Factor N°4 – Economic recession in the US


- Excerpt GEAB N°19 (Nov. 16, 2007) -



Factor N°4 – Economic recession in the US
GEAB subscribers know since November 2007 that the US entered into recession at that thime... the mainstream media only let you know now - in December 2008!

LEAP/E2020 estimates that recession hit the US economy at the beginning of 2007. And we confirm this analysis despite the official statistics published by the US authorities. As a complement to our anticipations of the impact of the US economic recession for banks operating in the US, we find it useful to analyse here how much US official statistics have become totally surrealistic. For all those who cook and publish them, they are no longer meant to describe the reality but to preserve the credibility of a fiction concealing reality.

Since the GEAB began to be published, our team described on various occasions how and how much US official statistics were purely and simply invented in order to satisfy contextual political and economic requirements. Figures for inflation, unemployment, jobs, growth, GDP… we already revealed some of these manipulations which turn these statistics into worthless information, unable to describe the situation and anticipate the evolution of the US economy. Would they dare that these authorities would probably treat these statistics the way they treated M3 eighteen months ago, i.e. they would purely and simply stop publishing them (1).

But obviously, due to the visibility and the political and economic prominence of these statistics, such solution is impossible to envisage. Therefore the US authorities do what many other governments do elsewhere: they invent the figures in the hope that reality will approach fiction somehow. France does the same thing with unemployment figures, the UK with poverty. USSR and communist bloc countries became masters in this art of disconnecting statistics from any reality. Our researchers consider that US leaders too (2) are now heading in this direction.

Therefore, in order to complete the long list analysed by our team in the past two years, we will briefly examine two « key » statistics today indicating that recession has not yet hit the US economy: jobs and unemployment.

The last official employment figure released in the US (October 2007) indicates +166,000, with a stable 4.7 percent of the population looking for a job (3). Such figures suggest that the economy though a bit slow is still going forward. The problem is that they are based on job creations in highly improbable sectors. For instance, in October 2006, the 166,000 net creations would be reached thanks in particular to 25,000 new employments in finance and 14,000 in construction, knowing that these two specific sectors are acknowledged as stricken: not one day without its scores of company bankruptcies and massive layoffs. By the way, another governmental statistic index on employment calculated on the basis of US households (and which strangely does not enjoy a similar coverage to the previous one), concludes to a net loss of 211,000 jobs in October 2007 (4).

Job evolution in the US (September 2001- April 2007 – Comparisons between two methods of measurement – Source Befuddledmonkey
Job evolution in the US (September 2001- April 2007 – Comparisons between two methods of measurement – Source Befuddledmonkey
Why such a discrepancy? Simply by means of a statistic bias well-known from the US Bureau of Labor Statistics, as they describe it themselves on their website (5): « The most significant potential drawback to this or any model-based approach is that time series modelling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend ». In other words, the calculation of this employment index is only reliable when no significant variation affects the economy. Well this is not the situation prevailing today with the combined housing and financial crises causing a sudden break in all dominant trends of the US economy in the past. To be even clearer, according to our team, such a statistical figure has no descriptive or predictive value whatsoever. The household one at least is founded on a survey even if the panel is very small.

The unemployment rate results from a similar kind of trick. As it is based on the number of people declaring to be job seeking, it does not include for instance the 465,000 American citizens who declared last October to be no longer job-seeking though they do not work. This way, there is no risk that unemployment rates become alarming.

California – Single family homes – Months of inventory (unsold) / Source California Association of Realtors
California – Single family homes – Months of inventory (unsold) / Source California Association of Realtors
Financial media themselves use more and more openly the word « recession », be it about sub-parts of the US such as the State of California, the country’s economic heavyweight (13 percent of US GDP) about which MarketWatch/DowJones wonders: « Could California be in recession? » (6). Well, California’s governor, Arnold Schwarzenegger, seemed to have an idea on that when he decided a 10 percent budget cut due to reduced fiscal revenues (7). On the other end of the country, the New York Times asks a question « Recession? What recession? », answering to it right after: « If it looks like a recession and feels like a recession ... ».

Well it is a real recession with massive job losses in nearly every sector, with a general impoverishment of the population because of the housing bubble burst and because of increasingly tighter credit restrictions (8), with a historic fall in house prices (9), with a fast a steady drop of currency value (10), with diminishing fiscal revenues on every level (local, national and federal) (11), with a stagnant household consumption (12)... According to LEAP/E2020, official statistics will not hide much longer the reality, as figures coming from other sources (companies, foundations, independent research centres...) point in the same direction: the recession is really here!

For large banks operating in the US, and in this field in particular for US banks, this is the fatal factor for their revenues and assets. With consumers and companies trapped in a recession, their entire business model collapses. Wall Street’s financial sphere can no longer generate profits by lack of a real economy capable of marking up, by lack of operators capable of reimbursing their loans, by lack of companies capable to develop. Moreover the US Dollar drop will not compensate for this tendency; on the contrary, it will import inflation as explained in previous GEABs; another bad news for these banks’ financial statements backed by mountains of loans.

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Notes:

(1) See LEAP/E2020 public announcement, 03/24/2006

(2) See in GEAB N°18, our analyses on US stocks « influences ».

(3) Source: US Bureau of Labor Statistics, 11/02/2007

(4) Source: New York Times, 11/03/2007

(5)Source: US Bureau of Labor Statistics, CES Net Birth/Death Model

(6) Source: MarketWatch/DowJones, 11/09/2007

(7) Source: CApoliticalnews, 11/06/2007

(8) Source: CNBC, 11/02/2007

(9) Source: National Realty News, 10/31/2007

(10) Even Bloomberg lingers on this news about a a US rap star who chose to display 500 euro note-bundles instead of dollars in his last video-clip. Sources : Bloomberg, 11/14/2007 and YouTube, 11/19/2007 .

(11) Source: USAToday, 10/31/2007

(12) Source: MarketWatch/DowJones, 11/08/2007

Jeudi 11 Décembre 2008
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GEAB N°90 - Contents

- Published on December 15, 2014 -

Global systemic crisis 2015 – Oil, currencies, finance, societies, the Middle East : Massive storm in the Western port!

. « Global systemic crisis: the end of the West we have known since 1945 »
. The oil crisis is systemic because it is linked to the end of the all-oil era
. The US in one hell of a state
. Europe post-Ukraine: lots of questions
. Three missions for the new Europe: resolve the Ukrainian crisis, put Euro-Russian relations back on the right path, avoid a European QE
. Middle East: traditional alliances’ big waltz
. Saudi Arabia, Iran: the allies change sides
. And Western « values » in all this
Read the public announcement

2015 – new phase of the crisis: the oil systemic crisis

. The impact of speculation
. Price War
. Systemic oil crisis and finance
. Systemic oil crisis and geopolitics
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Investments, trends and recommendations

. Oil: beware!
. Energy intensive industries like airline companies
. Renewable energy: the good and the bad
. 2015: Euro & Yen rebound
. Gold: still safe
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Evaluation of our anticipations for 2014
(from GEAB N° 81 in January 2014): a 69% success rate
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