• Special Note to Subscribers: Congressional Testimony
• Broad Money Growth Remains Inflationary
• Deepening Recession Should Be Evident in Pending Payrolls, New Orders
• No Recession per GDP Expectations, But …

• Dire Implications for U.S. Markets, U.S. Budget Deficit
• Annual CPI-U Surges to 5.0% (SGS 12.6%)
• “Core” Inflation Numbers Not Believable
• Retail Sales and Industrial Production in Sharp Quarterly Contractions

• “Core” June Retail Sales Fell 0.7% versus 0.1% Reported Total Gain
• Tax Rebate Benefit Evaporates
• June PPI Gain of 1.8% Remained Well Shy of Reality

• Spike in Annual Inflation Due Next Week
• The Problem Remains Inflation, Not Deflation
• Monetary Theory and Limits of Hard Data

• June Payrolls Turned Negative Year-to-Year
• Monthly Payrolls Dropped by 147,000 Net of Concurrent Seasonal Adjustment Bias
• Broadest Unemployment Rate Jumps by 0.2%
• Purchasing Managers Manufacturing Index “Gain” Due to Reweightings

• Abysmal Business Data Continue
• Unprecedented Plunges in Consumer Confidence Measures
• Good Time for the Rest of the World to Dump the Dollar

• Industrial Production Contracts Year-to-Year
• Housing Starts in Steepest Annual Decline since Depths of 1990/1991 Recession
• No Signs of Abatement in Inflationary Recession

• Annual Inflation Surge Begins (4.2% BLS, 11.8% SGS-Alternate)
• Monthly Inflation Still Understated
• General Outlook Unchanged

• Core Retail Sales Up 0.86%
• Unusual Revisions and Seasonal Factors in Data

• May Payrolls Plunged 134,000 Net of Concurrent Seasonal Adjustment Bias
• Employment and Unemployment Reports Consistent with Deepening Recession

• A Case for Manipulation of Headline Payroll Employment Numbers

• First-Quarter GDI Growth Near Outright Recession
• Wall Street Spinmeisters Grasp for Straws as Business Contraction Intensifies

• U.S. Currency Now Backed by Collateralized Debt Obligations
• Seasonal Adjustments Used to Eviscerate Reported Inflation
• Recession Deepens

• April’s Core Retail Sales Fell 0.3%
• Thank Goodness for Seasonal Factors and Collapsing Gasoline Prices

• M3 Growth Slowed in April — Still at 1971 High
• March Trade Deficit “Improvement” Not Credible

• Chances of Economic Rebound Now Are Nil
• GDP and Jobs Data Appear Rigged
• Other Numbers Confirm Intensifying Inflationary Recession

• Is The First-Quarter GDP Fix In?
• Oil Prices Cannot Double Without Serious Consequences

• Inflation Fantasy
• Real Retail Sales Contracted an Annualized 4.2% in First Quarter
• First-Quarter GDP Contraction Locked In?

• March “Core” Retail Sales Unchanged for Month, Down Year-to-Year
• Trade Data Enhance Prospects for 1st-Quarter GDP Contraction

• Heavily Gimmicked Payroll Contraction Was Much Worse in Reality
• Other Key Data Also Confirm Sharply Deteriorating Inflationary Recession

• Money Growth Continues Surging
• Cautions on Home Sales and Price Data
• Treasury and Fed Will Accept Any Cost to Save System

• It’s Not Even Close to Being Over
• Inflationary Recession and Systemic Solvency Crisis Remain
• Gold Buying and Dollar Dumping Still Are Nascent

• Fed Panic Continues in Pursuit of Systemic Salvation
• Inflation Understatement Used to Justify Fed Easings?
• Industrial Production Plunge Could Set Second Timing-Point for Official Recession

• February’s Unchanged CPI Not Credible

• “Core” Retail Sales down 0.55% versus 0.56% Decline in Full Series
• Budget Deficit Surges

• Solvency Crisis Deteriorates

• Fed Sets Currency Printing Presses at Full Blast
• February M3 Growth at Record 16.8%

