Mish's Global Economic Trend Analysis

Funding for Naples Bus Service Cut 40% With Predictable Results: Buses Run Out of Gas
Ten Reasons for Declining GDP Growth Over Time; Analysis of Various GDP Deflators
Big Brother in Action: EU Wants Power to Sack Journalists; Prime Minister Rajoy Threatens Newspapers Following Corruption Articles

Funding for Naples Bus Service Cut 40% With Predictable Results: Buses Run Out of Gas

Posted: 31 Jan 2013 04:01 PM PST

A 40% funding cut to bus services in Naples, Italy had predictable results: Bus Service Grinds to Halt as Tanks Run Dry

Bus service in the southern Italian city of Naples has ground to a halt after the city transport company ran out of money for fuel.

Valeria Peti, of the ANM transport company, says only 30 of the usual 300 buses left the depot Wednesday morning, and they all had to return before their tanks ran dry.

Naples' municipal services have been in the news before, most notably when mountains of garbage have piled up. Peti says in this case, the company that provides gas for city buses refused to replenish them without payment guarantees.

ANM says government funding for Naples' bus service has been cut by 40 percent.

"Services Not Guaranteed"

Here is the public service announcement as described in Bus Operator Runs Out of Fuel.

"Due to a lack of fuel our services are not guaranteed," transport operator ANM announced on its website and at bus stops around the city, enraging commuters.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Ten Reasons for Declining GDP Growth Over Time; Analysis of Various GDP Deflators

Posted: 31 Jan 2013 10:07 AM PST

To compute "Real GDP" one has to adjust nominal GDP by a measure of inflation. Different measures of inflation provide different answers.

Doug Short at Advisor Perspectives has an excellent column following every GDP release showing what the reported GDP would look like with various deflators.

His latest report is Will the "Real" GDP Please Stand Up? (The Deflator Makes Big a Difference)

How do you get from Nominal GDP to Real GDP? You subtract inflation. The Bureau of Economic Analysis (BEA) uses its own GDP deflator for this purpose, which is somewhat different from the BEA's deflator for Personal Consumption Expenditures and quite a bit different from the better-known Bureau of Labor Statistics' inflation gauge, the Consumer Price Index.

The Lower the Deflator, the Higher the GDP

The BEA puts the latest compounded annual percentage change in the GDP deflator (i.e., the inflation rate) at 0.60%.

Interestingly enough, the Briefing.com consensus forecast was for the deflator to come in at 1.6%. Had the deflator indeed come in at the Briefing.com consensus of 1.6%, Real GDP would have been a percent lower at -1.13%. Had the deflator indeed remained unchanged from the previous quarter, today's Q4 real GDP would be two percent lower at -2.21%.

Question of the Day

Let's stop right there and ask: Does anyone out there possibly believe price inflation is a mere .60%?

With the GDP deflator (the official measure), the reported GDP was -.14%
Using PCE (personal consumption expenditures) as a deflator, GDP would have been -.77%
Using CPI (the consumer price index) as a deflator, GDP would have been -1.56%
Using ShadowStats CPI as a deflator, GDP would have been -4.3%

Here are a few charts courtesy of Doug Short.
click on any chart for sharper image

Real GDP with GDP Deflator

Real GDP with CPI Deflator

Wednesday evening I asked Doug Short for a chart using HPI-CPI as a deflator. It's a chart he normally does not produce but did so this time because we had the data.

Real GDP with HPI-CPI Deflator

HPI-CPI Discussion

For background and an explanation of the HPI-CPI please see Dissecting the Fed-Sponsored Housing Bubble; HPI-CPI Revisited; Real Housing Prices; Price Inflation Higher than Fed Admits

Using HPI-CPI as a deflator it hardly appears there was a recession in 2001 at all.

It's debatable which of the three charts best describes reality. However, I vote for the third believing that houses are consumed, even if very slowly (although the land on which the house sits is not). The current assumption is houses are a capital expenditure and people rent housing from themselves at an implied OER - Owners' Equivalent Rate (see preceding link for discussion).

Regardless, the current deflator of .60% is simply not believable, meaning GDP is overstated.

Regression Trends Show Lower GDP Growth Over Time

Notice the linear regression trendlines in the first and third charts. The middle chart would have looked similar if it had such a trendline.

Clearly the trend is toward lower and lower GDP readings. And I expect this trend to continue, likely accelerate to the downside.

Inquiring minds may be asking "Why?"

Ten Reasons for Declining GDP Growth

Changing social attitudes towards consumption and debt in all age groups
Demographics of an aging workforce
A severe lack of high-paying jobs for college graduates
Kids fresh out of college have delayed marriage, family formation, and home purchases
Many coming out of college are effectively debt slaves having no way to pay back student loans
Debt overhang from the housing bust
Boomers headed into retirement have insufficient savings
Shrinking middle-class plagued by declining real wages
Rapidly changing technology negates skills
Technology, especially robots, currently eliminates more jobs than it creates

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

"Wine Country" Economic Conference Hosted By Mish

I am hosting an economic conference in April, in Sonoma, California. Please consider attending.
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Big Brother in Action: EU Wants Power to Sack Journalists; Prime Minister Rajoy Threatens Newspapers Following Corruption Articles

Posted: 31 Jan 2013 12:21 AM PST

"Big Brother" in Action

In case you have not already realized it, 1984 has come and gone politically. All that remains is how fast we march down the path of "thought suppression". Here are a couple of articles that will make my point.

