social engineering over many years. Social engineering works because of human weaknesses. It reminds me of certain types of businesses I’ve always had an issue with. The kind that take advantage of human weakness. Sure, no one is forcing you to buy anything, but is there not fault to be found in those who prey on weakness as well? Am I to blame if someone steals my car and I left the doors unlocked? Many would blame me instead of the thief these days, which is sad.

    • Walkerman

      So true, most people can care less. Just keep on watching those mindless TV shows. When I was a kid it was called the idiot box, man have we come a long way but in the wrong direction.

      • Lisa

        Soma for the masses: TV, SPORTS, TV SPORTS…ETC.

  4. norcar survivor

    “Everyone wants to be optimistic about the economy, but when that optimism is based on bad data, it could set up ordinary Americans for disaster. People might go further into debt instead of preparing for another downturn.”
    Every piece of information we get from “The Government” is bad information or should we say-disinformation. Real numbers are no where to be found from with in a corrupt system looking for fresh ground to hide the bodys. One needs only to look at his own wallet and budget to know what’s happening in our economy.Each person has their own personal indicators and mine scare the hell out of me. I went to a native American Pow-wow this weekend and one of the many tee shirts I saw said “Sure we can trust the government, just ask an Indian”. This would be funny if we didn’t know the truth behind the murder and destruction of a nation that once lived and managed this land we call home.My forecast for the future…..More lies and deceit from every quarter. Thanks for the update Greg. The weekends are hard without your updates. We never know what is really happening until Monday.

  5. art barnes

    Greg, when the 2.2 growth was announced on Friday the stock market went up, go figure that one. It must be because as you article so aptly stated the FED is going to “feed” the swine (the elite, Wall Street, etc.) once again with “easing”. Fellow country men please understand this so-called recovery is the “new norm” in America. Another election will not solve it, both parties are the same, another so-called illusion like the recovery. Third world sliding with inflation to insure the slope has grease on the downward side of the hill.

    • Greg

      Thank you Art forthe comment.
      Greg

  6. AndyB

    The problem is not so much that all governments lie in an effort to retain power and control the populace. It’s been a fact of life for millenia. What is most disconcerting in today’s environment is that the power of redress has been incrementally stolen from us. We no longer have the protections afforded under the Bill of Rights. Re-examine each one and you will realize that the Patriot Act, the NDAA and various Executive Orders have essentially abrogated most, if not all previously cherished rights afforded Americans under the Constitution. Now add the blatant mis-interpretation of existing Rules of Law that benefit only the 1.0% to the detriment of the 99.0%, and you have a perfect recipe for a totalitarian government control that Hitler, Mao and Stalin could only dream of.

    • Lisa

      A SIDEWAYS APPROACH TO DESTROYING OUR CONSTITUTION!!!

  7. czzi

    Greetings Greg,

    Master Luke has it wrong IMHO, EVERYONE will get screwed whether you have gold, silver, guns or butter, there are 300 million people who have will behave differently and their emotions could go postal. What will you react to? Leave the USA and go ??? I think it will have to crash so people will finally realize the corruption of the powers that be.

  8. Bob

    Many of us would be very interested in hearing what Greg Hunter has to say about this guy “Drake” over at FREEDOM REIGNS .U.S. Is this guy a fake or what? Thanks Greg———

    • Greg

      Bob,
      I simply do not know anything about “Drake” over at FREEDOM REIGNS .U.S.” I am too busy producing information for this site. So Sorry.
      Greg

  9. JH

    Looking at both graphs, I will subscribe to the second one being the closest to the truth.

  10. David

    There is something funny going on with the housing market too, since last year. I’d been watching faithfully housing prices and numbers in several areas I’d been thinking to buy for retirement, but the inventory is low lately on REOs, I think much of it being held back on purpose and the lower amount of inventory along with what seems like more inflated prices on less desireable properties is having some of the real estate people saying the housing market is improving – but to me, it’s just less to buy at higher prices, inflation factored in and nothing improving, just a disguise to make it look like an improvement. Much of it is inflation though, it’s money’s being worth less and it’s in the housing market too, more money but for less house in worse condition and location.

  11. SilverBull

    I so tired of all this and i am personally ready for someone to push the reset button.

    • Chuck O.

