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The Grandfather Economic Report is a series of picture reports of threats to the economic future of families and their children, compared to prior generations. You are now at the brief chapter covering the threat of statistical revisionism of education quality and economic indicators. Welcome. We hope your visit will find useful information to help you and your loved ones.

During the latter half of the 1990s, and continuing today, the criteria for measuring education quality (SAT scores), government economic data (inflation, productivity, GDP growth, budget deficits), and corporate profitability & debt have been dramatically revised, compared to the past. What is going on and why?

The creditability, reliability and quality of consistent statistical measurement and reporting criteria are critical to comparing today with yesterday in a meaningful manner.- - - whether one is comparing current education trends with our past, or current economic trends with the past and to other nations, or profitability and indebtedness of a firm with its own past or to others. Without consistent criteria, we defeat the wise saying: "the further back you can look, the further ahead you can see." Without such we have significantly altered our 'compass' - - and therefore know less about our nation's true status and direction, compared to before. Such practices can lead the public to grossly inaccurate assessments of our nation's status - a danger for individuals and to a nation.

Suppose current data trends are not so nice to see. Suppose, then, powers-to-be are not pleased with what data shows - - like declining SAT scores, or minimal productivity or minimal profits - - or they want to reduce how you measure inflation so they can lower cost-of-living income adjustments to senior citizens and working people and build surpluses for other uses - - or by this statistical approach make it appear that real family medium incomes are now rising instead of flat as was the case for 2 decades - - without telling them? Suppose they are afraid of the dire consequences of our nation's deteriorating trade performance, with its accelerating negative trends, and want to give the impression that U.S.A. economic performance, when compared to other nations, can be made to look better than it is in order to influence foreigners to finance our deficits? Suppose they want to create a better 'legacy' or 'job performance appraisal'? Suppose they want to influence/mis-lead voters in a certain way, or cause individuals to invest their life savings in risky ways to the benefit of a few? Suppose they arrange to grossly change data measurement criteria which has the effect of 'pumping-up' current data to make it appear better, painting a picture of performance quite different than it actually is. Suppose they want to inflate profit reporting to hood-wink investors in buying their shares. Is any of that good for our nation?

By the above I am not suggesting some sort of conspiracy by those changing data criteria. However, clean data must be a foundation for trustworthiness and potential living standards looking forward. Data revisionism can create disastrous distrust - - especially when those changing the way they measure things for some reason do not publish data and its history by both old and new methods, for say at least 5 years - - in addition to providing their rationale. Since such is not the case, this report brings into question this issue - - and provides certain evidence regarding same - - and, sounds a loud alarm.

Over the past 20 years purposeful actions have been implemented by government (and financial sector) entities to create a false sense of economic performance and education achievement, allowing us to maintain artificially low interest rates to drive debt-based consumption with massive borrowings in all sectors with a dangerous over-reliance on mortgage and financial debt as economic performance and socialism-creep. The use of deceptive statistics has played a vital role in convincing many here and abroad that the U.S. economy is stronger, fairer, more productive, better educated, more dominant and richer than it actually is - - using up-lifting phrases like "Goldie-lox Economy" and "Pollayanna".

AND - - it is clear that still, as of TODAY, the manipulation of data and business fraud is more often a purposeful action - - to the detriment of citizens, shareholders and employees. Some might call it an epidemic.(see info below regarding fraud at FNMA, the largest underwriter of US mortgages, the largest bankruptcy in history, and the largest securities fraud in history among the largest banks - under business profits section)

This chapter explores statistical revisionism/manipulation/fraud regarding

Education Quality - - Government Economic Data - - Business Scams - - Surpluses - - and, at bottom this page a 2011 update with REQUEST FOR ACTION.

A. Education Statistical Wizardry - -

For years, up to 1995, we heard annual reports that high school SAT scores fell to a new record low, year after year. This data was most disturbing to parents, and of course also to professional educators. Parents were horrified, and educators were scared. The Education Report documents the steady fall in education quality and standards in the U.S.A. - - including the education productivity index chart, which reports the ratio of declining SAT scores each year to expanded inflation-adjusted spending per student. Here's one of the graphics, showing the long-term decline in that index.

Then, all of a sudden, we ceased to hear about SAT scores. Why? Well, in 1995 SAT tests were revised in both content (less rigor than before) and in scoring methods - - unrelated to past measurement criteria. For decades we were measuring education content and its scores in 'apples' but then, as the public outcry against declining quality swelled, SAT content and scoring was changed to 'oranges'.

Yet thereafter, other measures of education, documented in the above Education Report, showed quality output continued to slide - -

• such as the dismal performance against foreign students in the International Test Series, where U.S. 12th graders came in last in math & science, even lower than in the preceding test series
• such as last year (2000) our 8th graders scored no better than their prior poor performance in the international test series
• such as 'Two-thirds of U.S. fourth graders read below grade level and the weakest ones are falling further behind', according to the U.S. Education Department's reading ''Report Card'' released on 6 April 2001. Students reading at a proficient or advanced level from private schools performed 57% better than public schools.
• such as last year when 200 mathematicians and scientists, including four Nobel Prize recipients and two winners of a prestigious math prize, the Fields Medal, deplored the Dept. of Education for math teaching methods, saying they are 'horrifyingly short on basics'.
• such as January 15, 2001 when the Associated Press reported research results (headed by Professor J. Hubisz, President of the American Assoc. of Physics Teachers) showing 85% of middle school students are using science text books so full of errors and inaccuracies to make them unacceptable, and that honors high school texts are no more difficult than an eighth grade reader 50 years ago?
• such as the soaring ratio of college freshmen requiring remedial courses, trying to over-come poor high school quality output - - suggesting high school grade inflation and social promotions
• such as an esteemed Nobel laureate calling 'today's education quality the worse in decades'
• such as the international Organization of Economic Development (OECD) reporting, 'U.S. schools produce a mediocre education, at best"
• such as the Secretary of Education saying, "The issues are much deeper -- the content and rigor of what we are teaching -- how we go about teaching. We're not teaching the same content as many other nations, and our teachers are not doing enough of what experts in these fields say they should be doing."
• such as U.S. universities graduating fewer and fewer advanced science degrees for citizens
• such as employers complaining more than ever about poor education quality of new employees, citing a decline in those with basic skills in math, science, reading and writing - - in an era of increased global competition - - and, in an era requiring higher levels of technological skills, looking forward.
• Were you surprised in June 2004 when Achieve, Inc., a bipartisan, nonprofit education organization formed by governors and prominent business leaders, found that math and English tests for high school diplomas require only middle school knowledge, and that those math graduation tests measure only what students in other countries learn in the seventh grade?

