Sunday, May 2, 2010

Phony Government Economic Numbers

To: The Wall Street Journal
Date: April 30, 2010

Re: U.S. Economy Expands 3.2%

"Stocking up on goods" is nothing more than building inventories of unsold goods. It is reductions in inventories that signal increased production in the future, because these inventories must be replenished.

Furthermore, lets not buy the government definition that energy and food are not really part of "core inflation". Since when can an economy survive without energy and food?

Inflation is low because banks are not lending and people are not buying. The banks are sitting on a trillion (!) dollars of excess reserves. There are no decent loans, and even if there were, the banks cannot expand their lending because their capital ratios are so low from previous loan losses. People are holding onto their money, because government spending and regulations threaten their livelihoods.

Spending will not turn this economy around. This economy needs savings in order to rebuild the capital that was destroyed in the recent Fed-induced bubble. You do not cure the destructive effects of one bubble by creating another. The people understand that increasing the public debt by a trillion dollars a year mortgages their future and threatens currency collapse, even if the government itself seems unconcerned. Apparently it is not following the Greek crisis in Europe. Oh, I forgot...we're America and it can't happen here.

Patrick Barron
20 McMullan Farm Lane
West Chester, PA 19382

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