• M3 Growth Hits All-Time High
• Hints of Systemic Unraveling Suggest Unusual Problems
• Risks Mount of Non-Traditional Federal Reserve/Treasury Actions

• Recession Will Not Contain the Inflation Problem
• Money Growth Appears to be Surging
• Bernanke Remains Focused on Banking System Solvency, or Lack of Same

• Monthly CPI Surge of 0.64% Masked by Seasonal Factor Revisions
• January Annual CPI Inflation at 4.28% (11.8% SGS-Alternate)
• Revisions Show Stronger Inflation

• Money Supply Growth Surges Anew
• Nonborrowed Reserves Plummet Further
• SGS Will Continue Abandoned Government Economic Indicators Service
• Financial Crises Intensify

• Real Retail Sales Continue Year-to-Year Collapse
• Core Retail Sales Up 0.11% for the Month

• Mr. Bernanke Dispatches the Helicopters
• Solvency and Liquidity Problems Continue
• Fed Emergency Actions Are Keeping Banking System Afloat

• Recession in the Numbers
• M3 Growth Appears To Be Firming Again

• Outright Recession Reporting Unlikely for 4th-Quarter GDP or January Jobs
• Inflation and Dollar Concerns Ignored by Fed

• Fed Panic Indicates Mounting Instabilities
• Currency, Gold and Oil Market Intervention Highly Likely

• Gimmicked Stimulus Cannot Reverse Structural Downturn
• Quarterly Industrial Production Contracted
• Housing Starts Plunge
• CPI Scuttled Annual Retail Sales

• Retail Sales Revisions Show Sharper Downturn
• Inflation Irregularities Also Signal Reporting Distortions

• Recession Recognition Settles In
• Moody’s Cautions on U.S. Credit Rating
• December M3 Growth at 15.2%

• The Tempest Intensifies
• December Payrolls Really Contracted
• U.6 Unemployment Rate Surged to 8.8%
• Money Growth Remains a Problem

John Williams is interviewed on CNN by Greg Hunter.   The record growth in M3 is discussed and its implications for future inflation. Click here or on the image to view the interview.

• Economic Data Take Successive Hits
• Help-Wanted Advertising Plunges to Lowest Level Ever

• Actual 2007 U.S. Federal Deficit at $1.2 Trillion, $5-Plus Trillion on Consistent Basis

• Annual CPI Inflation at 4.3% (SGS-Alternate CPI 11.7%), PPI at 7.2%
• Industrial Production Suggests Fourth-Quarter Contraction

• November “Core” Retail Sales Gained 0.78% versus 1.22% Non-Core
• Prior Food and Energy Inflation Revised Higher

• Gimmicks Mask November Payroll Contraction
• SGS-Ongoing M3 Annual Growth Rises Again in November
• Official CPI Annual Inflation Could Break 4% Next Week
• Fed’s Quandary Remains

• What Is Scaring The Fed?
• GDP Numbers Are Utter Nonsense
• Other Data Show Tumbling Economy

• Annual Inflation Surge Should Continue
• Inflation-Adjusted (SGS)Peak Gold Price Is $6,030

• October "Core" Retail Sales Unchanged
• Data Massaging Gets Worse as Energy Prices Collapse(?)

• October M3 Growth Breaks to New 36-year High
• Trade Numbers Again Appear Massaged
• Beware Next Week's Surge in Annual Inflation!
• The System Begins to Crack

• Data Appear Massaged as Market Manipulation Tool
• October Payrolls Fortuitously Show No Need for Further Easing
• Household Employment Plunges by 250,000

• Fed Action Likely Foreshadows Jobs Report
• GDP Report Fundamentally Was Nonsense

• Watch the Greenback!

