Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Mafia GDP, Systemic Conspiracy to Alter Economic Data

Politics / Economic Statistics Jun 16, 2014 - 07:34 PM GMT

By: Michael_Pento


Governments are not engaged in a systemic conspiracy to alter economic data after it has been collected. To get a multitude of individuals agreeing on how to fudge information would be far too difficult to control. Instead, it is much easier for a small group of government officials to simply change the formula for calculating the data points that they desire to manipulate to make the information seem more palatable.

For example, since the world completely abandoned the gold standard back in 1971, governments have repeatedly tinkered with the CPI formula in order to convince the public that prices are vastly more stable than they are in reality. And now, since the developed world is suffering from anemic growth rates due to a massive debt overhang, governments have turned their attention to changing the way GDP is calculated.

Starting this year, the government of Italy will add the mafia's "contribution" of goods and services to its GDP. In fact, illicit activities like smuggling, prostitution and narcotics will now factor into the growth calculations of the U.K. as well. Analysts expect this accounting change to boost Italy's GDP a couple of percentage points each year. And another study found that America's underground economy was worth about $2 trillion annually. That's more than 10 percent of our legitimate GDP. Therefore, you can bet that the U.S. isn't far behind in adopting Europe's new GDP formula.

The U.S. already performed a little hocus pocus on the GDP numbers back in July of last year. The government made a significant change to the gross investment number, which now includes; research and development spending, art, music, film and book royalties and other forms of entertainment as the equivalent of tangible goods production.

GDP numbers have been chronically subpar in the U.S. since the Great Recession supposedly ended. Growth increased just 1.9% for all of 2013 and posted a negative 1% during Q1 of this year. And much the same can be said to describe the GDP data over in Europe as well, as they also have endured subpar and/or negative growth. As further evidence of the deteriorating growth condition, on June 10th the World Bank lowered its global growth forecast and cut U.S. growth to just 2.1% for 2014, from the previous estimate of 2.8%.

Therefore, our government leaders have sought to tinker with the formula more and more until they can produce the desired result they want to portray. Look for official government data on both a nominal and real GDP basis to become even more overstated in the future. Logically speaking, investors can also count on metrics such as debt and deficits as a percentage of the economy to appear much more benign than reality would otherwise present.

However, governments cannot so easily alter the most important metric in relation to the health of a sovereign nation. While it is easy for politicians to embellish the stated level of economic activity and growth, they are unable to increase the revenue to the government without actually extracting and redistributing private wealth through taxation. This means that the revenue available to service national debt will remain unaffected, no matter what formula the government comes up with to calculate GDP. The consequences of this will be devastating as an unprepared public is lulled to sleep with rosy debt metrics; but gets crushed when the bond bubble bursts due to insufficient revenue that is falling sharply in relation to interest payments on government debt.

Officials can triple count illegal activity if they so desire. But since it is illegal, by definition no additional revenue can be directly derived from it-especially from an arbitrary level of illicit activity made up by the government.

The sad truth is that economic growth will continue to disappoint and should worsen throughout the year, after perhaps a marginal bounce in Q2. One of the main reasons why there will be no sustained economic recovery is because the stimulus derived from the massive decline of interest rates has already accrued to the economy.

For example, corporations have been able to generate increasing profits, and individuals were able to reduce debt service expenses through the continuous refinancing of debt. To further illustrate this point, mortgage application are down 17% year over year. This is because the pipeline of people who have the ability to refinance their mortgage or that can qualify to purchase a home has already been vastly drawn down. With the refinancing and first-time buyers' market pipeline mainly exhausted, the housing market's support to the economy is fading. Now that interest rates have leveled off at rock bottom, after falling sharply for over 30 years, the tremendous tailwinds of ever-reducing borrowing costs have abated.

As the economic fundamentals continue to deteriorate, look for official government data reports on inflation and growth to become more imaginative and creative. But here's a brief reality check for investors:

■Debt levels have exploded in recent years and have now reached intractable levels in the developed world
■Central bankers-the supposed protectors of our purchasing power--have devolved to the point of now artificially providing zero and even negative nominal rates, with the expressed desire to push real interest rates further into negative territory
■Asset bubbles now extend beyond real estate and are now also prevalent in equities and bonds as well
■The middle classes are being eradicated through inflation, falling real incomes and debt

Another sad reality is that we used to live in a world in where asset prices were determined by the unfettered competition of markets. Today, markets have been obliterated by a handful of central bankers competing to provide the lowest interest rate and the greatest amount of monetary manipulation.

But in the end free markets always prevail and the eventual adjustment from the current fantasy world created by central banks and governments will be extremely violent and destructive. The chances are high that the adjustment will begin within the next two months, as the Fed's asset purchases will be nearly halved by the end of July QE. And will end completely a few months after. It is during that timeframe that I believe the gravitational forces associated with the free market reconciliation of asset bubbles begins to take effect.

Michael Pento is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”


Michael Pento
Pento Portfolio Strategies

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to and is a blogger at the Huffington Post.
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.

© 2014 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in