The Telegraph reports EU wants power to sack journalists

A European Union report has urged tight press regulation and demanded that Brussels officials are given control of national media supervisors with new powers to enforce fines or the sacking of journalists.

The "high level" recommendations that will be used to draft future EU legislation also attack David Cameron for failing to automatically implement proposals by the Lord Justice Leveson inquiry for a state regulation of British press.

A "high level" EU panel, that includes Latvia's former president and a former German justice minister, was ordered by Neelie Kroes, European Commission vice-president, last year to report on "media freedom and pluralism". It has concluded that it is time to introduce new rules to rein in the press.

"All EU countries should have independent media councils," the report concluded.

"Media councils should have real enforcement powers, such as the imposition of fines, orders for printed or broadcast apologies, or removal of journalistic status."

"The national media councils should follow a set of European-wide standards and be monitored by the Commission to ensure that they comply with European values," the report said.

Nigel Farage, the leader of Ukip, compared the proposals to "Orwell's 1984". "This is a flagrant attack on press freedom. To hear that unelected bureaucrats in Brussels want the power to fine and suspend journalists is just outrageous," he said.

Reflections on "European Values" and a UK Referendum

Financial transactions taxes and agricultural crop subsidies are bad enough. This proposal for "thought police" should scare everyone.

What the hell are "European values"?

Even if there was such a thing, it is absurd and scary to cram them down everyone's throat. If ever there was any justification for Cameron to tell the EU to "go to hell" this is surely it.

Conservatives in UK need to demand an in-or-out referendum now.

Prime Minister Rajoy Threatens Newspapers Following Corruption Article

Want to report on government corruption? Better think twice. "Big Brother" is always watching out (for himself).

Please consider the saga of bribes paybacks and corruption in Spain where the former treasurer of the People's Party, Luis Bárcenas, had amassed up to €22 million ($30 million) from dubious sources, and hid them in Switzerland. Regardless of how Bárcenas got the money, he handed party officials envelopes filled with banknotes worth between €5,000 and 15,000 every month.

Rajoy, opposition leader and head of the PP at the time of transgressions, protected Bárcenas. Now Rajoy wants the disclosures to stop.

How Powerful People React in Tight Spots

Der Spiegel reports Envelopes of Cash: Corruption Charges Put Madrid on Defensive.

The powerful reacted the way powerful people react when they are in a tight spot. Former Prime Minister José María Aznar instructed his attorneys to sue the newspaper El País.

Current Prime Minister Mariano Rajoy, a conservative like Aznar, threatened to sue anyone who leveled accusations at his People's Party (PP).

Bárcenas denies all accusations. And if he is sent to prison, he has threatened that an "atom bomb" will explode.

Reflections on the "Atom Bomb" Threat

It's rather curious how Bárcenas can deny all accusations while simultaneously threatening to set off a political "atom bomb". If everyone is innocent, then it is logically impossible for there to be a political bomb to explode.

In an attempt to sweep this under the rug, Prime minister Rajoy is now threatening newspapers or anyone else throwing charges against the PP.

However, the more they try and sweep under the rug, the bigger and faster the rug needs to grow.

Nineteen Eighty-Four

If you have not yet read Nineteen Eighty-Four, please do so because you are living it. Here is a synopsis from Wikipedia.

Nineteen Eighty-Four is a novel by George Orwell published in 1949. It is a dystopian and satirical novel set in Oceania, where society is tyrannized by The Party and its totalitarian ideology. The Oceanian province of Airstrip One is a world of perpetual war, omnipresent government surveillance, and public mind control, dictated by a political system euphemistically named English Socialism (Ingsoc) under the control of a privileged Inner Party elite that persecutes all individualism and independent thinking as thoughtcrimes. Their tyranny is headed by Big Brother, the quasi-divine Party leader who enjoys an intense cult of personality, but who may not even exist. Big Brother and the Party justify their rule in the name of a supposed greater good. The protagonist of the novel, Winston Smith, is a member of the Outer Party who works for the Ministry of Truth (Minitrue), which is responsible for propaganda and historical revisionism. His job is to re-write past newspaper articles so that the historical record always supports the current party line. Smith is a diligent and skillful worker, but he secretly hates the Party and dreams of rebellion against Big Brother.

As literary political fiction and as dystopian science-fiction, Nineteen Eighty-Four is a classic novel in content, plot, and style. Many of its terms and concepts, such as Big Brother, doublethink, thoughtcrime, Newspeak, and memory hole, have entered everyday use since its publication in 1949. Moreover, Nineteen Eighty-Four popularised the adjective Orwellian, which describes official deception, secret surveillance, and manipulation of the past by a totalitarian or authoritarian state. In 2005 the novel was chosen by TIME magazine as one of the 100 best English-language novels from 1923 to 2005. It was awarded a place on both lists of Modern Library 100 Best Novels, reaching number 13 on the editor's list, and 6 on the reader's list. In 2003, the novel was listed at number 8 on the BBC's survey The Big Read.

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Thursday, January 31, 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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