      No need to push the button, it will happen in “it’s” own time. Let nature take it’s course. Just start screaming at the crooks in charge and vote for the likes of Dr. Paul. And Pray! Brother, pray. Oh yeah, keep reading “Reverend” Hunter, too.

  12. Marcel

    ‘methodological changes in government inflation reporting’

    Translation: Lies,damn,lies.

    I kept reading and looking for someone to come out and tell us the truth ,that it’s all lies and deception from the devious crooks and liars in Washington who could spin rats into 100% pure beef.
    I guess the naive,gullible,stupid and fear factor keeps almost everyone walking forward to the mirage which happens to be the edge of the big cliff.

  13. David E

    The first chart would indicate that we have had a real economic growth since 2008. Could this be possible with the millions since then that have lost their jobs and left the work force? Lost their homes? Shuttered their businesses and have downsized their lives? What of all the manufacturing that has continued to move offshore driving their former employees into low paying service jobs? The “For Lease” signs everywhere in shopping malls? The doubling of food and fuel prices since then? IMO we’ve been in a depression since 2008 and would have been in one since 2000 if not for artificially low interest rates boosting home and commercial construction.

    When will people wake up to the fact they have been lied to? When they have to choose between food for their families and fuel for their commute. When they are sleeping in their cars at their work’s parking lot or eating gruel for breakfast, lunch and dinner.

  14. wayne

    Greg….enjoyed the article and had a good laugh over Bernanke’s line about implying ‘that QE3 or more money printing was a good possibility’. What makes his pronouncment so ludicrous is that one doesn’t have to go very far to find out that the Fed bought over 60% of the U.S. Treasuries in 2011 (WSJ – March 2012) as well as Cong. Bernie Sander’s report from 2011 that disclosed the Fed had lent foreign banks appx. 16 TRILLION after the 2008 crisis (& the $$ came from where?) and finally durng this basic time frame the Fed had also been lending large TBTF banks money @ close to 0% who then were turning around and buying Treasuries (lending the $ back to the Fedgov) while getting a guaranteed return.

    Looks as though we’re well past QE3….seems more like QE 4,5,6, etc. or as Jim Sinclair put’s it…QE to infinity.

    • Greg

      Wayne,
      You are correct sir. Thank you for making that point here!!
      Greg

  15. Rainman

    @SilverBull, I’ve pushed the pause button a few times, but it got worse.

  16. Sean S

    Hi Greg

    You mentioned:

    “The real story here is not the political football the economy has become, but the lack of solid numbers to tell what’s really going on. This happens because the government does not adjust the so-called growth of the nation’s economy for inflation. If inflation was accounted for, there would be almost no recovery according to economist John Williams of Shadowstats.com.”

    Please correct me if I am wrong but the official GDP numbers are inflation adjusted. The BEA release provides the “Real GDP” calculation rather than the “Nominal GDP”. The 1st quarter 2.2% official growth is the “Real GDP” figure – inflation adjusted. (The “Nominal GDP” figures are based on current market prices and thus are not inflation adjusted).

    The inflation factor used in the calculation of the official Real GDP figure is understated so the end result is a fake elevated Real GDP growth rate. So, yes, this is not a solid number.

    As you have highlighted and demonstrated many, many times in your articles, the official inflation figures grossly understate the true level of inflation in the economy because of the dubious methodology now utilised. I believe John’s issue with the official “Real GDP” numbers released is the completely erroneous inflation adjustment factor used and thus an overstated official “Real GDP” figure. When he uses his own inflation adjustment factor the JW “Real GDP” number is very different from the official Real GDP figure released by BEA.

    As one analysis I read aptly put it (and we won’t see this in the MSM):

    ” Once again the BEA has used “deflaters” that will strain the credibility of the public, especially if they buy gasoline. To correct the “nominal” data into “real” numbers the BEA assumed that the annualized inflation rate during 1Q-2012 was 1.54%. As a reminder, lower “deflaters” cause the reported “real” growth rates to increase — and once again very low seasonally adjusted BEA inflation “deflaters” have been the headline number’s best friend. If the raw “nominal” numbers were instead “deflated” by using the seasonally corrected CPI-U calculated by the Bureau of Labor Statistics (BLS) for the same time period, nearly the entire headline growth rate vanishes — and the resulting growth rate would have been a minuscule 0.08% with “real final sales” contracting.”

