Fed’s “Recession Index” Trumps Sequester

by Michael McCune —

 

Attention, class: The word of the day is “Sequester.”

 

Isn’t it funny how a word you really never heard before 2013 is now threatening to topple our economy? At least it is if you listen to the major media outlets you’d get that impression.

 

But they are wrong, Wrong, WRONG!!! The sequester does nothing of consequence. All the rampant speculation, all public hand-wringing, all public finger-pointing and teeth-gnashing aside, understand sequester does nothing of consequence. That is because all the consequences have already been etched into stone long before this sequester was reached.

 

The Federal Reserve insiders knew this fact last fall but said nothing as they are in lock-step with the Administration. The White House Office of Management and Budget knew this fact last fall but said nothing because they are officially in the Administration’s back pocket.

 

Ben (BS) Bernanke has been suspiciously non-committal about everything of importance. He warbles on and on about what might happen but essentially gives no new particulars about anything. The market applauds and the Administration points to the rising index levels as “proof its policies are turning the economy around.”

 

Yet inside the Fed, the certain knowledge another recession is looming has been in its hands since mid-November.

 

The certainty lies in the Fed’s “U.S. Recession Probabilities Index.” Since 1967 the Index has hit 20% six times. Every time, EVERY TIME, a recession struck soon after. The Index hit that magical 20% mark late last year.

 

Trying to find out exactly what is in the  Index components was a breeze, figuring out how the Fed manages the data is not. The unspoken understanding is the Fed is using real economic data, not the government-generated data that still shows unemployment below 8% or an economic “recovery”.

 

In determining the Index. the Fed tosses in things like personal income numbers, manufacturing and trade data, non-farm payroll figures and industrial production numbers. Then it grinds them up and produces the Index.

 

Analyzing the data used was accessible; the Rant reported that the economy was weakening in the fourth quarter of 2012 despite official pronouncements to the contrary. Then the numbers came in confirming the Rant’s position and immediately Washington blamed the slowdown on a reduction of government spending.

 

But the Index says otherwise. The 251-page OMB report also belies the official reason. I tend to believe the two analytical versions rather than official Washington blather.

 

Now, with the elimination of the ‘Bush-era Tax Cuts’, Americans are finding smaller paychecks are not only stretching less than anticipated but inflation is putting even more of a strain on economic activity necessary to reach a household-felt recovery.

 

In short, the Fed’s prize Index has not only shown a recession in the near future it is showing a massive reduction in living standards because of the incomprehensible size of the outstanding debt America has across the landscape.

 

The final nail in the American economic recovery coffin might be found on page 210 of the OMB report. Two numbers under the FY2012 category leap off the page. Mandatory spending–Social Security, Medicare, Medicaid and “Others” plus interest on the debt the Fed has already manipulated as low as it can–totaled $2.477 trillion. Total government receipts for FY2012 came in at $2.469 trillion meaning we are already spending more than we receive on mandated items. That leaves another 40% of expenditures in discretionary spending unaccounted for at all by receipts.

 

So the brouhaha over the sequester is only affecting discretionary spending  which is a moot subject as far as balancing the government budget.

 

The curious thing about the OMB report is it shows 2013 will have a positive cash flow over mandatory spending items so obviously it is not using the same data the Fed’s Index accesses. But the OMB report also doesn’t include costs for Obamacare which looms over the economic horizon like a superstorm.

 

My belief is the White House and Congress are fully cognizant of the facts, they just have no options left to mitigate the storm so they deflect concern with “sequester” talk or with a focus on gun control or point fingers to deceive the naive.

 

Washington’s disregard of real facts and diversion to a man-made, non-crisis crisis, makes me wonder if they are just going to hunker down for the duration and hope the economic storm hits somebody else.

 

“I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man.”–Thomas Jefferson

 

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