Corporate Profits

Profits from current production decreased $52.9 billion, or 3.3 percent (quarterly rate), in
the fourth quarter, compared with a decrease of $20.5 billion, or 1.2 percent, in the third.

Technical Note
Gross Domestic Product and Corporate Profits
Fourth Quarter of 2007 (Final)
March 27, 2008

http://www.bea.gov/newsreleases/national/gdp/2008/tech407f.htm

Sources of Revision to Components of Real GDP

As a result of largely offsetting revisions to inventory investment and PCE for services,
real GDP growth in the fourth quarter was unrevised at 0.6 percent (annual rate).
* Inventory investment was revised down, reflecting the incorporation of newly
available fourth-quarter Census Bureau Quarterly Financial Report data and
revised Census Bureau inventory data for December.
* PCE for services was revised up, mainly reflecting the incorporation of newly
available Quarterly Services Survey data on medical care services from the
Census Bureau and newly available data on gas usage from the Energy
Information Administration.

The price index for gross domestic purchases increased 3.7 percent in the fourth
quarter, a downward revision of 0.2 percentage point from the preliminary estimate. The
implicit price index for imputed financial services was revised down, based on newly
available Call Report data from the Federal Reserve Board, which showed lower
charges to consumers on bank loans than had been previously estimated.

Also See: Bank loans as a percentage of GDP, a common measure of the penetration of financial services in a country, are still in the mid-teens, compared with an average of 25% for the BRIC nations of Brazil, Russia, India, and China, according to the Association of Mexican Banks.

I certainly agree that global wage arbitrage has had a major suppressive effect on wage inflation in ‘developed countries;’ Eastern Europe, especially where aggregated to the EU, with Western Europe, and E Asia and C America with the US. In both cases, ultra-low wage economic migration has increased downward wage pressure, from N and C Africa to the EU, and from multiple regions especially C America into the US. (I’m not saying that I oppose labor migration, just considering the facts on the ground.) I am less sanguine than you, however, that such wage arbitrage has been the prime driver in low interest rates.

I should say here that I profess no marked competence in currency or labor issues; not my primary foci. That said, I would see the primary suppressor on interest rates in ‘developed countries’ having been the willingness of external trade partner to hold onto rather than recycle our debt. Once on a time, we had a petrodollar ‘problem,’ i.e Near Eastern oil exporters recycled our currency and debt to the open market via Europe. In so doing, we had inflation as the US wasn’t producing enough to pay off that debt generated by its demand and rates crept up. After ‘85 or thereabouts, though, our trade partners sat on our debt increasingly. Certainly Japan did. Increasingly the Near East did, especially after we had a little war there in ‘91, and thereafter told all the Arabian Protectorates how they were to manage their macroeconomic policies (in our interest), i.e. “Oil low, sit on the dough, or hire my cousin Joe.”

When Russia and China entered the global wage market, they were both desperately poor. China had 800 B peasants with nothing but what they grew, and Russia was in a terrible Depression (which no one seems to talk about; I guess the Russians don’t count, either). They kept our dough to capitalize themselves; oh, Russia leaked a bunch through the mafia, but the state has control of the financial system there now. These new, poor areas were too poor to create a demand pull initially, so their domestic markets created downward pressure if anything. And their governments sat on our debt. In short, as long as demand was low in these emergent and massive labor markets and their governments soaked up our debt and currency to the max, ‘developed interest rates,’ including the US, had relatively little upward pressure—but this doesn’t seem to have been an issue of wage competition in so many words: it was a result of explicit macroeconomic policy _in a situational context_. Again nothing in this was determined by ‘competent management’ from central bank policy in the US, the EU, or the G7. The global context was what it was, and existing players simply wired the situation to maintain their pre-existing policies—and to force new players to adapt to rather than renegotiate those policies. The whole GATT process was micromanaged to petrify this set of policies as a permanent structure, rather like King Canute commanding the tide never to come in but freeze in place.

Well time and the rive both flow on. By (oh, pick a date) 2005, demand pull from these massive new areas began to drag up prices; they had some wealth, they had many needs; they paid more to get more. Thus, the distortion of excessively low global demand pull disappeared. And now by 2007, we have reached saturation and more in creditor countries for the US to absorb our faux credit at artificially low rates and hence artificially high volume. With the interesting exception of Japan, all our creditors are now feverish with our exported inflation, so hot that our accumulated debt is melting in their vaults. But again, this doesn’t seem to be a direct function of wage arbitrage. That is, we didn’t see wages soar in E Asia or Russia, and that act as a driver for change. Wages are coming up, but the lag the changes, not drive them.

