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Minyan Mailbag: Massaging the Numbers?

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I view the government's characterization of the economy as "strong" as deceiving...

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Prof. Succo-

I am very grateful for the research that you did to provide us with a current CPI measurement based on the pre-Clinton Administration change formula. I think that particular revelation should be realizing much more ongoing discussion than it is. After reading your article; I suddenly became very aware of "CPI-adjusted" statistics and "CPI-adjusted" formulas in all that I read, realizing that CPI is now something akin to measuring your child's growth in used-pencil lengths with various pencils at the various data points (Johnny really enjoys growth spurts when you use the sharpened-to-a-nubbin variety). Add to that the wonderful article by John Williams on government statistics and the whole economic world seems to change as you view it through the filters that information provides.

If you now view GDP as government inflated, then how would you view the problematic trade deficit as a percentage of GDP? If CPI is grossly under-reported vs. its historical unit of measurement, how would you price inflation risk into bond pricing? If bonds are not appropriately pricing inflation risk, how reliable are the equity models that factor bond yields?

I admit that I am fearful that government statistics reporting could play out similarly to the corporate accounting of the late 90's. I clearly remember many "old-timers" screaming at the top of their lungs that corporate accounting had gone grossly awry from giving an accurate picture. No one seemed to care. When SEC Chairman Arthur Levitt tried to bring accountability to accounting via his agency, he was summarily shut down. No one was interested in the problem; no matter how compelling the evidence...as long as the problem was not generating negative consequences. Of course, when companies collapsed and the stock market went into a tailspin, the very legislators who dismissed Levitt's warnings were brazenly pointing fingers, screaming that it was a criminal offense and that the problem should have been prosecuted long ago.

I don't think that John Snow knows what data has been collected by the BLS before he should know. I think he DOES KNOW that the government's massaging of the numbers is set to give a generous boost to whatever data is collected.

I suspect that you have already postulated this and are simply practicing the "art of the well-asked question," getting Minyans to focus on the right things in order to see the possibilities more clearly without overtly telling us anything. I'm guessing that you set out the cheese and I'm just the rat that took the bait.

How would a rat translate as a Minyanville creature? As always, your insight is greatly appreciated.

Minyan Jeff

MJ,

I view the government's characterization of the economy as "strong" as deceiving and the official statistics' relationship to asset levels versus debt levels as very distorted.

Super liquidity is masking the problem and cajoling investors to take ever more risk related to return. This super liquidity is thus finding its way into supporting a credit bubble and thus speculation.

The bottom line is the "long risk" trade is very crowded.

The FT this morning on page 6 describes Robert Rubin as heading a project that addresses these distorted economic imbalances and their dangers.

Thank you for your comments.

-Succo
No positions in stocks mentioned.

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