Karl Denninger, "The Goverment's Effort Has Failed"
"The Government's Effort Has Failed"by Karl Denninger
"The supposed "official" statistics say we lost 216,000 jobs. Unfortunately the household survey, in the same release, says something different. Their "official" numbers on the household survey say 466,000 fewer people were working, not 216,000. But it gets even worse than that when you dig into the actual data. If you look on page 10 in the Household Survey you see the line "Employed." July to August that number declined not 216,000, not 466,000, but a staggering 981,000 people.
So where did the rest go? They gave up. Note that the counted "unemployed" actually fell by 378,000 people. Those are people who simply aren't looking any more - they have deduced that there is no point to searching for a job. The BLS doesn't count those people as "unemployed" but the merchant on the corner and the bank next door sure as hell do. These aren't "seasonally adjusted" numbers, they're raw counts from the household survey. They reflect "boots on the ground", or in this case, "butts on the sofa" instead of "hands on the assembly line."
In summary:
We were told that the consumer would be stabilized this summer: False. Same-store sales numbers say no, sales tax numbers say no, employment tax receipts by the IRS say no and consumer credit numbers say no.
Unemployment is vastly worse than statistics show. Those who give up may not be added to government official reported numbers but the merchants who are trying to sell things and the banks who are trying to collect debts all count those who give up as "unemployed" when it comes to being able to buy or pay, and we lost five times the number of people from those getting a paycheck when actually counted compared to the official government claims.
The bank "stress tests" were predicated on not exceeding levels already blown through. They're invalid. Period.
We know banks are lying about asset values. We know this to be a fact because lots of them are failing and when they do, in essentially every case, we're discovering 20, 30, even 40% losses that were undisclosed just days prior. It is a near certainty that the big banks that are "too big to fail" have similar losses on their books.
"Extend and pretend" isn't making things better. It is in fact making them worse. We have done nothing about the "too big to fail" banks except make them bigger, with two now beyond the federal deposit concentration cap! We must stop this now and use what credit capacity the nation has left to protect depositors.
If you model the existing trends forward 12 months you get unemployment rates approaching 20% and GDP contraction exceeding 10%. Since we have no evidence of a trend change in these credit metrics and in fact tax receipts (one of the best indications of actual consumer and employment activity) validate these trends, there is every reason to believe there is a reasonable possibility this outcome will occur. Absolutely nobody in the mainstream media is talking about this, but the numerical facts are "in your face" in this regard - if you look.
The big banks must be broken up, forced to mark to reality, forced to take all their SIVs and other trash back on their balance sheets and reveal the truth. I'm very certain the truth is bad - catastrophically so - but it will only get worse the longer we wait. President Obama and Treasury have a nice market rally to do this into, which will blunt its impact. If we wait and there is another precipitous decline we will instead be forced to do it under much-less-benign circumstances.
The consumer is not coming back any time soon. Give up folks. Spending power doesn't come from a government statistic, it comes from a paycheck in the hand, and those who give up looking because the job situation is so horrible its a waste of time have no paycheck. The government can no more replace consumer spending on a durable basis than I can fly. The "bridge" concept that underpinned Paulson's, Bernanke's, Bush's and Obama's plan has failed; we have simply thrown $2 trillion dollars into a black hole and our creditors will realize that has happened soon enough. We must have taken care of the bad banks and their assets before that happens or we will suffer a catastrophe."
So where did the rest go? They gave up. Note that the counted "unemployed" actually fell by 378,000 people. Those are people who simply aren't looking any more - they have deduced that there is no point to searching for a job. The BLS doesn't count those people as "unemployed" but the merchant on the corner and the bank next door sure as hell do. These aren't "seasonally adjusted" numbers, they're raw counts from the household survey. They reflect "boots on the ground", or in this case, "butts on the sofa" instead of "hands on the assembly line."
In summary:
We were told that the consumer would be stabilized this summer: False. Same-store sales numbers say no, sales tax numbers say no, employment tax receipts by the IRS say no and consumer credit numbers say no.
Unemployment is vastly worse than statistics show. Those who give up may not be added to government official reported numbers but the merchants who are trying to sell things and the banks who are trying to collect debts all count those who give up as "unemployed" when it comes to being able to buy or pay, and we lost five times the number of people from those getting a paycheck when actually counted compared to the official government claims.
The bank "stress tests" were predicated on not exceeding levels already blown through. They're invalid. Period.
We know banks are lying about asset values. We know this to be a fact because lots of them are failing and when they do, in essentially every case, we're discovering 20, 30, even 40% losses that were undisclosed just days prior. It is a near certainty that the big banks that are "too big to fail" have similar losses on their books.
"Extend and pretend" isn't making things better. It is in fact making them worse. We have done nothing about the "too big to fail" banks except make them bigger, with two now beyond the federal deposit concentration cap! We must stop this now and use what credit capacity the nation has left to protect depositors.
If you model the existing trends forward 12 months you get unemployment rates approaching 20% and GDP contraction exceeding 10%. Since we have no evidence of a trend change in these credit metrics and in fact tax receipts (one of the best indications of actual consumer and employment activity) validate these trends, there is every reason to believe there is a reasonable possibility this outcome will occur. Absolutely nobody in the mainstream media is talking about this, but the numerical facts are "in your face" in this regard - if you look.
The big banks must be broken up, forced to mark to reality, forced to take all their SIVs and other trash back on their balance sheets and reveal the truth. I'm very certain the truth is bad - catastrophically so - but it will only get worse the longer we wait. President Obama and Treasury have a nice market rally to do this into, which will blunt its impact. If we wait and there is another precipitous decline we will instead be forced to do it under much-less-benign circumstances.
The consumer is not coming back any time soon. Give up folks. Spending power doesn't come from a government statistic, it comes from a paycheck in the hand, and those who give up looking because the job situation is so horrible its a waste of time have no paycheck. The government can no more replace consumer spending on a durable basis than I can fly. The "bridge" concept that underpinned Paulson's, Bernanke's, Bush's and Obama's plan has failed; we have simply thrown $2 trillion dollars into a black hole and our creditors will realize that has happened soon enough. We must have taken care of the bad banks and their assets before that happens or we will suffer a catastrophe."
- Karl Denninger, http://market-ticker.denninger.net/
How It Will All End
A video metaphor of the Government B-52, piloted by
Ben "Kong" Bernanke and co-pilot Timmy Geithner,
as they battle the economic disaster, with predictable results...
Ben "Kong" Bernanke and co-pilot Timmy Geithner,
as they battle the economic disaster, with predictable results...
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