US Unemployment Another Counterfeit Figure from the Fed


What were we talking about yesterday? Oh yes…something about a big, nasty bird…and Japan.

First, let’s report the news from yesterday…then we’ll come back to this subject. To give you a preview, Japan is using QE – money printing – to cover the holes in its budget. With the need to rebuild its economy and its infrastructure, our guess is that it’s going to do a lot more of it.

Back in the USA, stocks went up a bit yesterday. (Or they went down a bit, we can’t remember…) Gold and the dollar were about even. Nothing much worth reporting, in other words.

But investors, politicians, and economists all seem to think the economy is on the road to recovery. The only people who don’t seem to believe it are the people who actually live and work in the real economy – people who shop at the supermarket and depend on wages.

Which reminds us of a funny incident. A Fed governor recently tried to explain to an audience of ordinary citizens how the government figured the “core” inflation rate. The lumpen didn’t go for it at all. They heckled the poor man. “When was the last time you went to the supermarket,” they asked.

The most recent inflation numbers tell us that prices rose 0.5% in February. For the mathematically challenged dear reader, this is an annual rate of 6%, or 550 basis points above the rate at which the Fed lends money.

But wait…the feds tell us not to pay any attention to this number. They want us to focus on the “core” number, from which they’ve taken out the things that are going up – food and energy. Having taken out the prices that are going up – even though they are essential items – they thus magnify the items that are left. Notably, housing. And guess what? Housing is going down. So, falling house prices make it possible for the feds to report a low “core” rate of inflation – which is a lie and a fraud. The average family is actually spending more and more money just to keep food on the table and gas in the tank.

And here’s another counterfeit figure from the feds: it was widely reported last week that the unemployment rate was down to its lowest level in almost two years. The unemployment numbers are so cruelly twisted by the feds we feel sorry for them. The most obvious way is by means of “seasonal adjustments.” Look what seasonal adjustments did to the latest numbers. USA TODAY has the report:

WASHINGTON (AP) – Unemployment rose in nearly all of the 372 largest US cities in January compared to the previous month, mostly because of seasonal changes such as the layoff of temporary retail employees hired for the holidays.

The Labor Department said Friday that the unemployment rate rose in 351 metro areas, fell in only 16, and was unchanged in 5. That’s worse than December, when the rate fell in 207 areas and increased in 122.

Other seasonal trends, such as the layoff of construction workers due to winter weather, also contributed to the widespread increase.

Nationwide, the unemployment rate dropped to 9% in January from 9.4% the previous month. It ticked down to 8.9% in February. But the national data is seasonally adjusted, while the metro data isn’t, which makes it more volatile. The metro data also lags the national report by one month.

See what we mean? Fewer people actually have jobs, but if you “seasonally adjust” the numbers, unemployment is going down.

Prices are going up everywhere too, but if you take out the stuff that is going up, you see prices stable.

And here are some other little facts that come to our attention this morning: one out of ever five houses in Florida is vacant. Holy sawgrass! How are the feds going to show housing prices going up?

Back to Japan…

We were just pointing out that while everyone is looking for “black swans” it may be the white ones that bite. They might be imposters. Scratch the paint off and they’re often gray…and nasty.

Take QE2, for example. The Japanese are running out of money. The government already owes 2,000% of annual tax receipts…the savings rate is falling to zero…and deficits are bigger than ever.

What’s a poor Japanese central banker to do? Turn to QE! It hasn’t worked yet. But it hasn’t done any harm either. The inflation rate in Japan really is near zero. Japanese exporters are desperate to bring down the yen. Everyone wants a little inflation…everyone wants more money to rebuild after the recent disasters…everyone wants QE!

So, give it to them…good and hard!

Which is why we think Japanese stocks are a good bet. They’ve been going down for 21 years. They’re cheap. If the economy bounces back – as Warren Buffett cheerfully expects – Japanese stocks will do well. If the economy doesn’t bounce back…as we cheerfully expect…it will be off to the races with QE. The effects won’t be immediate, we predict. But they will be dramatic. One day, prices will soar. People will rush into stocks to protect themselves. Japanese stocks will be the world’s top performers…like Zimbabwean stocks were at the height of that country’s recent hyperinflation.

Buy Japanese stocks now. Put them away. Wait until you read about them in the paper.

And more thoughts…

“What should I do now?” asked a friend. “I’ve met my financial goals. And I told my wife I’d retire [when we had enough money].”