And all of this, despite the U.S., with smaller class sizes, spending more per student than other nations

Bottom-line: because of changes in statistical measurement criteria and in test content, today's SATs cannot, and should not be compared to the past. Making tests less rigorous and scoring them differently cannot, and has not produced better quality. Such has only disguised mediocrity. Some might term this "child abuse, others might call it "national abuse."

It was as if one was unhappy with the home runs hit at Yankee Stadium, which was making fans most unhappy, so team owners convinced stadium owners to move in the left field fence. Such, of course, would not improve baseball quality output - - only disguise same. In other words, education today is not even as good as some try and tell us.

(see the International Test Series Report, which shows (by dramatic graphic pictures) U.S. student scoring compared to students of other nations - - despite test revisionism).

We must become #1 in the world in Education Quality
We have much to do, differently
Instead of redefining an 'orange' to make some think it's an 'apple'

This brings us to economic measurement data - -

B. Government Economic Data Statistical Wizardry and Manipulation
(some call it 'economics on steroids,
with no economic equivalent of an Olympic drugs testing agency')

The same is happening to the ways we measure performance of our economy, compared to the past and compared to other nations. Words like 'great productivity' or 'lowest inflation ever', low unemployment, etc., etc., which sound good to some people, are actually most misleading, compared to the past.

I have followed developments of major changes in recent years being made regarding how key indicators are measured and reported - - such as for GDP, national income, inflation, productivity, savings, and other important economic items. Criteria changes in the 1990s have been most dramatic, and the truth about the validity of those changes is now coming out. Basically, many of today's economic measurement items have no relation to the past. Such gives a false sense of economic matters appearing better off than they actually are, when compared to the past. This causes many to make wrong decisions regarding current economic trends - - potentially a very dangerous situation.

There are laws requiring financial accountability that Congress routinely ignores, such as the Chief Financial Officers Act and the Government Performance and Results Act. For the past five years, the General Accounting Office has been unable to issue an opinion on the government's consolidated financial statements because of certain material weaknesses in internal control and accounting and reporting issues. "These conditions prevented us from being able to provide the Congress and American citizens an opinion as to whether the consolidated financial statements are fairly stated in conformity with U.S. generally accepted accounting principles," the report stated.

"As members of Congress make political hay with corporate America's accounting scandals, their own financial mismanagement continues to dwarf those companies they excoriate.  While securities regulation and criminal justice bring corporate culprits to justice (raising the question of whether more laws are really necessary), Congress violates its own management rules and standards on a daily basis. Congress annually passes supplemental spending bills to circumvent budget caps, calls them "emergency" spending bills and says the expenditures do not count against the budget totals for the year. Over the past five years, lawmakers have spent a total of $142 billion above the levels in the corresponding budgets. That's more than 12 times the misstated figures from Enron, Xerox, and WorldCom combined."   (Scripps Howard News Service - July 2002).

Seven (7) articles regarding government economic statistical wizardry follow - - and then one about trust funds - -

Article #1 - Government Manipulates Economic Data for Political Reasons

The following is Gillespie Research's "A Primer on Government Economic Reports -- Things You've Probably Suspected But Perhaps Were Afraid to Ask!"  by By Walter J. "John" Williams - Aug. 24, 2004 -  http://www.gillespieresearch.com/cgi-bin/s/article/id=264 )

An excerpt >  "As former Labor Secretary Bob Reich explained in his memoirs, the Clinton administration had found in its public polling that if the government inflated economic reporting, enough people would believe it to swing a close election. Accordingly, whatever integrity had survived in the economic reporting system disappeared during the Clinton years. Unemployment was redefined to eliminate five million discouraged workers and to lower the unemployment rate; methodologies were changed to reduce poverty reporting, to reduce reported CPI inflation, to inflate reported GDP growth, among others. The current Bush administration has expanded upon the Clinton era initiatives, particularly in setting the stage for the adoption of a new and lower-inflation CPI and in further redefining the GDP and the concept of seasonal adjustment."

"If the GDP methodology of 1980 were applied to today's data, the 2004 second quarter's annualized inflation-adjusted GDP growth of 3.0% would be roughly three percent lower (effectively netting to zero percent or below). In like manner, current annual CPI inflation is understated by about 2.7% against the pre-Clinton CPI methodology (would be about 5.7%), and the unemployment rate is understated by about seven percent against its original design and what many people would consider to be actual unemployment (would be about 12.5%)."

- end of article from Gillespie Research

Keep in mind > Unemployed people stop being counted as "unemployed" when their benefits run out. Hard to believe, right? But, its true. Should we be led to believe that once someone's benefits runs out he or she is automatically gainfully employed in a 40-hour job? Of course we can't. So, why are these people left out of the calculation? To this observer the answer is obvious - - they want to play down the actual unemployment rate - - meaning it is a fictitious number, for sure.

Article #2 - Wizardry and Manipulation

The following is a very well-written article called 'Financial Storms - Statistical Wizardry and Manipulation' from Financial Sense Online, at http://www.financialsense.com/series2/gathering.htm 

NOTE - - although this article is based on GDP for the year 2000 it is still relevant today as the same manipulative reporting practices continue. Included in this article is a relevant insert for third quarter 2003, intended to show that the same games continue.

