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The Fix Is In. Government to Rig GDP Again (Audio)

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In his most recent podcast, Peter Schiff exposes the latest economic hijinks of Washington and Wall Street. The Federal Reserve wants to re-adjust the first quarter GDP to make it look better, while Walmart absurdly blames its terrible earnings on a strong dollar. Meanwhile, Los Angeles becomes the biggest city in the country to dig its own economic grave by passing a $15 an hour minimum wage law.

Highlights from Peter’s podcast:

“Earlier today we got the release of the most recent FOMC minutes. Once again, the Federal Reserve is pretending that the economy is a lot stronger than it is, because they’re continuing to dismiss the very weak first quarter data as being weather related. They keep talking about “transitory effects,” which in general means the weather. That was the only thing that was really transitory…

“Earlier in the week the Federal Reserve Bank of San Francisco came out and said that they think the GDP really grew – I don’t know – 1.8% in the first quarter, as opposed to the 0.2% that was originally released, which is likely to be revised down to a big negative number. But the San Francisco Fed is basically saying, ‘Who cares, because we don’t think the numbers are accurate, because the seasonal adjustments aren’t big enough.’ they want to double the seasonal adjustments. Therefore, they can manufacture a lot more growth. Maybe we’ll have to start triple-adjusting or quadruple-adjusting the numbers until we get a number that we think is correct. If the data doesn’t work, then fix it!

“Now they’re going back in time over the past 30 or 40 years, and they’ve concluded that every first quarter, or in general the first quarters tend to be weaker than forecast and weaker than the average for the remainder of the year. Therefore, they think there must be some flaw in the way they’re measuring the first quarter. Now they’re going to fix that. They’re going to try to come up with a way to measure it to come up with a bigger number…

“Why does the government have to fix that [if first quarter GDP always comes in lower]? If that’s what it is, that’s what it is. They’re talking about the way that it’s seasonally adjusted, but I don’t really know why we have to seasonally adjust, because we’re really looking at GDP on an annual basis. Yes, we measure it quarterly, but the bottom line is we’re looking at yearly increases in GDP…

“Once you let the government come in and monkey with the numbers by adjusting it, then you open up the floodgates to manipulation. Now you have subjectivity thrown in there. Why can’t we just accept the data, and if we know there’s a tendency for certain quarters to be stronger or weaker, then we’ll just accept that and that will be part of the estimates…

“I can throw out some reasons [why the first quarter was weaker than expected]. One, when it comes to the expectations… Wall Street [and] Fed analysts tend to be optimistic at the beginning of a year. If a certain year GDP isn’t quite up to what you expected, everyone is optimistic for the year ahead… So it makes sense to me that the first quarter would miss estimates more than other quarters…

“The GDP is very heavily influenced by consumer spending. Consumers spend a lot of money in the fourth quarter. It’s the holidays. People take vacations, they buy presents, they decorate the house, they have parties. So maybe by January and February, people want to chill out a little bit… They want to hibernate through the winter a little bit…

“No matter how they try to paint this thing or wrap it up in a bow, the economy is weakening. The standard of living of the average American is going down… More people have to work to support a family, and fewer people can get jobs…

“One of the bigger signs that the economy is weakening came from Walmart, which came out with their earnings on Tuesday. Way below estimates. Not only were their earnings down, but their revenues were down. A really bad report… The stock is now down 16% from its high in January… Walmart had a very bad quarter, and it’s only going to get worse for Walmart, particularly now that they’re raising their wages…

“Walmart blamed their weak earnings on the strong dollar. Unbelievable. Wall Street seemed to buy this… I guess people think, ‘Yeah, the strong dollar is bad,’ so they just accept this excuse. But it doesn’t work for Walmart, because Walmart is an importer. They are not an exporter. They earn some earnings overseas, but it’s a drop in the bucket. Almost all of Walmart’s earnings are in America. While a strong dollar may hurt an exporter, it helps an importer. Walmart is the biggest importer in this country. Walmart imports more stuff than any other company. A strong dollar means Walmart can import stuff for less money…

“The big drop in gasoline prices, which happened in the first quarter was largely the effect of the strong dollar… If any company was going to benefit from increased spending as a result of cheap gas prices, it would be Walmart. After all, Walmart’s customers are very sensitive to gas prices… If they spend less of their paycheck on gasoline, they have more left over to buy other things at Walmart…

“LA – the largest city now in the country to pass the $15 an hour minimum wage. What idiots. 14 to 1 was the vote. There’s one councilman in Los Angeles who’s not a moron… At least they were smart enough to stagger it over 5 years. The first increase doesn’t even happen until July of next year… The main reason they do stuff like this is because they don’t want the lay-offs to happen right away… Employers can prepare for it more slowly… You don’t necessarily connect the dots between the lay-offs and the unemployment. A lot of it will be businesses simply don’t hire people that they otherwise would have hired. You never can measure that…”

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