• Annual CPI Jumps to 2.8% in September

• Gimmicked Data Appear Aimed at Reducing Pressures on Fed for Another Easing
• September M3 Annual Growth Hit 14.7%
•
Watch Out for CPI Annual Inflation Surge!
• Twenty years ago this coming week, a new Federal Reserve Chairman faced a financial panic that included the worst one-day stock market crash ever seen in the U.S. markets. Alan Greenspan had become the U.S. central banker in August of 1987, raised rates in September in an effort to bolster the flailing U.S. dollar, and the markets crashed in October. The crash was due to an extraordinary confluence of factors, some of which were of Mr. Greenspan's making, some of which were of Treasury Secretary James Baker's making, and some of which came to a head after festering for decades. Whatever one may think of the former Fed chairman, his actions following the panic did help to contain it and likely side-stepped a total financial-market meltdown, at that time. As will be discussed in greater detail in the upcoming October SGS, those same actions, however, also underlie and ultimately set-up the even greater crisis faced by current Fed Chairman Ben Bernanke. The roiling of the U.S. dollar market following the Fed's recent easing is why the Fed now likely will try to avoid further interest rate cuts. At risk is the financial-market meltdown that Alan Greenspan carried for so long in his nightmares. The liquidity crisis still is unfolding, the economy remains in a deteriorating inflationary recession, and the Fed has few if any viable options open to it. One tool remaining in the Fed's and Administration's arsenal of financial market manipulating gadgets, however, is the rigging of key economic reporting. It was used back in 1987; it appears to be in play, today.

• Market Mania Fueled by Data Touts
• M3 Annual Growth Highest Since November 1971

• September Jobs Data Cannot Be Believed
• September M3 Annual Growth Likely to Top 14.5%

• Inflationary Recession Deepens
• System is as Vulnerable as at Any Time Since 1929 to 1933

• Consistently-Adjusted August Payrolls Plunged 82,000
• Annual M3 Growth Hit 14% in August
• Inflationary Recession Still Befuddles a Fed Set to Ease
• Recession Recognition Gains Political Correctness
• When the popular media and consensus economists start talking recession, usually an economic downturn already has been underway for a year or so. The 2000 recession gained rapid recognition following 9-11, but the terrorist attacks did not trigger the downturn. The recession had been in place for over a year; the attacks only deepened an ongoing contraction. In like manner, the current recession has been underway for well over a year, but it was not triggered by the liquidity crisis that erupted in August, only intensified by it. The impact of the liquidity problems still will not show up in most economic data until next month. The exceedingly weak August payroll survey was conducted before the crisis had much impact. What appears to have happened was that someone in the Administration decided to recognize the recession and released weak numbers either to force or to help accommodate the Fed in justifying an imminent easing. Yet, there also is a worsening inflation problem, with high oil and food prices, a weakening U.S. dollar and exploding money supply growth. And, then, there also is the threat of U.S. dollar dumping with the U.S. financial markets dependent on foreign capital for liquidity.

• Money Supply Growth Explodes

• Systemic Liquefaction Boosts M3 Growth to 34-Year High
• Ongoing Extreme Income Variance Reported for 2006
• Financial System Remains Highly Unstable
• Chairman Bernanke Keeps Tap Dancing on That (Dollar) Landmine
• The liquidity crisis continues, and the financial system is groaning under the strain. In the weeks ended August 15th, 22nd and 29th, respectively, seasonally-adjusted (unadjusted is little different) commercial paper outstanding plunged by $91 billion, $90 billion and $63 billion. As other Federal Reserve reporting starts covering the crisis period, key data are showing some impact of Fed actions. For example, seasonally-unadjusted discount window borrowings by banks, following the Fed's heavily touted discount window actions, jumped from a daily average of $6 million in the two weeks ended August 15th, to $1.301 billion in the two weeks ended August 29th. M2 jumped a seasonally-adjusted $43.6 billion in first reporting of the week ended August 20th, up at an annualized growth rate of 36.4%. That, combined with sharp increases in non-M2 components of M3, indicates a spike in annual growth for the SGS-Ongoing M3 August measure, discussed below. Also, the Fed still seems to be enforcing an informal 25-basis-point cut in the fed funds rate, per the accompanying graph. On the recession front, the phony 4.0% GDP growth was reported as expected. At the same time, help-wanted advertising — a much more reliable economic indicator — plunged to a 49-year low. Through all this, the U.S. dollar remained relatively stable last week. Such tranquility should prove short-lived.