To my mind, the entry of E Europe and E Asia into global trade interactions which involved the US only served _to extend_ macroeconomic dynamics already in place. Our bargeloads of bad money would have choked Europe, Japan, and the Near East maybe ten years ago, but the arrival of E Europe and E Asia as significant factors by the late 90s just gave us ten more years to stay drunk and louche. It isn’t the US alone which is responsible for all this; everyone bought into the process, and worked their own angle for their own gain, as pushers, enablers, wannabes, or what have you. The WTO is a cement monument to the 20th century, but all its windows look backward not forward.

It’s a remarkable achievement, though, a world-historical one really, that we the people of the US of A have managed to choke the global maw with our debt. It could be argued that Spain managed to choke the nascent European money economy of the 16th century with its debt; the trajectory didn’t end well for them. The cases aren’t directly comparable of course . . . cold comfort though that may be. Historically, we will likely be viewed as just as stupidly profligate, transforming enormous structural advantages into stupendous strategic and economic failure.

Will the Great Chicago Vacuum and the earplug set find the spine and the political will to shovel us out from under this one??? Tune in next biennium . . . .

Since the calculation for Real GDP must start with Nominal and back out the price level changes to derive Real, this is where sleight of hand to increase the value of real output by decreasing the impact of price changes can occur.

Not that I wear a tin foil hat (I have 6 or 7 of them), but it is well documented that politically motivated “adjustments” to frame the periodic reporting of economic results has distorted the reality of economic activity, price level changes, “real” wage changes, and has generally acted to facilitate the continuing transfer of wealth from the people, to the banking class and the CEO’s and executives. In addition to helping re-elect whoever the incumbent might happen to be.

http://www.federalreserve.gov/newsevents/speech/bernanke20071114a.htm

Each of the participants in the FOMC meeting–including the Federal Reserve Board members and all the Reserve Bank presidents–will, as in the past, provide projections for the growth of real gross domestic product (GDP), the unemployment rate, and core inflation (that is, inflation excluding the prices of food and energy items). In addition, participants will now provide their projections for overall inflation. Both overall and core inflation will continue to be based on the price index for personal consumption expenditures (PCE).5

5: Participants will no longer provide projections for the growth of nominal GDP. These now seem relatively less useful to the public, given participants’ projections for real GDP growth and overall inflation.

See also: “birth death” model to “estimate” job creation; BLS admits it is faulty in transition periods.

Also see; Wages adjusted for inflation.

To wit: The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential structures, state and local government spending, and equipment and software that were largely offset by negative contributions from private inventory investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The deceleration in real GDP growth in the fourth quarter primarily reflected a downturn in inventory investment and decelerations in exports, in federal government spending, and in PCE that were partly offset by a downturn in imports.

**

The City of New York
Monthly Report
on
Current Economic
Conditions
March 4, 2008
Highlights
http://www.nyc.gov/html/omb/pdf/ec02_08.pdf

Inflation: In January the core PCE index rose 2.5 percent y/y, well above the Fed’s
target rate of one to two percent. Inflation in the New York Area continues to trail the
nation.The January headline and core inflation rates were 3.7 and 2.1 percent.

http://www.federalreserve.gov/newsevents/speech/bernanke20071114a.htm

Each of the participants in the FOMC meeting–including the Federal Reserve Board members and all the Reserve Bank presidents–will, as in the past, provide projections for the growth of real gross domestic product (GDP), the unemployment rate, and core inflation (that is, inflation excluding the prices of food and energy items). In addition, participants will now provide their projections for overall inflation. Both overall and core inflation will continue to be based on the price index for personal consumption expenditures (PCE).5

5: Participants will no longer provide projections for the growth of nominal GDP. These now seem relatively less useful to the public, given participants’ projections for real GDP growth and overall inflation.

See also: “birth death” model to “estimate” job creation; BLS admits it is faulty in transition periods.

Also see; Wages adjusted for inflation.

To wit: The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential structures, state and local government spending, and equipment and software that were largely offset by negative contributions from private inventory investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The deceleration in real GDP growth in the fourth quarter primarily reflected a downturn in inventory investment and decelerations in exports, in federal government spending, and in PCE that were partly offset by a downturn in imports.

**

The City of New York
Monthly Report
on
Current Economic
Conditions
March 4, 2008
Highlights
http://www.nyc.gov/html/omb/pdf/ec02_08.pdf

Inflation: In January the core PCE index rose 2.5 percent y/y, well above the Fed’s
target rate of one to two percent. Inflation in the New York Area continues to trail the
nation.The January headline and core inflation rates were 3.7 and 2.1 percent.

