There's reason to be wary of key Fed stats
By John Browne
Published: Saturday, Feb. 16, 2013, 9:00 p.m.
Since Bill Clinton's presidency, some observers have disputed the accuracy of certain key government statistics.
The public has been told that the economy emerged from recession in 2009 and has since experienced low inflation and gross domestic product growth. Stock markets have responded with a strong recovery, and are near to record highs. Even the housing market appears to have bottomed out and is on an uptick. In 2012, for the first time in 10 years, precious metals failed to outperform equities.
So the economy appears to be recovering. Yet the Federal Reserve maintains record low interest rates and a highly expansive monetary policy. Which raises the question: Why is the Fed maintaining its aggressive monetary expansion if it believes the national economic figures reported by the government are accurate?
The crucial methodologies behind key economic statistics were changed under President Clinton and former Fed Chairman Allan Greenspan, who were assisted by the present Fed Chairman Ben Bernanke. The results appear to have distorted key economic statistics to the benefit of the government.
Thirty years ago, former Edward Tuck Scholar John Williams founded a company called Shadow Government Statistics, or SGS, to analyze government statistics using decades-proven methodologies.
In a recent interview, Williams described how some key government economic statistics have been “distorted” or “cooked” by changing the pre-Clinton methodologies.
Williams emphasized the importance of correctly tracking inflation. A commonly used measure is the consumer price index, which is a monthly review of changes in the retail prices of a consistent shopping basket of goods and services. However, the CPI report by the Bureau of Labor Statistics does not reflect changes in buying patterns that result from inflation.
Williams cited three main ways in which the inflation figure is manipulated, including the arbitrary assignment of weightings within the CPI basket. For example, exploding health costs are a significant expenditure for many families. But they are assigned a weighting of just 1 percent in the CPI calculation.
The price of a new automobile might have risen by 20 percent, but that figure is reduced to allow for quality improvements to the car.
Finally, there is outright lying. The Fed maintains that newsprint prices rose by 35 percent during the past 12 years. But, in fact, they have risen by 135 percent.
The national unemployment figure is distorted because it excludes the long-term unemployed and those who have accepted part-time jobs over full-time employment or given up looking for a job. Williams puts actual unemployment at 22.9 percent versus the BLS figure of 7.8 percent.
Of more concern, Williams calculates inflation at between 5 percent and 7 percent — more than three times higher that the government's figure. That implies negative economic growth since 2007.
In short, these figures show there has been no true recovery for the economy. Thus, many investment decisions made on the current methodologies are likely flawed.
John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Total Trib Media. Email him at firstname.lastname@example.org.
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