Our friend has the sort of problem we’d all like to have. He is young. He is very successful. He has made a fortune. Now, he faces a problem; what to do with his life.

We were flattered that he asked us for advice; but what do we know? We have always worked. Still, that doesn’t stop us from having some thoughts about it. Here it is:

We knew another man who retired early. He was, like your editor, a publisher. He sold his business and retired early. But he couldn’t suddenly turn off the juices that drove him, day after day, to struggle…to fight…to compete. He had to find other activities. He tried promoting his favorite causes…he tried helping his friends…he tried moving to Europe and starting a new life. It was all very disappointing. Without the guiding light of the profit motive, he lost his way. He didn’t know whether he was doing his friends good or harm. He donated generously to “causes” only to find his fellow sojourners resented his money and the power it gave him. He became caught up in the bad politics of do-good groups. Even his marriage suffered, as he brought his critical, hard-driving skills to household improvement.

Even worse, it must have stuck in his craw that the business he sold went on to greater and greater glory without him. Its founder was soon forgotten, his name replaced with a single letter of the alphabet.

We recall talking to another, retired man, who gave this explanation:

“I was happiest when I was working. It was like marching uphill. I was getting somewhere. Always going up. Always struggling to move ahead. I didn’t have to worry about who I was. Or what it all meant. I had a job to do and I was happy doing it. But when I got to the top of the hill, I was lost. There was nowhere to go but down.”

A good man is like a draught animal, we conclude. He is a dumb beast of burden, happiest when he feels the traces on his chest, and occasionally, the lash on his back. Head down, he pulls his load and causes no trouble. Best to keep him at it.


Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.


  1. It’s hard to imagine 20% of houses in Florida are vacant. Where did all those people go? I was in Florida in December and believe me, there was still loads of people around, so maybe they have all moved in with their neighbours. Sounds like a statistic from the US Federal Government, so perhaps all those people have been “seasonally adjusted”.

  2. A large increase in multi generation households Dave. Adult kids moving back in with parents, in some cases 3 generations in one household. Same number of people housed in less houses. I read an article a while back that said that the average number of people in the harder hit regions of the USA went up from an average of 2.7 to around 3.5 people per household

    March 24, 2011
  3. A good thing for mine Shoes – I’ve never been all that struck on the nuclear family personally? Though my olds seem to be! – Live in fear I just could come back maybe? :)

  4. Davo: “Where did all those people go?”

    Yes, those numbers _are_ hard to comprehend, Davo.
    If it was Miami alone, it’s easier to explain as the ‘holiday-home-goes-first’ syndrome.

    With the incredibly high unemployment figures, particularly among the young,
    the packed-to-the-rafters scenario is entirely possible.

    I know a fella who stated if it all went belly-up here, back-to-dad would be his exit-of-choice.

  5. “back-to-dad would be his exit-of-choice” – The nice thing about being a SFR who isn’t too flash, is that if push really came to shove some other options (like renting out the home and ‘slumming’ it OS for a while) really aren’t out of the question.

    Well Biker, I’ve finally got the bones of my ‘plan’ together – Own home plus one IP and about $70K cash in super (with the super to go to the missus when I croak) – Will still allow her to collect about the half the aged pension. Two IPs in my name – One each for my niece and nephew when I’m deceased. One IP in the name of a discretionary trust that can distribute income to pretty much anyone. With a needs based preference to be given to the missus until she croaks. (Wording that will be fun!) And a buffer of about $70K cash in the trust to cover any ‘contingencies’.

    Tax effective – Should only be paying about $3K tax on income of $52K maybe? Though there’ll be be another $2K in accounting fees annually. Still, it works in with my philosophy re ‘enough’. And wanting to leave the capital/assets to family. Plus gives some options and flexibility.

    Way too heavy in property to be truly ‘wise’ of course. So if I happen to come across any more loot over the next 15 years I just could put a bit of it in stocks? – IF ever I get more comfortable with them! (But simply wouldn’t be happy going into retirement with more than 20% in stocks regardless I suspect – With that just being me.)

    Only took 5 years to figure it out – How hard was that? :D

  6. It’s a good plan, Ned.

    My Super Fund has been calling me _daily_ as the realisation sets in that I’m really pulling it all, in just a few days. I’ve offered them two consolations: 1.) that we haven’t decided what to do with the missus’ sizeable balance next year; 2.) that we’ll roll property sales thru’ their fund until mid-’13.