The economic miracle which Wall Street and Washington herald to investors around the globe is a by-product of statistical wizardry. It has do with the way government statisticians measure the new economy. The most important figure is GDP. This is the figure that has captured the imagination of investors and headlines around the globe. Economic growth rates over the last few years have been short of being miraculous. They have averaged above 4% for the last few years and above 5 and 8% during the last half of 1999. During this year they are running over 5% despite repeated interest rate increases by the Fed.

Gross Domestic Product
(Percentage Change in Real U.S. GDP)

Element #1 GDP Deflator Dynamics

This high level of economic growth is a product of unique statistical factors, which diverge from norms practiced by other nations. The first element is the GDP Deflator, which has been conveniently lower, adding to GDP growth. To get a true picture of economic growth, which is the sum of the nation's economic activities, it is necessary to back out the effects of inflation. By backing out the impact of inflation, you arrive at the true level of economic activity. The lower the deflator, the less that is subtracted from the actual economic numbers. The GDP deflator has been averaging in the low 2% range for much of this decade. As the table below indicates, everything from housing prices, food, utilities, medical costs, gasoline, and retail goods have been rising at much higher rates. By understating inflation, government statisticians have been overstating GDP growth.

Many have questioned our inflation rates and how they are measured. Recently, the Bureau of Labor Statistics has admitted that consumer inflation has been slightly higher than officially reported. The Bureau attributes the lower inflation numbers to a "calculating glitch" and will be revising the CPI upward. The revision could boost consumer inflation rates by as much as 0.3% for the past 12 months. (iii)

For the 12-month period ending last month, consumer prices rose 3.4%, while the core CPI, which excludes energy and food items, rose 2.5%. Because of these lower reported inflation rates, the government has benefited by paying lower cost-of-living adjustments on social security and government pensions. Our government has also been the beneficiary of lower interest costs, especially on it's inflation-adjusted bonds known as TIPS. The soon to be announced higher inflation news is unlikely to be welcomed by the Fed or the financial markets. Higher inflation will mean higher interest rates and trouble for the stock market.

Element #2 Hypothetical Hocus-Pocus

The next GDP manipulation takes place through a measure called the Hedonic Price Index. This is a statistical maneuver employed by government statisticians to measure computer output and investment. It is meant to capture the increase of computer power in terms of speed and memory. The government takes the actual increase in spending on computer investment and applies a statistical wand which changes the actual number into a higher number reflecting the hypothetical benefits of soaring computer power.

Like corporations, which keep two sets of books, one for financial reporting and another set of books for taxes, the government also keeps two different sets of books. One set is the actual dollars spent on the output of goods and services and the other set is called chained dollars, which is derived after various statistical manipulations have been applied to the actual numbers. As this table shows, actual computer spending in actual dollars went from $86.3 billion during the fourth quarter of 1998 to $114.2 billion in the second quarter of this year. This represented an increase of $28 billion in actual dollars being spent during the last six quarters. (iv)

Investment in Computers & Peripheral Equipment
(Billions of Dollars)

However, after applying the hedonic deflator, that actual number is changed into $127 billion in chained dollars for the same six quarters. This technique magnifies the actual contribution of computer investment to GDP growth. This manipulated rise in GDP growth doesn't reflect actual increases to GDP growth. Instead, it reflects the increase in computer power that businesses are getting for their money. As the power of computers increases, so does the impact of the hedonic deflator. Effectually, this creates a statistical mirage, which magnifies modest sums of money spent in actual dollars into giant sums in chain-weighted dollars.

(2004 NOTE - - an early 2004 insert, showing the above example continues in late 2003. Official “annualized” GDP growth was claimed to be 8.2% for Q3 of 2003. A closer look at treatment of information technology business activity in Q3 is highly revealing. Chain-weighted figures show $93.1 billion in IT spending, of which only $11.5 billion occurred in real terms. The remaining $81.6 billion, over 87% of the ledger item in the GDP calculation, incredibly was attributed to adjustment for speed improvements, a treatment called “hedonic adjustment.” The practice is highly deceptive, totally fallacious, and not based in any reality known to mankind. That extra eighty billion in dollars flows nowhere, is available for business expansion nowhere, can be devoted to worker payrolls or benefits nowhere, and appears nowhere on any financial balance sheet. It is pure fiction, but serves a very valuable service in keeping the myth alive of above normal growth. Jan 2004. Jim Willie, CB, http://www.financialsense.com/fsu/editorials/willie/2004/0130.html)

Element #3 Software Shenanigans

Another element of statistical manipulation greatly magnifies the economic growth contribution of the technology sector. This new contrivance happened last year when government statisticians changed accounting procedures for booking computer software. Formerly, spending on software was considered to be a business expense. This acted to reduce corporate profits since expenses are subtracted from revenues. Business expense normally doesn't enter into GDP accounts. By changing expenditures for software from an expense to an investment, it is now added to GDP. This accomplishes two objectives. It increases GDP growth and it serves to increase corporate profits and government tax revenues since software can now be capitalized instead of expensed, thereby reducing profits.

Investment in Software
(Billions of Chained 1996 Dollars)

Software spending has been running above $200 billion per year. The combination of inflating the dollars spent on computers, and including software spending as a capital asset, has artificially inflated GDP by a sum of over $500 billion. These statistical manipulations accounted for 32% of the reported GDP growth.

Over-stating U.S. Productivity

Accounting gimmicks also overstate U.S. productivity figures. Productivity is simply the increase in total output as measured by GDP, divided by the increase in total hours of labor used to create that output. Recently, those numbers have been remarkable. Tinkering with the GDP Deflator, and adding the Hedonic Deflator have artificially enhanced the actual GDP numbers. The larger the GDP number in relation to the total hours of labor, the higher the rate of productivity.

Exposing The Statistical Mirage

The results of these measures have produced an awe-inspiring statistical mirage that has camouflaged the inherent weaknesses and vulnerability of the U.S. economy. This unique way in which the U.S. measures and accounts for its GDP and productivity has captured the attention of international organizations such as the OECD. Other well-known writers from the Austrian school like Dr. Kurt Richebächer, and financial writer James Grant, a columnist for the Financial Times, have called attention to these statistical fallacies.