• Effective Fed Funds Target is 4.75%
•5.00%
• Bernanke's Tactics Not Working Well
• Financial Tempest's Eye Wall Stalls Temporarily Shy of Landfall
• Rigged Data Provide Inexpensive Market Intervention
• Fed Chairman Bernanke's efforts to stabilize the U.S. financial system have met with minimal success that should prove short-lived. On the plus side has been temporary relative stability in the equity market, aided by extraordinary jawboning and data manipulation, along with market manipulations of the Working Group on Financial Markets (a.k.a. the Plunge Protection Team) as indicated by Treasury Secretary Paulson. On the downside, the liquidity crisis appears not to be contained. Obviously planted stories in the
financial media have touted the Fed's "clever" new approach to liquidity
crisis management and how it addresses "moral hazard." Having the Fed
address moral hazard in the financial markets is like having a whorehouse
madam lecture her girls on the virtues of virginity. Moral hazard is not a
primary concern to the Fed when the system is at risk. The planted stories
also explain how there is no need to cut the targeted Fed Funds rate. While
there are good reasons not to cut the Fed Funds rate, suggesting it will not
happen is ludicrous when the Fed already has done it, as shown below. The
Fed Funds shell game is aimed at balancing the needs of short-term Wall
Street hype, deemed necessary to goose the stock market, against an
extremely serious need to prevent a massive U.S. dollar sell-off. With the
economy in an inflationary recession, with the greenback showing new cracks
in the last several days, and with the stock market just a month away from
squirrelly season, the negative turmoil in the financial markets hardly has
begun.

• Systemic Liquidity Problems Turn Ugly
• Communist China Fires First Dollar Salvo
• Given Deepening Recession, Financial Market Woes Are Just Beginning
• July M3 Growth Holds at 13%
• Last week saw extraordinary developments, with a widening systemic liquidity crisis forcing central banks to reaffirm their statuses as lenders of last resort. At the same time, Communist China fired its first serious salvo against U.S. financial market dependence on foreign capital, and Washington appears to have capitulated to early demands. With the U.S. economy in a deteriorating, inflationary recession, and with Mr. Bernanke possibly facing his two other worst nightmares at the same time, one can make the case that the negative turmoil in the U.S. financial markets and for the U.S. dollar are just beginning.

• July Jobs Report Shows Managed Numbers
• July Annual M3 Growth Notches Lower to 12.8%
• July Financial-Weighted Dollar at All-Time Low
• Systemic Problems Begin to Surface
• Last week saw mounting financial-market stress as an increasing number of firms indicated losses from or difficulties with mortgage- and asset-backed securities and collateralized-debt obligations. Circumstances are exacerbated by an intensifying inflationary recession, and market disorders should get much worse. It would not be surprising if the Fed found itself being called upon, or felt the need, to provide some systemic liquefaction. Still missing from the unfolding crisis, however, remains heavy flight from the U.S. dollar, which will come sooner rather than later. So far, flight to safety and quality has been into the dollar and into Treasury securities, but that will become a flight out of the greenback, particularly if the Fed moves to liquefy the system. Then, pressures on the U.S. central bank will shift heavily in favor of raising interest rates to defend the dollar. On the economic front, last week's data showed not only weakening business conditions, but also indications of data manipulation in the payroll survey.

• Reported GDP Rebound was Politically Convenient
• 2nd-Quarter GDP Contracted 0.9% Net of Revisions
• Signs of Imploding Economy Mount
• Oil Price a Penny Shy of Record
• Stock Market Swoon Foreshadows Much Worse
• The U.S. financial markets will face massive and possibly panicked sell-offs in stocks, bonds and the U.S dollar, along with an explosive rally in the price of gold. Timing remains the issue, but this week's break in stock-market psychology has moved the odds strongly and solidly in favor of looming market meltdowns within a six-to-nine month horizon. Circumstances remain fluid enough, though, that given the right confluence of negative factors — as discussed below — the markets could spiral into the abyss at anytime, including within the next week or so. Faced with short-term financial-market and political pummeling, President George Bush sought a breather with the second-quarter GDP numbers. He and his spinmeisters boasted of U.S. economic growth rebounding to 3.4%, from the first quarter's 0.6%, but the improved numbers were just figments of the imaginations of officials at the Bureau of Economic Analysis. Other reporting showed rapidly deteriorating business activity, while inflation prospects took a new blow.

