Well the grassy knoll in Canberra has ruined a perfectly good DR. At least it's trying to. The proposal is to make low wage earners less employable. To steal their right to work for whatever wage they want to. To ensure that they don't get the work experience they need in order to earn more later in life. And most crucially of all, the increase in the minimum wage would cement job security for those already earning above the minimum wage. It does this by reducing competition. That's why unions came up with the idea. Check out Nobel Laureate Milton Friedman's simple explanation of the above. He even calls the minimum wage law racist.
None of the laws in society irk your editor more than the minimum wage. So we better stop here and get back to the usual beat.
Of all his prolific forecasts leading up to 2008 and since, Peter Schiff's best was calling the US recession. To be precise, he said the nation was in a recession while the statetist-ticians still proved him wrong. He told them 'we just haven't realized it yet'. Sure enough, months later, US data was revised and the economy was declared to have been in a recession.
Not that Schiff puts much faith in statistics and arbitrary definitions, even when they prove him right. But every now and again, government's rose-coloured glasses can't disguise the ugly facts.
Close to four years later, Schiff's continued pessimism is once again being reflected in the data. This time, we'll make the call. As far as you should be concerned, the US is in a recession. It's just a matter of lies, damn lies and statistics. In this case, it's the Bureau of Economic Analysis that's fudging the numbers:
The importance of the price deflater used by the BEA cannot be overstated. In calculating the "real" GDP the BEA continued to use an overall 1.9% annualized inflation rate, which is substantially lower than the inflation rates being reported by any of the BEA's sister agencies.
The mathematical implications of the deflater are simple: a lower deflater creates a higher 'real' GDP reading. If April's CPI-U (as reported by the Bureau of Labor Statistics) of 3.2% year-over-year inflation is used as the deflater, the reported 1.84% annualized growth rate shrinks to a 0.56% annualized rate, and the 'real final sales of domestic products' is actually contracting at a 0.63% rate. If instead of the year-over-year CPI-U we were to use the annualized CPI-U from just the first quarter (5.7%), the 'real' GDP would be shrinking at a 1.82% annualized rate, and the 'real final sales of domestic products' would be contracting at a recession-like 3.01%.
Put simply, the BEA is cherry picking data - and precisely the data that has the most impact on the real GDP numbers. Although the technical definition of recession may not be met once more realistic figures are used (note 'more realistic', not 'realistic'), the American economy is steadily heading towards the recession it would have had without government and monetary stimulus.
Then there is Australia's slowdown, which just happens to coincide with house prices falling. In what Adelaide Now calls 'embarrassing', but should call 'enlightening', natural disaster deficient South Australia led the economic slowdown. That's odd considering it's cyclone Yasi and flooding that's blamed for the negative GDP figure. (We're not sure the newspaper interpreted ABS numbers correctly though.)
Softer numbers are also coming from South Korea, China, Europe, etc. But don't worry too much. The recovery is 'too young to die' according to Morgan Stanley's analysts.
That's quite the argument. It has us speechless.
In a similar vein, it turns out the Greek government has enough assets to cover its debt, so there isn't really a problem in Europe. The Economist reckons geologists at its conference put Greece's untapped Mediteranean oil at around $300 billion Euros.
On a different tack, Mish Shedlock reports on his blog: 'ECB member Juergen Stark says Greece may raise up to 300 billion Euros from [government asset] selloffs. If Greece has a debt of 330 billion euros but can get rid of 300 billion euros of it by selling assets, then why does Greece need more aid? Has Greece all of a sudden turned a solvency problem back into a liquidity problem? Color me skeptical.'
Speaking of central bankers, a sarcastic revelation has emerged; you get what you pay for. Bloomberg reports: '[ECB President] Trichet's basic pay was 367,863 euros, according to the ECB's website. Federal Reserve Chairman Ben S. Bernanke pulled in $199,700 in 2010.'
Correspondingly, we would rate Trichet about half as bad as Bernanke. Although both are pinned to the dart board behind us. But amid our chuckling while reading the article on central banker pay, we spotted something that made us choke on our colleague's birthday cake. According to Bloomberg, the upcoming ECB President Draghi is also in charge of the Financial Stability Board, which leads the charge in the Basel capital adequacy requirements. In other words, if the banks fail, Draghi looks like a fool. Now he is being given the power to rescue them...
But the issues of the day are racing ahead faster than Draghi can reach his post at the ECB. Among the odder members of the financial guru community is a man called Gerald Celente. His quarterly Trends Journal has been rather accurate, so his catchphrases and sayings are worth laughing about and listening to. They include 'When the Money Stops Flowing Down to the Man in the Street, the Blood Starts Flowing in the Streets.' This applies to North Africa and is beginning to apply to Greece, where one third of the population expects a revolution, according to the German newspaper Bild. Celente's forecast is for the unrest to go Euro-wide by (their) summer and global by (their) winter.
Remember that many respected forecasters are predicting war. But let's keep things amiable here at the Daily Reckoning, not least because of our German birthplace. We'll stick to the China crash Dan Denning is expecting. So here is our trick question: What do all countries except China have in common?
Australia's biggest customer for the speedier part of its two-speed economy is China. Those resources are then shaped and shifted by German-built machines and sent to Americans to enjoy. The money to pay for the goods is lent ... by the Chinese. In other words, the Chinese are the linchpin that connects many of the dots.
Now consider how many crises emerging economies go through on their path to prosperity (capitalism). It has never been a straight-forward smooth ride. There are bumps along the way. Even the biggest China enthusiast should acknowledge there will be trouble at some point, whenever that may be. But what better time than now?
'China's working-age population has plateaued in size and will begin getting smaller sometime in the next five years' mentions the Washington Post. Oops. In other news, Reuters reports on the boom in Cuban entrepreneurship and the remarkable inability of modern Americans to get rich without an inheritance. Even the British perform better at making their own fortunes.
Yes, everything is backwards these days. The nation famous for the size of its workforce is looking at a declining workforce. The nation famous for its entrepreneurship and social mobility is being outdone by a monarchist nation and communist nation. The risk-free asset of the world is being threatened with a downgrade by a ratings agency. At least the laws of economics haven't been reversed. Money printing didn't work.
Reader mail has been meek this week, despite Dan Denning dipping his toes into the climate change debate. The only feedback we got from mentioning the solar power wiring debacle was this:
'Due to a power outage I will be unable to respond to your email until 6pm tonight.'
Daily Reckoning Australia Weekend
- US Recession Over…?
- The Central Bank Big Bazooka in Theory and Practice
- The Once and Future Dips of the US Economy
- The US Government Is Shrinking?
- Why US Job Creation Heats Up in Cold Weather
About the Author
Nick Hubble is feature Editor of The Daily Reckoning Australia – weekend edition. You can subscribe to the Daily Reckoning for free here. Nick has spent the last three years discovering lots of new, exciting and surprisingly simple ways to generate money for retirement. He’s put all these ideas into his investment publication The Money for Life Letter. If you're already a subscriber to these publications, or want to follow Nick's financial world view more closely, then we recommend you join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.