Writers in the mainstream press have attacked these truth-tellers. The mainstream press argues that increases in DRAM, hard drive capacity, and such things as DVDs, although not costing more today, add additional value to a computer that is not captured in its price. Nobody would argue that today's computer is faster and more powerful than the computers built back in 1996. However, computers have become a commodity that is subject to intense price competition. The price of computers has fallen as production has ramped up and competition has decreased their price as with any other commodity.

Hypothetical Results Creating False Weather Patterns

What matters most is actual dollars spent ¾ not hypothetical dollars produced. This statistical manipulation allows the U.S. to overstate economic growth and productivity, which gives way to the mythical concept of the "New Era" so widely promulgated on Wall Street and in Washington. These manipulations make our economy appear to be more robust than it actually is. It also makes comparisons to other economies difficult. The rest of the world uses apples accounting while we use oranges. It also serves to misallocate capital. Money gravitates to areas where it is most productive. The higher U.S. GDP growth and productivity figures along with above normal returns in our stock market have acted as a magnet for capital from around the globe. It has enabled the U.S. to finance its burgeoning trade deficits.

- end of article from Financial Sense Online

Article #3 - Yardsticks that blur the output picture

dated 16 October 2000, from Smithers & Co. LTD, a London firm providing advice to fund managers on international asset allocation, at http://www.smithers.co.uk/standard146.html

It is widely believed that the US has experienced a productivity miracle that has left the rest of the world behind. Reality may well be very different. The reason lies in the way that output is measured either side of the Atlantic.

In general, the US statisticians use what is known as 'hedonic' pricing and Europeans don't. The difference is startling. The Office for National Statistics has estimated that over the past four years the apparent rise in British industrial output would have been three times the previous estimate had the US system been in place.

Reality, of course, is not changed by the way it is measured, but perceptions certainly are, and US and European statistics give very different impressions about productivity and inflation as well as about output. Although central bankers are well aware of the problem, it is likely, nonetheless, to affect their policies. To those who don't know about it, the impression given is of US success and European failure.

Whether or not hedonic pricing is sound and sensible is the cause of heated arguments. What cannot be doubted is that the use of different systems makes nonsense of the relative measures of growth, productivity and inflation. Either the US is doing less well than the figures suggest or Europe is doing much better.

The US approach makes greater allowance for improvements in quality, but may overdo it. Just because a computer can do more things than before, or do them faster, does not mean people using them will wish to or be able to take advantage of this. Hedonic pricing of computers, which is the big issue, has been likened to saying that a car costing £15,000 which can go at 150 miles an hour has the same value as one costing £5000 with a maximum speed of 50 mph. But of course there is a vast difference between the speed at which cars can go and the one at which they do. What cannot be doubted is that the relative position of the US and Europe is distorted by the difference in measurement.

- end of article by Smithers & Co., London

Article #4 - Are productivity data releases based on 'pump-up' number games?

Here's another article, from the Grandfather Productivity Report at https://grandfather-economic-report.com/product.htm

We often wondered how some could claim historic high productivity growth at the same time the economy was producing record high private sector debt ratios, record low savings and profits, and soaring international debts from historic high trade deficits. Now we know such productivity claims were bogus - - as they had to be. Following proves the point.

Recent government data releases make it seem that productivity growth picked up a bit in the last several years. Dr. Kurt Richebacher (former chief economist of the Dresdner Bank in Germany) of The Richebacher Letter (June 1999, and October 2000) points out reported productivity was substantially enhanced by way of downward revisions in the calculation of the inflation rate since 1995 - - (without cranking back the new method into data for prior years). Additionally - over the years 1996-98, U.S. GDP was reported to have increased about 4% annually. Of this total for 1998 38% of GDP growth accrued from investment in computer power (they now measure increased computer power instead of volume of computer production, although computer power has little to do with true productivity). Yet, the computer industry represents just 3-4% of national employment. Essentially, this implies a correspondingly disproportionate contribution of this small sector to the economy's overall productivity performance. Taking the computer component out of GDP accounting, the larger rest of the economy really had an annual GDP growth rate of just 2.5%, with the 1998 rate being just 2% - - all resulting in significantly less productivity growth than shown.

One of the Federal Reserve consultants, Professor Robert Gordon of Northwestern University, has done a most extensive study and argues that the entire increase in recorded productivity in the American economy over the last 5 years comes from one small sector, the manufacture of computers, which accounts for only 1.2% of GDP. He illustrates that non-durables show no improvement in productivity and durables ex computers actually show a decline. His study illustrates that there is no evidence of "benefits of computers and other electronic equipment spilling over to the sectors of the economy that have heavily invested in them." Furthermore, the productivity miracles wrought in the manufacture of computers themselves only show up because of the introduction of a new measurement, not used in any other sector of the economy, which seeks to measure the change in the utility provided by computers -- the "hedonic deflator". Essentially, this is a gauge economists seek to use in order to quantify the functional capacity of the computer, meaning measuring output in units of computational power or memory capacity.

And - - the latest Economic Report of the President to Congress dated 2/2001, table B-50, shows that in 2000 previously reported productivity rates for the 1990s were restated and increased by about .05% per year by some new measurement method - - as compared to the report for Feb. 2000 and before. (For example, the increase adjustment by year was 1999 +0.3%, 1998 +.5%, 1997 +.4%, 1995 +.5%, 1994 +.7%. - - these upward adjustments make currently reported productivity appear about 20% higher in the USA , making such unreliable to compare with historical rates in the USA, and to that of other nations today).

But NOW the chickens are coming out - -
The Economist, 8/11/01, reported, "revised figures now show most of the past-reported acceleration in productivity has now vanished - - past gains were exaggerated." (for example: year 2000 was previously reported as 4+% productivity, which was 45% over-stated according to latest revisions by the Bureau of Labor Standards.)