• Revision and Seasonal-Adjustment Games Help Obfuscate Employment Reality
• Consistent Seasonals Suggest 107,000 June Jobs Gain (Not 132,000)
• To maintain the reported 2,000,000 (exact) annual jobs growth in place for revised seasonally-adjusted May 2007 payrolls, monthly jobs gain reporting needs to be targeted by the Bush Administration at 167,000 per month. In contrast, the Clinton Administration targeted 250,000 per month (3,000,000 per year) for an extended period of time. Perhaps for fear of rattling the credit markets, however, initial monthly reporting typically has been
"understated" over the last year or so, followed in subsequent months by major upward revisions to prior reporting. If this pattern is not a machination of the Bureau of Labor Statistics (BLS), and if the later numbers are accurate, not fabrications, the BLS would do well to suspend its initial reporting of these numbers, rather than to continue misleading the public and the markets with such poor quality reporting.

• Recession Signals Deepen as Inflation Pressures Mount
• Help-Wanted Advertising Falls to New Cycle and 50-Year Lows
• May's help-wanted advertising index plummeted to 27, from 29 in April, hitting new cycle and 50-year lows. After allowing for the Internet's siphoning meaningful volume away from the print media, the renewed plunge in the current data still signals a sharp weakening in current economic activity and could be a
harbinger of weaker-than-expected June employment data due for release on July 6th. There were no happy surprises in other economic releases last week. On the price front, ongoing M3 annual growth for June looks like it was close to matching May's pace, while oil prices moved higher, again, and the Fed fretted a little more openly about its inflation worries.

• Last Month's Unusual Housing "Surge" Evaporates
• Fed Remains Hamstrung Despite Mounting Dollar and Systemic Liquidity Risks
• Sporadic and irregular "positive" economic reports of the last month are proving fleeting, as I suggested, with some numbers revising sharply to the weak side. The housing numbers, for example, look again like they are in the middle of deepening recession.

• Alternate CPI Notches up to 10.3% Annual Inflation
• May M3 Annual Growth at 13.3%
• Industrial Production Falters, Retail Sales Get Seasonal-Factor Boost
• Inflationary Recession Deteriorates Anew
• With May CPI and PPI topping expectations, and with industrial production faltering, the combination of inflation and recession — a disquieting concept for the financial markets — is not about to disappear. Inflation factors appear to have been rattling the credit markets recently, but the rise in long-term U.S. rates likely reflects more of a waning foreign enthusiasm for buying U.S. Treasuries, than it does expectations of a pending U.S. economic boom. Any such expectations should disappear with economic reporting in the month
or two ahead.

• Housing and Durable Goods Consistent with Faltering Economy
• Downside Data Likely in Week Ahead
• Wall Street Hypesters Fan False Hopes of Economic Turn
• On Thursday, regularly-volatile new home sales were reported up 16.2% for the month of April, and Wall Street’s spinmeisters went to town. The hypesters who tried to weave that isolated and volatile number into a housing recovery story would be comfortable working for the propaganda ministry of the average totalitarian state.

• Alternate CPI Holds at 10.2% Annual Inflation
• Industrial Production and Housing Data Show Faltering Economy
• Annualized Year-to-Date CPI Shows Serious Inflation
• There was little startling in last week's economic reporting, net of some major revisions and usual seasonal-factor distortions. The inflationary recession continues, and data in the weeks ahead should confirm ongoing deterioration.

• Annual M3 Growth Accelerates to 12.8%
• Retail Sales and Trade Deficit Take Hits, as PPI Booms
• Fed Hints at Inflationary Recession
• Comments from the U.S. central bank usually are couched in such cautious and careful language
as to make a Wall Street attorney blush. Removing the regular platitudes as to likely economic expansion and inflation moderation in the coming quarters, the crux of the May 9th FOMC statement went: "Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. … the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected." That is as close as the Fed will get to acknowledging a recessionary inflation, until well
after the fact of broad market recognition. Last week's economic reporting further moved market expectations towards the unthinkable combination of a contracting economy beset by high inflation.

