Alert
ALERT - September 26, 2008
JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS
A L E R T
September 26, 2008
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Money Supply Begins to Reflect Intensifying Solvency Crisis
Recession Deepens Despite Still-Bogus GDP Reporting
Financial Storm Likely to Worsen, Risks Mount of Systemic Instability
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PLEASE NOTE: As of this Alert, posted Friday morning (September 26th), legislation on a financial-system rescue package has not been agreed upon. The financial system remains in a state of flux and Treasury and Federal Reserve reactions remains fluid, already responding overnight to counter increased selling pressure on the U.S. dollar. Almost anything can happen here, including extreme instability in the financial markets and extreme reactions from the government to maintain systemic stability.
The full SGS newsletter follows this weekend. Given likely continued rapid evolution of the systemic solvency crisis and government response to same, any issues that need to be addressed in update generally will be covered in subsequent Alerts. My general outlook is unchanged.
– Best wishes to all, John Williams
Banks Reserves Surge 132%,
Monetary Base Jumps 8% in Latest Two Weeks
Based on the Federal Reserve’s releases (H.6, H.3 and H.4.1) of last night (September 25th) the public resurfacing of the solvency crisis has started to surface in the monetary releases. All the numbers that follow are seasonally adjusted unless otherwise noted (the unadjusted data tend to show similar same patterns). The reporting period in latest weekly money supply report lagged the latest bi-weekly reserves and monetary base reporting by roughly one week.
For the week ended September 15th, reported M2 rose by $20.6 billion to $7,734.4 billion. In terms of the broader M3 measure, however, the non-M2 component of institutional money funds declined by $30.4 billion to $2,254.6. Tonight’s report on bank assets and liabilities (H.8) will give an indication as to what happened in the week to the non-M2 component of large-time deposits. What appears to have been possibly a flat-to-down week in broad money growth, however, likely will change sharply in the reporting of subsequent weekly data.
The extraordinary actions of the Fed and Treasury in the last week or so are reflected in the data for the two week period end September 24th (Wednesday). The daily average of total reserves of depository institutions surged to $109.516 billion in the two weeks ended September 24th, up from $47.112 billion in the two weeks ended September 10th. In like manner, the monetary base, which basically includes currency and bank reserves, jumped to $911.350 billion from $843.825 billion. These data reflect a significant pick-up in the formal creation of money and are without recent precedent as to the magnitude of the short-term increase. Total borrowings from the Fed (unadjusted) also showed an extreme surge, rising from a daily average in the two weeks ended September 10th of $169.481 billion to $267.861 billion in the latest period.
Impact from the recent Fed and Treasury activity should begin to surface in the next several weeks of broad money reporting, which will be advised when the data become available.
New Orders for Durable Goods Keep Sinking Quarter-to-Quarter, Year-to-Year. Seasonally-adjusted new orders for consumer goods contracted by 4.5% (4.9% net of revisions) for the month of August, following a revised 0.8% (previously 1.3%) monthly gain in July for this regularly volatile series. Annual change continued in contraction, with August orders down 8.1% year-to-year, following a 2.2% annual contraction in August. This protracted pattern of quarterly and annual contractions (before inflation adjustment) is common to reporting during formal recessions and suggests that the current economic downturn is intensifying.
New orders for nondefense capital goods fell by 7.5% for the month, and slumped by 35.5% year-to year, following a monthly gain of 3.5% and annual decline of 6.6% in July.
GDP Revises Downward Despite "Weaker" Inflation. As suggested in the September 12th Flash Update, recent data, which showed the "improving" trade deficit was not quite as positive as previously indicated, helped to trigger some downward revision in today’s "final" estimate of second-quarter GDP growth. Also contributing to the weaker report were downward revisions to the largely guesstimated services-sector component of personal consumption expenditure.
Though revised in an appropriate direction, the nonsense continued with GDP reporting, with the "final" estimate revision for the second quarter showing annualized real (inflation-adjusted) growth of 2.83% +/- 3%, down from the "preliminary" estimate of 3.28%, but still up from the "advance" estimate of 1.89%, and up from the first quarter’s 0.87%. Year-to-year growth revised to 2.05%, from the "preliminary" 2.17% and "advance" 1.82%, and still was down from the first quarter’s 2.54%. The SGS-Alternate GDP estimate of annual change remains a contraction of roughly 2.9%.
The numbers also reflected a downward revision in the second-quarter inflation rate for the GDP deflator to 1.26%, versus the "preliminary" 1.33% and "advance" 1.11%, and against 2.56% in the first quarter. The lower the inflation rate used in the GDP deflator, the stronger will be the reported, inflation-adjusted growth.
The latest economic data will be covered more fully in the pending newsletter.
General Outlook Is Unchanged. [The following is repeated from the April 22nd Alert.] It is not likely that the systemic solvency crisis is behind us, and it is too late to prevent a recession. The inflationary recession was well underway before the housing/ mortgage crisis, and little can be done to stimulate economic activity, to contain inflation or to provide a long-term prop to equity values. The government, however, does have the ability to support depositor safety, to prevent a collapse of the related financial services industry and to prevent a deflation in the prices of goods and services. Indeed, the cost of systemic salvation is price inflation.
The various markets are about as volatile and dangerous as they can get. With extraordinary crosscurrents from the solvency crisis and various governmental and global central bank interventions in the markets and marketplace, volatility likely will continue, sometimes in directions that may seem irrational. The gold and currency markets, in particular, remain subject to jawboning and both covert and overt central bank intervention, aimed at discouraging investors from seeking safety in gold our outside the greenback.
All factors considered, the broad outlook remains the same: further intensification of the inflationary recession and a continued deepening systemic and banking solvency crisis. Growing market recognition of these issues and mounting global political tensions have intensified the risks for continued unstable market conditions, markedly.
Over the near-term, negative major market displacements should follow or be accompanied by intense, broad selling of the U.S. dollar, which may be beginning anew. An eventual, increasing flight-to-safety outside of the U.S. dollar also should include flight-to-safety into gold. Despite continuing softness in oil prices, current levels (anything above $90 per barrel) remain highly inflationary. Over the longer term, U.S. equities, bonds and the greenback should suffer terribly, while gold and silver prices should boom.
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