    It sounds as though we’ve both given our families a wealth of options.
    It’s important to have that range of choices.

    I literally _win Lotto_ next week. That’s the beauty of compounding interest. Super really has worked for us, so I’m pleased our kids have already built sizeable funds, in addition to their cash, property and share portfolios. Shares? Our eldest tells me he didn’t lose a moment’s sleep during the recent correction…!~

    20% shares? I’d only be interested at around 3200. And I’d sell off far too early (again)! Just don’t have the appetite for financial risk.

    It will be great to stash our titles away. Thirty-four years of rolling properties over has paid off. Not a quick process… quite slow in fact… but it really has been worthwhile. ;)

  7. “It’s a good plan” – Dunno mate. But as it’s the best I can come up with that I’m comfortable with given a range of considerations that are important to me (and has some options and protection built in), it’s a real good start I think. :)

    “My Super Fund has been calling me _daily” – Not surprised! Like all financial institutions they like to see money coming in rather than going out. They’ll just have to get used to a bit of it eh!

    “I literally _win Lotto_ next week” – Congrats Biker. I can’t see how debt and retirement can mix happily? So will be interesting to see how that works going forward. For all sorts of asset classes. ;)

  8. It’s just one to bear in mind I think – Biker won’t be unique in using super to pay down debt. If I had any debt that would certainly be my approach.

  9. “My Super Fund has been calling me _daily_”

    Our first indication that there’s a major trend here was when they lowered their fees markedly in the last six weeks. We think that’s in response to an increasingly large number of BBs taking the whole lot out, rather than rolling it into annuities, etc.

    What it probably also means is that most will be putting it straight into SMSFs. Interesting. I’m guessing here, but many of these may buy property (rather than shares, because it makes far more sense to leave it in Super if you’re buying shares… indexed funds, anyway.)

    The first BB wave may also be those who have larger funds, retiring early, as we are… so the departure of large rafts of cash (someone posited 1,400 members per week) must alarm funds managers, hence this sudden large reduction in fees announcement(!)

    If we’re right about this trend, it may mean more movement at the lower end of the property market, ie., land and rentals in the niche we occupy.

    All guesswork, I’ll grant you… . They may be buying GOLD! ;)

    Biker Pete
    March 25, 2011
  10. “A good man is like a draught animal … Head down, he pulls his load and causes no trouble. Best to keep him at it.” You keep at it by all means Bill – Drop dead in the traces by all means if that suits? But as for me, I’m retired – And extraordinarily comfortable with that situation ta! :)

  11. I’ve only been on the dole for 20 years all up, out of almost 50 but rarely is the time when I am bored and my life has no meaning. (it’s not been a particularly easy life either in a chronic pain sort of way as I am discovering, cure-all pending). I feel sorry for the clods who gain no meaning from just being alive, having half a brain, being free from serious illness. moreso those pursuing means of living which are in effect anti-social. and when the machines do almost all of the work? some sort of social darwanism should weed out these workaholics methinks, else they become even more destructive and halt the march of real progress, , which is what life should be all about, living as people. let the machines work, and the machine people whilst they are still useful to us learning and leisurely classes.

  12. Not much there to disagree with for mine PeterG. So just a comment re “when the machines do almost all of the work” maybe? – Mate of mine once commented to me how fulfilled his uncles seemed to be from stuff like still being able to make their own barrels.

  13. which is the way I am headed, its a lot more interesting doing real stuff than staring at the screen all day, for sure. and the stuff usually lasts longer. wish I had started before I got old. though if I get my health fix, its not too late. might even make an honest and modest living out of it. shiver me timbers, fire up me chain saw, let her rip.

  14. peterg: “…fire up me chain saw, let her rip…”

    Yeah, give it a burl, Pete! Time you picked up an axe*, too.

    * An old Maton, perhaps?

    Biker Pete
    March 30, 2011
  15. no BP. they used to die at 50. I waiting for laser saws and anti laser safety gear. oh maton, has to look it up. Im doing Roland these days. $20 from the tip and 2 rebuilds. I though youd disappeard in the flames (comments) a while back. as they say, an Apple a day.

  16. “I though youd disappeard in the flames (comments) a while back…”

    HaHa… No, I’m edited from time-to-time, mate.

    Actually, some of the recent editing seems highly-appropriate… :D

    Biker Pete
    March 31, 2011

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