September 4, 2001, dailyreckoning.com/ reported Dr. Kurt Richebacher said, ""At the end of July 2001, new information came out that completely demolished the myth of American prosperity. Productivity proved to be no better than it has always been. In fact, the number is still flattered by these hedonic adjustments that they make. The real number for productivity growth is probably zero. All this new technology has made no improvement in productivity."

NOTICE: just as we have recently seen reported downward revisions in past reported productivity and GDP growth, it is quite possible that the same will occur to the inflation rate's CPI since it, too, was significantly revised in the mid to late 1990s - - which will further depress reported productivity as shown on the chart.

As some could say - - if you want to increase home run production reduce the distance to the left field fence.

end of Article #3 - from Productivity Report at https://grandfather-economic-report.com/product.htm

As one commentator said. "since there is no economic equivalent of an Olympic drugs testing agency, which could sanction countries that resort to "economics by steroids". (HEDONIC INDEXING: NOW WE CAN ALL HAVE PRODUCTIVITY MIRACLES! 31 October 2000 By Marshall Auerback - http://216.46.231.211/Comm%20Archive/markcomm/i103100.htm)

August 7, 2007. Labot Dept. reported productivity figures for 2004-2006 were revised downward. As an example, 2006 was originally over-stated 60%, 1.6 vs. revised to 1.0. There seems to be a pattern for government reporting of such data. Initially up-beat presented figures are released which are later (sometimes much later, as seen here) revised downward as if the past is not as important as it was when it occurred and downgrading the past also makes current data seem more upbeat than it is. Statistical revisionism in spades.

As some could say - - if you want to increase home run production redefine how you measure by reducing the distance to the left field fence.

Article #5 - Are inflation data releases based on 'pump-up' numbers?

When someone says inflation is dead, ask them "compared to what?"

An excerpt from the Grandfather Inflation Report at inflation.htm

DIFFERENT WAYS OF MEASURING INFLATION - 4% or 11.6% inflation rate - - take your pick.

Above we discussed the fact the federal government revised how they measure inflation, and continues to do so, in a way that significantly understates the consumer price index compared to past measurement methods - - without at the same time also showing comparative data points using the prior measurement methods.

Note from this chart the March 2008 data point by the current govt. measuring method produced a 4% consumer cost of living index inflation rate, compares to an 11.6% inflation rate if measured by the pre-1983 method.

That's a huge 200% difference - and, most citizens from their own experience with living costs would agree with the prior measurement as more accurate to reality.

Why do you think the government chooses to understate its reporting of current cost of living price inflation by making it appear to be 66% less - - and not also provide reporting by prior methods?

And, what would be the impact on living standards of our seniors if their social security incomes and bank saving incomes were increased accordingly, instead of showing near nil inflation-related-adjustments? Additionally, how about the impact on families trying to cope with the combination of prices, debt and job insecurity? chart > April 30. 2008 > http://bigpicture.typepad.com/comments/2008/04/inflation-aboun.html

We understand that some may have it right in claiming the motive of government and the financial sector is to understate inflation so as to drive debt-based consumption (America Total Debt Report), which also drives trade deficits (International Trade Report), drives a devaluation of the U.S. dollar, drives a collapse of personal savings and drives stagnant to declining real family incomes (Family Income Report). In fact, hard data supporting evidence is contained in each of those linked reports. Check and see for yourself.

Additional concern regarding late 1990s data: not only has the government changed how they measure inflation for the past several years to make recent rates appear less threatening, and thereafter invented the song that 'inflation is dead' for the late 1990s and that such, together with productivity, improved U.S. competitiveness - - then why has the trade deficit doubled in the past several years indicating we have become increasingly less competitive and thereby owe more and more to foreigners?

Why did they do this? Answer: Claimed by many > the Clinton administration and some congressional leaders decided to change how inflation is measured in order to reduce the annual cost-of-living adjustment pay-outs to recipients of social security and other programs, without saying that was their objective.

So - - when one hears on T-V certain inflation rates one needs to understand that much of the touted 'low inflation' recently is masked by computer and commodity prices, and also by the fact the criteria for measuring the CPI is being revised each year - - without historical perspective. Hopefully, the above chart and discussion provides some perspective.

For more on this 'changing the rules' in measuring inflation, the impact on social security recipients, and what makes up the CPI - see the Cost of Living Debate article from the Washington Post.

Inflation measurement history on Housing

Sept. 2007 - further on changing how they measure inflation, the following is from the Rocky Mountain News

"In 1983 the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country's economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent.

The BLS solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called "Owner Equivalent Rent" component based on what a homeowner might rent his house for.

The result of this statistical sleight of hand was immediate and gratifying, for the reported inflation index quickly dropped to 2 percent. (This was in part because speculators needed to offset their holding costs by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals, which pushed down the cost of renting a house or apartment.)

While the BLS was correct in assuming that this statistical ruse would fool the average citizen into believing that inflation was only 2 percent (and therefore be willing to accept a meager 4 percent return on his bank savings), what is remarkable is that the ruse also fooled the bond traders, and apparently continues to do so, leading analyst Peter Schiff to describe these supposed savvy bond traders as the "hormonal teenagers of the capital markets."

The current subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the "benign" inflation figures reported over the past 10 years in no way reflected the skyrocketing rise in home prices, with states like California experiencing annual home price increases of as much as 30 percent annually. With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectation of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the "teaser" rates that quickly escalated to unaffordable levels. As long as home prices continued to skyrocket, buyers could refinance based on the increased value of their equity as collateral, but once home prices stabilized and even declined, many families were forced into foreclosure."

End of Article 5, from the Grandfather Inflation Report at https://grandfather-economic-report.com/inflation.htm

Article #6 - DO OFFICIAL JOBS NUMBERS
GROSSLY UNDERSTATE UNEMPLOYMENT?

