Friday, August 23, 2013

(Related Update): Peter Schiff on why you shouldn't trust government-generated economic numbers

Related update:  Well, seems I'm on an anti-government economic data jag at the moment...anyway, I want to share this post from yesterday at Zero Hedge.  It's in response to the news about China's surprisingly positive economic data released yesterday that was, in part, responsible for the US market posting positive gains.  But as Zero Hedge states,
The latest policy being implemented by Governments around the world consists of simply making data points up when reality doesn’t conform to their wishes.
 And as it relates to the Chinese report:
The best example of this is China where the PMI measure erupted from the lowest level in 12 months (47.7) to 50.1. This represents the single largest month over month change for the data point in three years. This means China’s economy is now expanding rapidly after facing a liquidity crisis, systemic unrest, and economic contraction over the last six months.

The only problem is that this data point is totally bogus.
Lots more interesting, thought-provoking stuff at the link.  I'll say one thing -- they sure are confident of their viewpoint!

Original post: In my previous post, I updated on the original topic of government generated economic numbers.  Here, I want to highlight one of the most respected free-market economists and investment advisers in the country, Peter Schiff, and present you with an excellent article of his addressing this very topic.  Aside from his ubiquitous presence on the major business TV shows, Schiff is an Austrian-trained economist who was Ron Paul's economic adviser during his presidential campaign.  He also ran an unsuccessful campaign for the US Senate in 2010.  But what he's most famous for is, by virtue of applying his knowledge of Austrian economics, predicting the financial meltdown a year in advance, and indicating the mechanisms involved in the collapse.

So, with that background, here's a recent article by Schiff in which he cautions pro-Obama folk not to get excited about the supposed economic "recovery" underway.  According to Schiff, an important reason to remain skeptical is that we can't trust the government's economic data: observers should have learned long ago that the Bureau of Economic Analysis (BEA) initial GDP estimates can’t be trusted. A perusal of their subsequent GDP revisions in the last five years reveals a clear trend: They are almost twice as likely to revise initial estimates down rather than up, and the downward adjustments have been much larger on average.

As a result of this phenomenon, an overall optimism has pervaded the economic discussion that has consistently been unfulfilled by actual performance. The government is continuously over promising and under delivering. Unfortunately, no one seems to care.
 The first estimates come out about a month after the conclusion of a particular quarter. The second and third revisions then come in monthly intervals thereafter. But in the minds of the media, the public and the politicians, the initial report carries much more weight than the revisions. It is the initial report that attracts the screaming headlines and sets the tone. The revisions are typically buried and ignored. This creates an unfortunate situation where the initial estimates are both the most important and the least reliable.
There's a lot more to learn in Schiff's article.  I definitely recommend you read it.