• Key Dollar Measure Hits All-Time Low
• First-Quarter GDP Growth of 1.26%, GDP Deflator at 3.97%
• Business Activity Tumbles as M3 Growth and Inflation Fears Soar
• Inflationary Recession Can Trigger Massive Dollar Selling
• The trade-weighted U.S. dollar hit a record low last week, as the markets increasingly recognized the downturn in economic activity, in conjunction with rising inflation that the Fed seems to be "fighting" with accelerating broad money growth. The faltering fundamentals for the greenback included the ongoing bottom-bouncing of the President's approval rating. The U.S. currency is at the precipice and shortly could come under massive selling pressure. Dollar dumping would create turmoil in the domestic U.S. markets, pressuring long-term interest rates to the upside and equity prices to the downside. Never before have the U.S. markets faced an economic crisis while being so heavily dependent on foreign capital for liquidity.

• Annual Inflation Soars as Economic Indicators Continue to Tank
• With Deepening Inflationary Recession, Weakening Dollar and Strengthening Gold, Equities Boom?
• Leave it to Wall Street's perverted spinmeistering to hype a 0.4% surge in annual CPI inflation as good news. The hype, of course, surrounded a reported 0.2% decline in so-called "core" inflation, which is relevant only to those poor souls living in the gray twilight of existence, where they consume neither food nor energy. Nonetheless, combined with ongoing weak economic data, general selling pressure against the U.S. dollar and upside movement in the price of gold, the happy inflation hype has been enough to push the Dow Jones Industrial Average to new highs. While the trends in weakening data and U.S. dollar and strengthening gold will tend to intensify, mounting irrationality in equities trading has set up stocks to be turned on their heads.

• Inflationary Recession Continues to Deepen
• Retail Sales Running About 0.8% Lower in Revision
• Negligible "Final" GDP Revision Indicates Pending Major Downside Annual Revision
• March Jobs Data Should be Soft
• The inflationary
recession continues to deepen, with economic reporting generally surprising markets on the downside of expectations and inflation surprising markets on the upside. Last week, Fed Chairman Bernanke felt it necessary to clarify that the Fed still has a problem with inflation, despite slowing business
activity. Inflation concerns have not been helped by mounting tensions in
the Middle East or by rising oil and gasoline prices.

• Major Revisions to Housing, Retail Sales and Production Promise Lower GDP Growth
• Where the annualized quarterly fourth-quarter GDP inflation-adjusted growth rate revised from 3.5% in its "advance" reporting, to 2.2% in its
"preliminary" reporting, further downward revision is likely in Thursday's "final" reporting, due to significant revisions in underlying economic series.

• Resurging Inflation Again Sinks Real Retail Sales
• Inflationary Recession Intensifies
• Last week's CPI, PPI, retail sales and industrial production releases added some new detail to the continuing deterioration in current economic and inflation conditions. Indeed, as the markets may be beginning to understand, a weak economy and rising inflation can happen together.

• Likely Reality in Troubled Economic Data: February Payrolls Contracted; January Trade Deficit Did Not Shrink
• February M3 Annual Growth at 10.9%
• Data-Quality Deterioration Deepens
• With financial-market speculation moving back to a "recession or growth" focus, poor-quality reporting of
heavily followed economic data does a disservice to the investing public. This is particularly true when Wall Street hypesters weave related stories that have little relationship to reality, but that happen to help sell
certain financial products. The government would do well to delay its publication schedule by a full month for key economic data that usually suffer heavy revision. In the trade-off between quality and timeliness of reporting, little would be lost, since first estimates of the payroll and GDP data, for example, usually are worthless.

• Recession Continues to Barrel Along
• Market Disquiet Mounts As "Nesting Season" Nears
• Deepening Recession Helps Trigger Greenspan Waffle and Market Wobble
• When consensus economic forecasters start to talk of recession, usually a downturn has become a certainty, with economic activity already having contracted for at least six-months to a year. Wall Street economists, and Administration and Federal Reserve officials, typically are the last to talk of the politically unthinkable, for fear of negative reactions they might trigger in the financial markets. The game is afoot.