May 14, 2008 - Former Federal Reserve Chairman, Paul Volcker, said in testimony to the congressional Joint Economic Committee in Washington, there's "a lot more inflation than reflected in government figures."
http://www.bloomberg.com/apps/news?pid=20601068&sid=afuI201jKvwk&refer=economy

April 10, 2001 By JOHN CRUDELE - business news - - THE loss of 86,000 jobs in March 2001 was startling to America. But here's the part that's even more shocking - the number of jobs that disappeared from our economy last month was actually much larger.

Here's the official line. The Labor Department announced last Friday that 86,000 jobs disappeared last month and that the nation's unemployment rate rose 0.1 to 4.3 percent. That was, we were told by the government, the biggest decline in jobs since 129,000 positions were eliminated in November of 1991. Could that 86,000 number actually be correct? Didn't dozens of companies publicly announce job cuts last month that amounted to well over 86,000? And aren't there probably thousands of other companies - those that don't issue press releases - that cut back on the number of workers?

I'll tell you the punch line of this column right now: The government's employment numbers for March are nonsense. There were probably more than 220,000 jobs lost in March. What the government didn't tell people on Friday was that - even as its computers estimate a loss of 86,000 positions - it was still adding 145,000 fictitious jobs to its tally. Why? Because Washington assumes companies that it didn't reach in the survey are adding people to their workforce. Without those additional 145,000 jobs, the loss of positions in March would have been 231,000.

But the situation could actually be even worse than that. As I said, the 140,000 bias-factor jobs are added because Washington assumes small companies around the country that aren't surveyed are adding jobs. Now that the economy is slowing rapidly, perhaps those same invisible companies are laying off workers. What if the bias factor should be negative? What if 140,000 jobs were cut by these invisible small companies instead of added? Then the numbers would really add up. There would then be the 86,000 jobs that were officially reported lost. Plus, you wouldn't have the additional 140,000 jobs that the government assumes were created. And you'd have the 140,000 jobs that were cut by small companies out of the government's statistical reach. What's that: 86,000, plus 140,000, plus another 140,000. If you calculate the figures the less politically beneficial way you'd come up with a loss of 366,000 jobs in March alone.

Is my figure accurate? It certainly feels right. And my guess about what small companies are doing is as good as the government's.

There's more. The unemployment rate only rose 0.1 percent. And the 4.3 percent rate is still amazingly low and a small rise is certainly nothing to worry about. That 4.3 percent, however, doesn't include people who are out of work and who have become too discouraged to keep looking for a job. If discouraged workers are counted as unemployed, the nation's jobless rate jumps to 7.6 percent.

If you've been out of work for a year and have given up looking you don't even show up in the 7.6 percent figure. If those long-term discouraged workers are counted, the nation's unemployment rate jumps to nearly 10 percent.

So is the real unemployment figure 4.3 percent or 10 percent? Is the economy just softening or is it turning to mush?

There's another government statistic that crosschecks the numbers I mentioned above. Each month the Labor Department surveys households to determine who is working. This survey shows a lot more weakness than the one that questions companies. In February this poll showed a loss of 184,000 jobs. And in March, households reported losing another 35,000. That's a total of 219,000 jobs lost in the past two months. That sounds more realistic, doesn't it?

end of Article #5 - from http://nypostonline.com/business/28327.htm - 4/10/01

Article #7 - DO OFFICIAL JOBS NUMBERS UNDERSTATE SAVINGS IN SEPT. 2007?
"As of June 2007, the personal income series was revised from January 2004 to the present. Long story short, the once negative savings rate as reflected by personal savings to income ratio since December 2005 has completely evaporated through the magic of data revision. I enclosed the news release that notifies the change. This is a clear illustration of how perception is used to change reality. It works as long as nobody pays attention." Author: Jim Sinclair Sept. 28, 2007.

Article #8 - DO OFFICIAL PERSONAL CONSUMPTION and GDP FIGURES OVER-STATE REALITY IN 2008 by at least 31%?

What the government calls "personal consumption" is actually a grab bag of items, some of which don't really fit the usual notion of consumer spending. For example, the nation's current annual personal consumption of $10 trillion includes about $1.8 trillion in outlays by Medicare, Medicaid, and private health insurance providers. This is real money, but consumers don't control or even see most of it, since it usually goes right to the health-care provider.

The government's count of personal consumption also includes "imputed" categories, that is, entries that don't involve any money changing hands. Two of the biggest examples: $1.1 trillion for "rent" that homeowners theoretically pay to themselves to live in their own homes, and $240 billion for "services furnished without payment by financial intermediaries"—in other words, the value of services like no-fee checking accounts.

Note > just the above 3 items total $3.14 Trillion, or 31% of total claimed personal consumptioi

In fact, once medical outlays and those two imputed categories are set aside, it turns out that the rest of personal spending has actually fallen since November, adjusted for inflation. The decline is pretty much across the board: inflation-adjusted purchases of food, clothing, furniture, and motor vehicles are all down. The part of health-care spending that individuals control most directly—prescription drugs—is down as well.

Like personal consumption expenditures, GDP also includes the government imputed value of "free" checking accounts and the value homeowners receive from renting their own house. Calculation of the latter is based on a survey of homeowners asking them what they would pay to rent their own house if they did not own it. This is as preposterous as counting the value of free sex one gets from one's lover as opposed to what one might have to pay visiting the local red light district. Heck, why not count the value added for mowing one's own grass vs. hiring someone to do it? What about free backrubs? And pretending those "free" checking accounts have unrecorded value that consumers should be paying for is equally absurd.

hedonic are yet another mirage that never occurs. Computers are the best example of hedonics. Prices go down every year while processing power, disk space, and other features increase. Let's say you buy a computer for $500. The government tries to figure out what that computer would have cost last year. For the sake of argument let's say that number is $1,000. So the government records the sale at $1,000. Multiply this by every computer sold and you have a massive fictional number. Hedonics also come into play with autos. For example, if the government decides there are new features or safety improvements on this year's models vs. last year's model, sales numbers are upwardly adjusted.

