Washington lies: Talk about the gift that just keeps on giving!
Over the course of the past few weeks, we have seen market spikes driven by “early reports of solid 3% GDP growth.” Except that much of that growth wasn’t real — and was quietly revised downward after the fact.
We have seen market spikes driven by “record-breaking retail sales growth” that was pretty much all inflation: rising prices, rather than rising unit sales.
We got a good little rally cooking by touting foreclosures as fresh home sales.
And Friday, for a brief moment, we saw the market spike on a “surprisingly robust drop in unemployment.”
Washington’s Biggest Worry
This last figure represents perhaps the single greatest worry in Washington right now, as it is one of the most powerful predictors of modern presidential elections.
If unemployment is below 4% or above 7%, the party in power loses the White House. Period.
Why such a narrow window of tolerance? Let’s start with the bottom because it is not quite as intuitive as our current situation.
Below 4%, and the shortage of available labor allows folks to pretty much write their own meal tickets. After all, if you can’t get along with your current boss, you can always just take your talents elsewhere.
This inevitably exacerbates inflation, which is already getting up a good head of steam at this point in the cycle.
Next thing you know, folks are blaming the White House for $5 gasoline, and come election day, the rest is history…
Cash in the Caymans
Now let’s look at the top of the window.
High unemployment is, of course, a far more obvious reason to fire the White House’s incumbent party. After all, there are entire cadres of folks with a boatload of spare time ready, willing, and able to mobilize against the president and his policies.
But it’s not like the 1% is but so happy during downturns like this. Grindingly slow economies usually mean low profits* and crappy bonuses all around.
And so we always see the incumbent party kicked to the curb when unemployment is above 7%.
*That part about profits and bonuses is based on historical norms. Somehow, the guys at the top have managed to bend the rules this time around so that they make even more money when the economy is slumping than when it is succeeding.
They do this by having their Washington sock puppets simply invent trillions of new dollars, which is then pumped directly into numbered bank accounts in the Caymans. This is, however, a different day’s rant.
Reality Gap
But now we have stumbled upon an interesting philosophical problem.
This study is based entirely on reported unemployment. But a few years back, some bright young operatives began to wonder if lying about how many folks were out of work might alter their fate.
Was it the facts on the ground, or the electorate’s awareness of those facts, that drove these outcomes?
There was, of course only one easy way to find out…
Cooking the Books
So back in the 80s, they began to mess around with the unemployment number. While it’s damn hard to monkey with the raw data coming in from the individual states, it was easy to play with the statistical ordering that was done in Washington.
The methodology was alarmingly simple. They started by asking: “Who deserves to have a job?”
Let’s say you are a black high school dropout from the slums of Baltimore with a criminal record as long as your arm…
Is it Washington’s fault if Legg Mason won’t hire you as a stock broker? Heck, Northrop Grumman can’t even let you in their lunch room without a clearance.
But that’s no reason to kick your boss out of the Oval Office.
Fraud Writ Large
Now it’s time to scale up: During a period of prolonged downturn, Washington takes the cadre of job hunters that have been out of work the longest, and declares them to be hopeless deadbeats without a chance in hell of actually scoring meaningful work.
See, they never stood a chance of working, so they are not “un”employed, see…
Just hungry. And angry.
And the best part is, this trick works both ways! Over time, they found they could artificially stabilize inflationary unemployment dips as well by counting bottom tiers back into the officially unemployed during economic booms.
Critical Test
In some 11 months, we will see the ultimate test of this little bit of fraud.
If we arrive at November 5, 2012, with unemployment still in excess of 7%, history tells us the Republican party will retake the White House. But if the jobless rate is back down inside our little window, Barack Obama will keep his perch another four years.
Quite frankly, I don’t see a chance in hell of this moribund economy actually creating that many jobs.
So Washington’s bean counters are applying their alternative math solution.
Thus, we read this week that November’s headline unemployment figure shocked most every analyst by coming at 8.6% — the lowest such readout since March of 2009!
Look Deeper!
When you delve deeper into the numbers, it’s a tad more muddled. But when you tot it up, you find that while state and local governments shed some 20,000 jobs, private employers balanced that by netting out a gain of 140,000 jobs.
Now it is accepted that it takes 125,000 new jobs each month just to break even.
So how on earth do 120,000 jobs knock 0.4 percentage points off our massive and intransigent total rate?
Easy! Just go at it from both sides — by peeling 315,000 folks out of the total work force.
Just declare them all deadbeats and idiots who don’t stand a chance in hell of any meaningful success.
And if you do this again each month from now to, say, next September, we will be well inside Obama’s re-election window — on paper, anyway.
Betting on Inflation… and Gold
Will the scam work? Or will the incumbent get blown to hell in the polls?
(Metaphorically! This is a metaphor, all you Secret Service types out there! So don’t even come knocking on my door again. I’m sick of the harassment, damn it.)
We’ll see soon enough. What we’ll see sooner, however, is the inflation they fight with the backside of this formula.
If they cannot possibly write in cadres, then wage demand will start to climb at the same time that we are already seeing alarming spikes in oil, gasoline, diesel, and kerosene.
And this, my friends, is once again that familiar formula for gold. More on this next week…
In the meantime, you can catch up on any stories you missed from the past week, below.
Good luck and good hunting,
Adam Lass
Editor, Wealth Daily
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