FLASH UPDATE - March 26, 2009

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

March 26, 2009

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U.S. Dollar Moving Towards the Brink, Again

4th-Qtr Gross Domestic Income Down 7.5%

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PLEASE NOTE: Today’s brief Flash Update addresses the "final" GDP estimate revision for fourth-quarter 2008 and touches upon the shifting environment for the U.S. dollar. Greater detail will follow in the next newsletter, which remains on track for publication over the coming weekend.

 – Best wishes to all, John Williams

Dollar Issues Surface as Economy Sinks. The last couple of days have seen renewed Fed monetization of longer-term Treasury debt, a Treasury auction that did not go well, the U.S. Secretary of the Treasury stumbling in defense of U.S. dollar’s reserve-currency status, and mounting global criticism of U.S. fiscal and monetary excesses.   Add to this background deepening systemic-solvency and economic crises, a new U.S. administration that rapidly is losing credibility, ongoing massive trade deficits and interest rates about as low as they can go, and circumstances are in place for renewed heavy selling of the U.S. dollar. At such time as heavy dumping of the U.S. dollar and dollar-denominated assets begins, the flight from the dollar quickly should turn to flight-to-safety outside the dollar, and the Fed will find itself having to monetize a great deal more U.S. Treasury debt than currently promised. As will be discussed in the newsletter due for publication over this weekend, these developments could set the trigger for the ultimate hyperinflation that will consume the U.S. currency. The U.S. dollar remains burdened by $65 trillion in federal debt and in the net present value of unfunded federal liabilities. That total is growing rapidly.

Major GDP Benchmark Revision Scheduled. The Bureau of Economic Analysis (BEA) plans a grand benchmark revision in late-July, including the introduction of new methodologies. The pending changes will be assessed as details become available.  What remains likely is that recent economic history — as reflected in the GDP — should appear to have been relatively weaker than initially published. Minimally, the new data should reflect quarterly GDP contractions that go back to at least first-quarter 2008, consistent with the National Bureau of Economic Research’s timing of the current recession.  

GDP Revisions No More Than Statistical Noise. The BEA’s "final" estimate revision of real (inflation-adjusted) annualized growth in the fourth-quarter 2008 GDP was a statistically-significant decline of 6.34% +/- 3% (95% confidence interval), little changed from the "preliminary" estimate of 6.25% and deeper than the initial "advance" estimate of a 3.80% contraction. Such was against a 0.51% downturn reported in the third quarter. In terms of year-to-year change, the fourth quarter contraction now stands at 0.84%, versus the "preliminary" 0.82% and "advance" 0.18% contractions, and versus the third quarter’s annual gain of 0.75%. The latest revisions were no more than statistical noise.

The fourth-quarter GDP inflation rate (GDP deflator) revised minimally to 0.61% from 0.51%, accounting for the minor downward revision to the real GDP change. The nominal (not-adjusted-for-inflation) GDP, was unrevised in aggregate. The "advance" fourth-quarter deflator estimate was a 0.26% contraction, versus an indicated annualized third-quarter inflation rate of 3.88%.

Based on earlier reporting methodologies and removal of some reporting gimmicks, the SGS-Alternate GDP estimate for the fourth quarter remains an annual (not annualized) contraction of roughly 4.1% versus a 3.3% contraction in the third quarter, against official respective estimates of a 0.8% decline and 0.7% gain. Against reporting of underlying economic series, the annualized quarterly contraction likely was in excess of 7% for the fourth quarter, but the latest revised 6.3% estimate remains the closest to reality reported by the BEA in a long time. Nonetheless, GDP reporting remains virtually worthless and is little more than political propaganda.

GDI Shows Greater Economic Weakness Than GDP: The BEA’s GDP-like measures for fourth-quarter 2008; Gross National Product (GNP), where GDP is GNP net of trade in factor income (interest and dividend payments); and Gross Domestic Income (GDI), which is the income-side equivalent of the GDP’s consumption estimate; were estimated for the first time in the "final" fourth-quarter report.

Annualized real GNP growth for fourth-quarter 2008 was reported as a 5.49% contraction, down from a 0.17% contraction in the third quarter. Year-to-change also contracted, down 0.93%, following a 0.83% gain in the third-quarter.

With a widening discrepancy versus GDP, the theoretically-equivalent GDI showed a real fourth-quarter annualized contraction of 7.54%, following a 0.86% contraction in the third quarter. Such was the fifth quarter-to-quarter contraction in real GDI in the last eight quarters of reporting. Year-to-change was a contraction of 2.10%, following a 0.36% contraction in the third-quarter. The latest GDI data reflect several quarters of revisions.

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