Subtract out all of this nonsense leaves true economic status much, much less than touted. So much for openness in government.
April 2008 > www.businessweek.com/magazine/content/08_16/b4080000602263.htm and http://globaleconomicanalysis.blogspot.com/

C. Corporate Business Profit Data Manipulations & Wizardry
- - Profits over-stated by Corporations via manipulations intended to mislead investors

(below is evidence - examples here recorded 2001- present)

Levy Institute Reports Earnings Falsification
In October 2001, the prestigious Jerome Levy Institute, an economics research firm, contends that corporations have regularly overstated their profits by more than 10% for two decades. In fact according to the Levy Institute, companies have recently accelerated the trend in overstating earnings by 20%. The report infers that companies are lying to investors by deliberately falsifying their financial reports. The report documents abuses such as non-recurring charges, write-offs, and stock options to employees that understate labor expense and dilute shareholder value. The implication of the Levy report is that the stock market is much more overvalued than indicated. http://www.levy.org/

BBC News - 30 June 2002 by Graham Turner - "It was not so long ago that US companies were routinely reporting double-digit growth in their earnings as the stock markets soared repeatedly to new heights. The government's own profit figures detailed in the national accounts, showed that companies were never making the money that they claimed. During the last five years of the bull market, the companies that make up the S&P500 reported that profits had risen by 96.2% (19%/yr.). By contrast, the government's own figures revealed that corporate sector profits had only risen by 36.1% (7%/yr). The figures implied that US companies could be overstating profits growth by more than 150%. But in truth, even then it was not difficult to see that US corporates were cooking their books. Investors did not have to look far to realize that the profit figures put out by many companies in the late 1990s were inflated. Of course, now we know that companies were indeed inflating their earnings."

Faz.net (Germany) reported 17 Jan. 2002: "The net operating profits of the 500 companies comprising America's Standard & Poor's index were some 70 percent higher than the results reported under U.S. GAAP rules (United States Generally Accepted Accounting Principles)." http://www.faz.com/IN/INtemplates/efaz/archive.asp?doc=%7BDDB66EBE-F041-4A5A-821C-CF1F2187BCF1%7D&width=800&height=572&agt=explorer&ver=4&svr=4

March 4, 2002 - 'One story on Bloomberg today highlighted the fact that corporate profitability in the 90's came from over-funded pension plans at companies such as IBM, GE, and GM. With rising stock prices during the decade, companies could contribute less to their pension plans for employee's retirement. Now with the S&P 500 down 25 percent since January of 2000, companies will be forced to contribute more to their pension plans to fund retirement benefits. This increases expenses and lowers profits. Maybe under our current system these expenses will be excluded from the bottom line as extra ordinary expenses and be excluded from pro forma numbers. The assumption will be that double-digit returns are the norm for pension plan investments. Therefore company pension expenses will now become an extra ordinary expense no longer counted as a real cost of doing business.

Economic numbers are even questionable since they are massaged by government statisticians. The positive GDP numbers of the fourth quarter were the product of government statistical manipulations through hedonic indexing of computer sales and government spending. The government inflated $1.9 billion in computer sales into an increase of $23.5 billion in sales. This higher number is complete fiction. The government is also making the GDP numbers larger by adjusting the CPI deflator for computing GDP. The real numbers for GDP during the fourth quarter were actually negative instead of positive as reported.' http://www.financialsense.com/

March 2003 - Pension Plan Games: General Electric's pension plan "gains" contributed $806 million to pretax profits in 2002, even though the company's pension actually LOST $5.25 billion last year - a staggering sum equivalent to 29% of GE's pretax income. GE's pension plan "profit" last year was little more than an accounting fiction. The company simply relied upon a legal - albeit deceptive - accounting practice that permitted the industrial giant to book a profit based upon its ESTIMATED pension gain of 8.5%, rather than its ACTUAL loss of 11.6%. Deceptive pension accounting is but one of the many fictions that helped perpetuate the late-1990s bull market. If, for example, the S&P 500 companies had included their actual pension plan losses in their 2001 earnings - instead of their fictional gains - earnings for the S&P 500 would have been about 69% lower than what the companies reported for 2001, according to Credit Suisse First Boston Corp. In other words, without fictional pension plan profits the S&P 500 would have reported earnings of $68.7 billion in 2001, rather than $219 billion. http://www.dailyreckoning.com/

"Many major corporations still play things straight, but a significant and growing number of otherwise high-grade managers - CEOs you would be happy to have as spouses for your children or trustees under your will - have come to the view that it's okay to manipulate earnings to satisfy what they believe are Wall Street's desires. Indeed, many CEOs think this kind of manipulation is not only okay, but actually their duty." Warren Buffett

October 2003 - According to the survey by U.S. Trust, 79 percent of the nation’s super-rich “question the reliability” of corporate financial statements and do not trust the recommendations of equity analysts. 67 percent said they do not trust corporate management, and 65 percent do not trust independent auditors. U.S. Trust is a unit of Charles Schwab & Co., the largest U.S. discount brokerage. http://www.msnbc.com/news/989734.asp?0si=-&cp1=1

April 2004 - Over-state Profits by Under-stating Employee Expenses - "Everyone already knows that a company can expense a project to upgrade technology over a three- to five-year period. But what few realize is that the costs of technology workers can also be amortized over the length of a project, even if they happen to be regular employees on a company's payroll. This part of accounting rule FASB 98 is in fact being interpreted as saying that a company doesn't have to start recording the expense for technology workers until after whatever is being developed comes online, according to my source. With this discretion, companies can decide whether to slow down or accelerate employee expenses, fine-tuning earnings to meet just about any target number Wall Street would like." Source: NY Post, 4/22/04, J. Crudele. This practice to manipulate investors would never have been even considered 25 years ago. The fact this practice supposedly is 'allowed' today shows Wall Street is in full control of US accounting rule-making, thereby providing further evidence that investors cannot trust financial statements and the US Dept. of Commerce allows such.

