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Economic Facts That Aren't

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August 09, 2012 – Comments (2)

GDP IS THE ONLY GAME IN TOWN

I trust Chinese Communists party bigwigs about as far as I can throw them. However, I read a quote by one who had a really good idea: he judges economic activity by looking at electricity usage, rail traffic, and loans. Perhaps a bit more noise than the GDP, but they can be measured daily and are hard facts not prone to 'adjustments'.

US TAXES ARE AT HISTORIC LOWS

This is one of those curious, crayon-pancakehouse-paper-placemat calculations. They take total tax receipts, and calculate it as a % of the GDP. By this measure, yes, US taxes are at historic lows; however, this ignores the math that unemployed adults are not paying payroll or income tax, therefore reducing tax receipts.

UNEMPLOYMENT IS 8.3%

At the cost of ending up in the weeds: every month, the BLS calculates no less than 6 different unemployment rates. The % reported in the press is the “U3” rate. However, the “U6” is more accurate, in that it includes people whose hours have been cut back and those who have given up trying to find a job. Currently, the latter unemployment rate is 15%.

THE INFLATION RATE IS 1.7%

The 'official' number reported by the media specifically does not include food or fuel; the stated reason is that it makes the % too volatile to be a useful policy tool. Well, perhaps, but this means that the reported inflation rate has nothing to do with the increase in the cost of living experienced by ordinary families.

SSI STANDS FOR “SOCIAL SECURITY INSURANCE”

This is a rather interesting and deceptive bit of verbal jujitsu. When a taxpayer hears this term, it invokes something like a whole life insurance policy, i.e. you pay into it all your life, and when it is your turn, you get back the money you have 'invested'. In fact, it stands for 'Supplementary Security Income': 'income' as in a voluntary payment by the payer, and 'supplementary' as in it is not supposed to be your only source of income in your old age.

GOLD IS A RELIABLE PROXY FOR INFLATION

If you chart the latter against the former, the correlation is not very good. Gold has had its peaks and valleys, but these often do not match that of inflation. Sometimes the 2 match, but not very often.

CAPITALISM CAN THRIVE ANYWHERE

Capitalism has been transplanted in a couple of unlikely places, read: Communist countries. It has, however, wilted in both cases: Russia is a state-sanctioned kleptocracy where laws have no meaning or force, and Red China has only as much freedom as the Politburo thinks its peasants should have.

INCREASING TAXES BRINGS PROSPERITY AND STABILITY

No, no, I am not referring to the well-worn debate between Keynes and Hayek, but the 'austerity' measures being forced upon the PIIGS by Euroland bureaucrats in Brussels. This entails, in part, increasing taxes. Thus far, this has failed to revive the GDP of any of the PIIGS.

QE3 WILL BRING US OUT OF RECESSION

Helicopter Ben has tried monetary stimulus twice before to no avail. What makes him think that round 3 will be any different?

BUY WHAT YOU KNOW

Just because you are trained pastry chef who makes donuts that causes lines out the door, you are not therefore qualified to judge whether KKD or DNKN are good investments.

BE FEARFUL WHEN OTHERS ARE GREEDY AND GREEDY ONLY WHEN OTHERS ARE FEARFUL

What the Oracle of Omaha really said: “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to...”

 

2 Comments – Post Your Own

#1) On August 10, 2012 at 12:08 PM, drgroup (69.08) wrote:

Refreshing to read the truth about this economy. It is a shame it is buried on TMF site. Nice work...

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#2) On August 10, 2012 at 1:14 PM, Melaschasm (54.35) wrote:

Capitalism has generally been good for formerly communist countries.  Poland, East Germany, Lithuania, and Montenegro are some of the best examples, but Russia and China have also done well with capitalism.

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