• Retail Sales Annual Growth Nears Zero
• Newsletter Update

• M3 Growth Hits 11%, December Jobs Revised Upward by 933,000
• The SGS Alternate Data pages have been updated for M3, GDP and the U.S. Dollar. Based on three weeks of reporting through January 22nd, annual M3 growth hit 11.0% in January, helped by rising M2 growth.

• GDP overstated by bogus trade reporting
• Upside risk to Janurary jobs report
• Details on upcoming Newsletter.

• Weather Distorts Data
• 4th-Quarter Production Contracts
• Annual Alternate Inflation at 25-Year High
• M3 Growth Continues to Accelerate
• December’s unusual weather patterns appear to have distorted monthly growth to the upside not only for payrolls — touched upon in the prior Flash Update — but also for retail sales, industrial production and housing starts. Actual economic activity does not turn quickly or sharply without advance
indications. Continued distortions are likely, with the data swinging back the other way in the next couple of months. That said, the inflationary
recession has continued to deteriorate.

• December Payroll Growth Understated But Not Credible
• Unusual Weather Patterns Promise Major Data Distortions
• Is Bureau of Labor Statistics Playing Games with the Credit Market?
• Highly unusual reporting and revision patterns for the jobs data were seen again, for December. Employment conditions are close to showing a recession, but each month the Bureau of Labor Statistics keeps filling in prior periods with levels of upside revisions that are unprecedented outside of the annual benchmark revisions. The revisions are unusual enough for the BLS to have published a statement last month proclaiming that the changes were not unprecedented. Something very strange is going on in the reporting.

• New Year Faces Financial Peril
•Year-End Newsletter by January 2nd
•Accelerating growth in the formerly broadest of U.S. monetary aggregates (M3) offers a hint of what will be one of the major, ongoing market concerns in 2007: inflation. The other key economic features of the year ahead will be a deepening, structural recession, and a U.S. government fiscal disaster careening out of control. Where 2006 closed out the year with higher equity prices and somewhat higher interest rates, it also saw a significant surge in the price of gold and the early stages of a major weakening of U.S. dollar. The U.S. equity and credit face bleak prospects in 2007, with strong upside potential for gold and a massive downside potential for the U.S. dollar.

• 2006 GAAP-Based Federal Deficit Jumps to $4.6 Trillion
• Total Federal Obligations at $54.6 Trillion
• Energy Pricing Gimmicks Distort CPI and Trade Deficit
• Last week’s U.S. Treasury’s 2006 GAAP-based federal deficit deteriorated sharply, well beyond any possible chance of containment. Other government reports showed curious understatements of both the CPI and trade deficit, as the ongoing inflationary recession continued to unfold.

• M3 Growth Tops 10%
• Inflation Signals Turn Higher Again
• First Post-Election Jobs Data Show Slowing Economy
• Economic releases of the last week or so continued showing a rapidly deepening recession, along with early confirmation of inflation resuming its upward trend. Beyond ongoing softness in the dollar and some upside movement in oil prices threatening inflation, broad money supply growth is accelerating to the upside.

• Exaggerated Gas Price Drop Pushes Inflation Reporting to Nadir
• M3 Growth Hits Four-Year High
• Economic Activity Continues to Crumble
• Post-Election Environment Set for Rebounding Inflation and Deepening Recession
• The inflationary recession is picking up momentum. The various special factors that have depressed near-term inflation reporting have run their course, while economic data ranging from retail sales to housing continue to signal plummeting economic activity. Such is not a happy environment for the traditional financial markets.

• October Jobs Data Appear Rigged
• Unemployment Drop Statistically Indistinguishable from Increase
• Jobs Gain Statistically Indistinguishable from Decline
• With continued Republican control of both the House and the Senate at risk, the Bush Administration had both the motive and the opportunity to manipulate the October labor report in its favor. Beyond the reported gain in jobs and drop in unemployment being statistically indistinguishable from a drop in jobs and a gain in unemployment, were the data rigged? While there is no smoking gun, a strong odor of cordite permeates the air. The level of pre-orchestrated hype and a wide variety of unusual reporting characteristics in the October labor data argue strongly in favor of manipulation.