    Of course, in any event, John Williams’ Shadowstats correctly does not accept the official BLS CPI-U data mentioned above as accurate. He has his own higher CPI inflation calculations.

    As far as the raw unadjusted (for inflation) or “Nominal GDP” figures are concerned, I am sure these would not stand up to critical and close scrutiny either. You can bet there are items in there that are dubious as well as doses of double counting.

    • Greg

      Sean S,
      You are spot on man. I was trying to simplify the Shadowstats.com report for mass audience consumption. By doing that made it not as accurate as it should be. I have revised the report and it now reads more accurately. One of the lines I changed kind of sums it all up and reads, “To prove his point, Williams put together two graphs of GDP. The first does NOT account for inflation accurately, but in a way Williams says is the government’s “Headline Real GDP” reporting.” That’s a good catch and I thank you for it.
      Greg

      • jay

        Greg. This mess is more then the educated can understand. im trying,but as a simple man…it gets complicated. i lost 9 k in 2008
        that pissed me off, So i sought to find where my soldiers died..Im still looking.The blood is on the federal reserve bank so far.
        Keep up the simplification work…im reading,and need your help.

        • Greg

          Thank you Jay.
          Greg

  17. Davis

    A Perplexing Cluelessness

    One has to wonder just who is in charge over at the Obama campaign, particularly as to the selection of slogans. Given the media’s and the public’s inclination towards reducing phraseology to acronyms and that “Win The Future” is hardly the first phrase that comes to mind when one sees WTF, forgive me if I might question the intellectual depth that allowed this little gem to get off the drawing board never mind put into play.

    Once WTF started to show up on campaign sites and on backdrops for Obama’s speeches it took about two seconds for the Republican opposition to jump all over it referencing of course the more familiar meaning of WTF. Well it was out there and the campaign had to live with it, at least for a while.

    So now here we are a month or so on and the best they can come up with for a replacement is “Forward”? Once again one might question the intellectual capacity that brought this one to the fore. That the term as a political slogan has a long history of usage by European socialist and communist parties is beyond dispute. I’m not one to often site Wikipedia as a source but even that on line encyclopedia has an article on its use by Marx, Lenin and Trotsky. That’s not to say that this is its only application but one would think it would have at least given them some cause to pause before using it. http://en.wikipedia.org/wiki/Forward_(generic_name_of_socialist_publications)

    So what’s going on here? Is this but a confirmation of Peggy Noonan’s recent conclusion that what we are seeing is amateur hour at the White House? Are they really this clueless? Is perhaps their slogan guru such a hard core socialist/communist that they just can’t help but revert to their indoctrinated form? If David Axelrod and the President are approving this stuff are they clueless or similarly indoctrinated? Or maybe there is a saboteur in the campaign who is simply playing them for fools. If that’s the case they sure are earning their salary.

    Either way not satisfied to have tossed the Republicans the WTF bone to chew on, somebody decided to wrap it with a slab of “Forward” bacon. Hilarity will no doubt ensue.

  18. charles

    Greg, You are as usual, right on the money with your graphs & anylasis, however I feel that neither you nor most of the others that write on the economy, put enough focus on the pure Machavellian evil of Msr’s Bernanke, Geithner, Paulson, et al. They are not stupid, or well intentioned, they are very aware that they are stealing the life blood of the middle class & giving it to their crony’s, & I believe that they should be prosecuted for it. The punishment as written into the Constitution for counterfeiters seems most appropriate to me.

    • Greg

      Charles,
      It is one big mess and they are trying to cover it up but the facts are the facts. Your point is well made and well taken.
      Greg

  19. Jason

    OK, growth is at 2%, core inflation is at 4%, and real inflation is about 8%. I am no econ major but these numbers don’t look good to me.

    JJ The Fed

  20. Rick

    Greg, good post. It’s an illusion alright. And still, even Paul Krugman gets it wrong again. With his new book, stating we’re in a Depression. He’s getting closer to the truth, but he still has a way to go. The reality is, the industrial age is coming to an end, because of resource depletion. We’re not in a recession or a depression, we’re somewhere at the beginning of a permanent contraction. Or the Long Emergency as JHK likes to say.

    And no one at the top, will say this to the American people, or others around the world. Why, because the system would come apart, and it’s political suicide.

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