Economic Stories of Relevance in Today's World -- February 10, 2013

Bert Dohmen to Moneynews: Phony Inflation Numbers Mask Recession - Money News -  - Dan Weil and Kathleen Walter - February 7, 2013 - To Bert Dohmen, editor of the Wellington Letter and founder of Dohmen Capital Research Institute, the 0.1 percent contraction in U.S. gross domestic product (GDP) in the fourth quarter is more than a blip on the economy’s recovery path. It proves the economy isn’t even in recovery mode, he says.                         “We are already in a recession,” he tells Newsmax TV in an exclusive interview. “We got into a recession last year. If you factor in the actual rate of inflation instead of the phony CPI [consumer price index] or GDP deflator that the government uses, the economy has been in a recession overall.”                      The CPI rose 1.7 percent in 2012. The GDP price deflator gained 1.3 percent in the fourth quarter.                     

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To Bert Dohmen, editor of the Wellington Letter and founder of Dohmen Capital Research Institute, the 0.1 percent contraction in U.S. gross domestic product (GDP) in the fourth quarter is more than a blip on the economy’s recovery path. It proves the economy isn’t even in recovery mode, he says.                      “We are already in a recession,” he tells Newsmax TV in an exclusive interview. “We got into a recession last year. If you factor in the actual rate of inflation instead of the phony CPI [consumer price index] or GDP deflator that the government uses, the economy has been in a recession overall.”                 The CPI rose 1.7 percent in 2012. The GDP price deflator gained 1.3 percent in the fourth quarter.                 “If you calculate the CPI now as it was calculated in 1980, then inflation is actually around 9 percent,” Dohmen says.                       “What happens is that when inflation starts rising, they change the measure of inflation. They change the basket. So the published inflation rate currently has nothing to do with reality.”

US Trade Deficit Drops To Lowest Since January 2010 As Crude Imports Plunge To 1997 Levels - Zero Hedge - Tyler Durden on February 8, 2013 - Following November's massive trade deficit surge, when the final print of $48.7 billion was far worse than the $41.3 billion expected, it was only (il)logical that the December trade number would reverse this trend to the other extreme, which it did with the December trade balance plunging from a revised $48.6 billion to a tiny $38.5 billion - the lowest deficit since January 2010, and the biggest beat to expectations of $46 billion since February 2009.                      The deficit was the result of December exports which were $3.9 billion more than the $182.5 billion in November, and imports some $6.2 billion less than November's total $231.1 billion. Broken down by category, the goods deficit decreased $9.4 billion from November to $56.2 billion, and the services surplus increased $0.7 billion from November to $17.7 billion. A key driver of this move was a spike in Petroleum exports which shrunk the Petroleum product trade gap to the smallest it has been since August 2009 as the US imported the least amount of crude oil since February 1997. Whether this is due to rising domestic production, or just the ongoing collapse in end demand (which is to the US economy as electricity is China's traditional "8%" GDP) remains unclear.


So Who Is Lying (More)? - Zero Hedge - Tyler Durden on 02/08/2013 - Overnight China reported great trade data which saw exports and imports soar by more than 20% each compared to 2012. Of course, when one adjusts for January calendar effects the "rise" was virtually non-existent but that was too much work for the Shanghai Composite algos. A few hours later, the US did the same, reporting even better trade data which saw the trade deficit plunge the most in nearly three years. So far so good: we just have one question - who is lying more. Because unlike all other sole-sourced economic manipulated data which is solely a function of some excel goal seek model and various spreadsheets, bilateral trade has to foot. One country's net exports have to equal its countepart's net imports and vice versa.                    Which is why we compiled the net trade data between the US and China, which was trumpeted earlier to have surpassed a $300 billion ($315 billion to be exact) deficit. At least as reported by the US side. The same "data", when reported from the perspective of China amounts to a surplus of some $219 billion, a difference of $96 billion!                              In other words, either China is massively underreporting its net exports to the US or the US is boosting its net imports figure.                                 Or, just as plausibly, both nations are simply pulling numbers out of thin air - numbers which have a massive impact on both nations' respective GDP prints, which is data that, at least in the Old Normal, used to matter.


Productivity Falls at 2%, Most in Nearly Two Years - Money News - February 7, 2013 - U.S. worker productivity shrank in the final three months of 2012 although the decline was caused by temporary factors.                          Productivity contracted at an annual rate of 2 percent in the October-December quarter, the biggest drop since the first quarter of 2011, the Labor Department reported Thursday. Productivity had risen at a 3.2 percent rate in the July-September quarter.                  Labor costs rose at a 4.5 percent rate in the fourth quarter, the fastest gain since the first quarter of 2012....                     The trend in productivity has been weak for the past two years. For all of 2012, productivity rose by just 1 percent following an even smaller 0.7 percent rise in 2011. Those gains were less than half the average growth that companies saw in 2009 and 2010, shortly after many laid off workers to cut costs during the Great Recession. And it's below the long-run growth of 2.2 percent a year dating back to 1947.                      Companies may ultimately need to hire more workers if they see only modest gains in productivity and more demand for their products.                      Economists predict worker productivity will be weak through 2013. Higher productivity is typical during and after a recession, they note. Companies tend to shed workers in the face of falling demand and increase output from a smaller work force. Once the economy starts to grow, demand rises and companies eventually must add workers if they want to keep up.                  For all of 2012, labor costs were up a modest 0.7 percent. That compared to a gain of 2 percent in 2011 and a decline of 1 percent in 2010. Labor costs were rising more rapidly before the Great Recession, which triggered millions of layoffs and reduced workers' bargaining power....