• Observations on Trade, Budget and Retail Sales Data — Un-hyped
• Give Wall Street a bad number, and a positive spin will be generated. Contrary to the popular financial-media hype last week, the news on the trade deficit, the budget deficit and retail sales could not have been much worse. If you like the "core inflation concept," you will love the "core trade deficit" and "core retail sales."

• Political Manipulation of Labor Data Kicks into High Gear
•September Payrolls Fell 40,000 Using Consistent Seasonal Adjustments
• The broad outlook for a deepening inflationary recession remains in place. The September employment report showed severe deterioration, despite a number of reporting gimmicks. Faced with an electorate that is in economic pain, the Bush Administration has tried to make the bad numbers disappear for a while, but results have been mixed. This is despite the comparative annual boosts starting to show up in data from the effects of last year’s terrible hurricane season. The heavily touted annual gain in September retail stores sales is a prime example of such an effect.

• Recession Surfaces Despite Manipulation of GDP Data
• Help-Wanted Advertising and Consumer Confidence Plunge Anew
• Poverty Survey Suggests the 2001 Recession Never Ended
• While Wall Street tries to spin a soft-landing tale for the economy — thanking Mr. Bernanke’s genius — a number of reports already are showing scattered wreckage from the crash landing.

• The employment data arebeginning to act recession-like, and that normally would put the Fed into aneasing mode. Yet, as evidence grows of slowing
•falling economic activity,evidence of accelerating inflation is mounting, too. There is little thecentral bank can do to contain inflation or to stimulate the economy.Accordingly, Fed considerations and activity will be dominated by efforts tomaintain stability in the financial markets and the U.S. dollar.

• GDP Manipulation Uncovered — Instead of the 2.5% growth reported for second-quarter 2006 GDP, the economy contracted. Growth fell by more than 0.5% when corrected for unusual inflation gimmicks used to understate GDP deflation. Previously reported GDP growth underwent meaningful downward revisions.

• Housing, Retail and CPI Data Confirm Recession Signals.Two key series — Retail Sales and Housing Starts — have generated solid recession warning signals, based on reports published last week. This is as anticipated in the July 17th newsletter. Once generated, such signals always have been followed by the signaled contracting or booming economy.

• The reporting of March’s sharp trade improvement appears to have been a deliberate fabrication, aimed at salving the troubled financial markets of the time! Benchmark revisions released along with the monthly April trade data show that the sharp "improvement" in the March trade deficit — reported at a time of high U.S. dollar and political stress — was rigged. While it is standard practice by the statistical agencies to adjust pre-benchmark revision reporting to coincide with the benchmarks, such adjustments are made to month-to-month or quarter-to-quarter changes, not to the absolute level. To my knowledge, pre-adjusting the level of a series such as the trade deficit is unprecedented. The Bureau of Economic Analysis (BEA) is more politicized than the Census Bureau. The BEA now "participates" in the trade release with Census, which once handled the monthly number exclusively. Violating common reporting principles with the trade data, the BEA likely repeated the process in the GDP reporting.

• Yesterday morning’s report of 0.0% consumer price inflation (both seasonally adjusted and unadjusted) during June appears to have been a political fabrication. It was accomplished through the manipulation of reported energy prices. As a result of no reported inflation for the month, "official" annual CPI inflation dipped from 2.8% in May, to 2.5% in June.

• From time to time, the U.S. financial markets manifest some concern about the nation’s twin deficits — the federal budget and the current account shortfalls. These episodes have been short-lived, however. Generally, the markets have been very sanguine about these problems — much too sanguine, in our view! We believe there is a great deal about which to be concerned in both areas, and that longer run, the U.S. markets will indeed reflect it — negatively, of course. This article updates our thoughts, etc. on the federal budget deficit.

• Treasury reports $11.1 trillion 2004 GAAP-basis deficit, which was equal to 96% of GDP; inflation pressures will intensify.