No time for vacation, we need you!

Bernanke’s new-look Fed
14 Nov 2007 12:56 pm

http://clivecrook.theatlantic.com/archives/2007/11/bernankes_newlook_fed.php

Re1: One questioner asked whether the new releases would include a “fan chart” of the Fed’s inflation forecast, like the one produced by the Bank of England. Bernanke said there would be a chart that looked like that, but that it would be a quite different thing.

Re2: The questioner, Mickey Levy of Bank of America, pointed out (very much in the spirit of Sir Samuel) that dropping nominal GDP might encourage commentators to believe that monetary policy can independently influence real and nominal quantities (ie, output and inflation), whereas in the short run it acts on both simultaneously, and this is a key constraint on the Fed’s ability to steer the economy. Bernanke said the Fed would wait to see if people missed the nominal GDP number. So far as he was concerned, it didn’t add much to what the Fed would be releasing. Humph, I thought.

Yves, do you miss nominal GDP???

http://en.wikipedia.org/wiki/Charles_August_Lindbergh

Charles August Lindbergh (January 20, 1859 – May 24, 1924) was a United States Congressman from Minnesota’s 6th congressional district from 1907 to 1917. He opposed both American entry into World War I, and the 1913 Federal Reserve Act.

Famous quotes

“This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President (Woodrow Wilson) signs this bill, the invisible government of the monetary power will be legalized….the worst legislative crime of the ages is perpetrated by this banking and currency bill.”[4]
Also quoted as:
“This Act establishes the most gigantic trust on Earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized, the people may not know it immediately but the day of reckoning is only a few years removed…. The worst legislative crime of the ages is perpetrated by this banking bill.”
“A radical is one who speaks the truth.”[4]
“The Aldrich Plan is the Wall Street Plan. It means another panic, if necessary, to intimidate the people. Aldrich, paid by the government to represent the people, proposes a plan for the trusts instead.” – The Aldrich Plan (History of central banking in the United States) was a forerunner to that which spawned the Federal Reserve.
“To cause high prices, all the Federal Reserve Board will do will be to lower the rediscount rate…, producing an expansion of credit and a rising stock market; then when … business men are adjusted to these conditions, it can check … prosperity in mid career by arbitrarily raising the rate of interest. It can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by a greater rate variation and in either case it will possess inside information as to financial conditions and advance knowledge of the coming change, either up or down. This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money. They know in advance when to create panics to their advantage, They also know when to stop panic. Inflation and deflation work equally well for them when they control finance.”
“The financial system [...] has been turned over to the Federal Reserve Board. That board administers the finance system by authority of [...] a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money.”

http://en.wikipedia.org/wiki/Federal_Reserve_Act

The 1912 Aldrich Plan called for a system of twelve regional central banks, known as National Reserve Associations, whose actions would be coordinated by a national board of commercial bankers. The Reserve associations would make emergency loans to member banks, create money to provide an elastic currency, and would act as fiscal agents for the U.S. government. State and nationally chartered banks would have the option of subscribing to specified stock in their regional reserve association.

Since the Aldrich Plan essentially gave full control of this system to private bankers, there was widespread opposition to it because of fears that it would become a tool of certain rich and powerful financiers in New York City, referred to as the “Money Trust.”

When the Aldrich bill was rejected and the Democrats began to rework the banking bill, the group of bankers that had worked so hard in support of the Aldrich Plan began to split apart, and many of those bankers refused to consider an alternative plan. Warburg was more conciliatory and remained in contact with prominent Democrats, including Carter Glass, chairman of the House banking committee, and H. Parker Willis, the committee expert, and continued to write and speak on the new legislation.

After months of hearings, debates, votes and amendments, the proposed legislation, with 30 sections, was enacted as the Federal Reserve Act.

Controversy over the origin of the Federal Reserve Act and the nature of the Federal Reserve System has always been part of its history, such as whether Congress has the Constitutional power to delegate its power to coin money or even issue paper money, or whether the Federal Reserve is a tool of the rich and powerful, or whether the Federal Reserve’s mistakes deepened the Depression of the 1930s, or whether Federal reserve banks are private or public entities. Despite the controversies, however, the Federal Reserve Act is now nearly 100 years old and it has been amended by nearly 200 subsequent acts of Congress.

>> Isn’t it obvious and axiomatic as to the reality of what drives this mafia collusion (after 80+ years)!