CBO: Spending cuts and tax increases slowing growth - CNN Money - Jeanne Sahadi - February 5, 2013 - The looming $85 billion in spending cuts coupled with new tax increases will slow economic growth considerably this year.                    But the economy is likely to pick up steam in 2014, pushing unemployment down and setting the stage for a rise in interest rates and inflation.

Those are key takeaways from the annual budget and economic outlook released Tuesday by the Congressional Budget Office, the nonpartisan scorekeeper for lawmakers.                   Deficits: The CBO estimates that this year's deficit will fall to $845 billion, or 5.3% of the size of the economy, in part because of the so-called sequester -- the blunt, automatic spending cuts across defense and nondefense programs set to take effect March 1.                     If that happens, 2013 would mark the first time since 2008 that the annual deficit comes in below $1 trillion.               And the downward trend would continue for the next two years, when the deficit in 2015 falls to 2.4% of GDP.                 But then deficits would start to go up again. The CBO lays out the reasons -- "an aging population, rising health care costs, an expansion of federal subsidies for health insurance and growing interest payments on the federal debt."                  Debt: For the decade, the CBO expects the country to add $7 trillion in debt. By 2023, the debt held by the public would rise to 77% of GDP up from 76% today. That's the largest percentage since 1950 and almost double the 39% average over the past 40 years.                             Debt could rise to 87% of GDP by 2023 if Congress makes legislative changes that undo planned spending cuts or tax increases.


Jim Rogers on Fed Easing? ‘This is going to end very very badly’ - The American Pen Currency - Kurt Wallace - February 6, 2013 - Jim Rogers of Rogers International Commodities Index (RICI)  joins Open Currency Update with Kurt Wallace for Fed Easing? ‘This is going to end very very badly’. Jim discusses Germany’s repatriation of  gold and the questionable response of an 8 year timeline by the United States to return the gold. He weighs in on Fed Easing and the effects on those who invested properly vs. those who benefit from printing money. He also give us a sneak preview of his new book Street Smarts: Adventures on the Road and in the Markets where he details his thought process on investing and what he learned from his successes and mistakes. Audio



Will Japan's "Attempted" Reflation Succeed And Will It Spill Over Into Full-Fledged Currency War? - Zero Hedge - Tyler Durden - February 7, 2013 -  Yesterday we presented a simplistic analysis of why for Japan "This Time Won't Be Different", a preliminary observation so far validated by the just announced Japanese December current account deficit which was not only nearly double the expected 144.2 billion yen, printing at some 264.1 billion yen, but was only the first back-to-back monthly current account deficit since 1985....


Are we throwing in the towel on American workers? - CNN Money - Nina Easton - February 7, 2013 -  ...The tech companies got their wish list with a bipartisan bill that raises the cap on H-1B visas from 65,000 to 115,00—a number that could go as high as 300,000 in future years if those visas are filled fast enough. Which is possible, since the pent-up demand to hire talented foreigners is huge. Smith predicts a repeat of 2008, when the allotment of visas was gobbled up on the first day. "In our industry a lot of companies didn't exist or were much smaller back then," he notes.                          From the point of view of the tech companies, the increase makes urgent sense. Why shouldn't U.S. companies -- rather than their competitors -- be able to reap the talent rewards of all those foreign students graduating from American universities? (Foreigners with post-graduate degrees will be exempted from all caps under the proposal.) And why should we encourage high-tech firms to move operations to, say, Canada because our immigration rules are too strict?                      The senators sponsoring the bill -- including Republicans Orrin Hatch and Marco Rubio, and Democrats Amy Klochubar and Chris Coons -- say the reforms will help grow the economy. "It'll help us attract more highly skilled workers in the fields of science, technology, engineering and math," said Rubio, "which will help our unemployed, underemployed or underpaid American workers find better jobs."              Okay, but how are we enabling those unemployed and underemployed Americans to fill those jobs themselves? The bill includes a $1,000-per-visa fee that will fund a program to help states produce more students with science and math skills. But that's for future workers. Moreover, the fund seemed tossed in as an after-thought -- when its intent should be at the center of an urgent national conversation...


DHS Purchases 21.6 Million More Rounds of Ammunition - Federal agency has now acquired enough bullets to wage 30 year war - Infowars.com - February 7, 2013 - ...

A solicitation posted yesterday on the Fed Bid website details how the bullets are required for the DHS Federal Law Enforcement Training Center in Artesia, New Mexico.                   The solicitation asks for 10 million pistol cartridge .40 caliber 165 Grain, jacketed Hollow point bullets (100 quantities of 100,000 rounds) and 10 million 9mm 115 grain jacketed hollow point bullets (100 quantities of 100,000 rounds).                       The document also lists a requirement for 1.6 million pistol cartridge 9mm ball bullets (40 quantities of 40,000 rounds)....                    While Americans are being browbeaten with rhetoric about the necessity to give up semi-automatic firearms in the name of preventing school shootings, the federal government is arming itself to the teeth with both ammunition and guns. Last September, the DHS purchased no less than 7,000 fully automatic assault rifles, labeling them “Personal Defense Weapons.”

US Economy Contracts - More Cuts Will Mean Even Less Growth - John Weeks