April 2004 - Inflated PE ratios drive stocks, not profits. Not only have profits been over-stated, as reported above, but those over-stated profits had little to do with higher stock prices and much to do with PE ratio inflation. In April 2004 The Wall Street Journal reported that the stock price to earning ratio (PE) expansion generated much of the gains in the Superbull market of the ‘80s and 90s. They quote Merrill Lynch  economist David Rosenberg who estimated higher stock multiples accounted for 70% of the price appreciation in the S&P 500 from 1980-2000. Only 30% was delivered by earnings growth.

March 2005 - Huge $11 Billion Profit Manipulation and Fraudulent Activity by Fannie Mae. By Marcy Gordon, AP Business Writer - Fannie Mae Says to Miss Deadline for Filing 2004 Report; Regulators Find Falsified Signatures.  Mortgage giant Fannie Mae, previously accused by regulators of manipulating earnings, disclosed Thursday that it will miss the regulatory deadline for filing its financial report for 2004 and may have to record an additional loss of some $2.4 billion. The discovery of falsified signatures raised the possibility of criminal activity by company employees. Fannie Mae, which is the largest U.S. buyer of home mortgages, recently was ordered by the Securities and Exchange Commission to restate its earnings back to 2001, a correction that could reach an estimated $8.4 billion. That would erase nearly one-third of the company's reported profit since 2001. The newly disclosed potential loss would bring the restatement to nearly $11 billion. In a filing with the SEC Thursday, the government-sponsored company said it would not be able to meet a March 31 deadline to file the annual report and was unable to provide "a reasonable estimate" of its earnings for 2003 and 2004. The company still hasn't filed its third-quarter 2004 report, which was due in November. Fannie Mae missed that deadline after its independent auditor KPMG refused to sign off on the report. The latest downturn in Fannie Mae's fortunes since its accounting crisis came to light last September came as news emerged that federal regulators had found cases of company employees falsifying signatures in ledgers and improperly altering database records. Fannie Mae and Freddie Mac, its smaller rival, were created by Congress to pump money into the $8 trillion home-mortgage market. They buy and guarantee repayment of billions of dollars of home loans each year from banks and other lenders, then bundle them into securities that are resold to investors worldwide. http://biz.yahoo.com/ap/050317/fannie_mae_7.html

March 2005 - Morgan, UBS Helped Parmalat Hide Costs - March 18 (Bloomberg) -- Morgan Stanley and UBS AG helped Parmalat Finanziaria SpA, Italy's largest foodmaker, hide the cost of selling 720 million euros ($962 million) of bonds six months before it collapsed in the country's biggest bankruptcy, according to a report prepared for Milan prosecutors. http://www.bloomberg.com/apps/news?pid=10000103&sid=aXPX0cYd5fbM&refer=us

March 2005 - $11 billion, Fraudulent Books and Largest securities-fraud settlement in U.S. history - JPMorgan to Pay $2 Bln to Settle WorldCom Fraud Suit - March 16 (Bloomberg) -- JPMorgan Chase & Co., the second- largest U.S. bank, agreed to pay $2 billion to settle claims by investors that the lender should have known WorldCom Inc.'s books were fraudulent when it helped sell $5 billion in company bonds. The settlement by JPMorgan is the second-largest following the $2.6 billion that Citigroup Inc. agreed to pay last year to resolve its WorldCom liability. The agreements by all 17 WorldCom underwriters total more than $6 billion, the largest securities- fraud settlement in U.S. history. WorldCom investors claimed the banks should have known that WorldCom's finances were fraudulent before they helped it sell securities. On March 10, Deutsche Bank, the third largest European bank, agreed to pay $325 million to settle its liability. Also that day, WestLB AG and Caboto Holding SIM SpA agreed to pay $112.5 million. On March 9, ABN Amro, Mitsubishi Securities International, BNP Paribas Securities Corp. and Mizuho International agreed to pay $428.4 million. On March 4, Lehman Brothers Holdings Inc., UBS AG, Goldman Sachs Group Inc. and Credit Suisse First Boston agreed to pay $100.3 million. On March 3, Bank of America Corp., the third-biggest U.S. bank, agreed to pay $460.5 million. WorldCom artificially reduced expenses in 2001 and 2002 to meet expectations of Wall Street analysts. On March 15, a jury in New York found former WorldCom chairman Bernard Ebbers guilty of conspiracy and securities fraud for his role in the crime - an $11 billion fraud that brought down the long-distance company, which filed the largest bankruptcy in U.S. history in July 2002.  http://www.bloomberg.com/apps/news?pid=10000103&sid=aqz7AWiwm8.I&refer=us

April 2005 - Fifteen New York Stock Exchange specialists, the traders responsible for keeping an orderly market on the world's biggest stock exchange, were indicted for fraudulent and improper trading. The NYSE's seven specialist firms last year agreed to pay $247 million to settle allegations that they profited on trades at the expense of their customers. "To see criminal activity on the floor is really astounding,'' said Jacob Zamansky, a New York lawyer who represents investors in arbitrations against brokers." http://quote.bloomberg.com/apps/news?pid=10000103&sid=aD6h9N20doXg&refer=news_index

June 10, 2005 (Bloomberg) - Citigroup Inc., the world's biggest bank, agreed to pay $2 billion to settle claims by Enron Corp. shareholders, the biggest payment from a lawsuit that accuses Wall Street firms of helping the energy trader to commit fraud. Investors seeking $30 billion in a class-action suit stemming from Enron's 2001 bankruptcy claimed that firms including Citigroup, Merrill Lynch & Co, Bank of America and JPMorgan Chase & Co. (and other banks) let the company hide billions of dollars in debt in off-the-books partnerships. The Enron settlement brings to more than $5 billion the amount Citigroup has spent in two years to resolve allegations that it aided in corporate frauds and money laundering and published biased research. http://quote.bloomberg.com/apps/news?pid=10000103&sid=a26pa2fDp36M&refer=news_index

June 14, 2005 - JPMorgan Chase & Co., the third-largest U.S. bank, agreed to pay $2.2 billion to settle a class-action lawsuit over its role in helping Enron Corp. engineer an accounting fraud that bilked investors out of billions of dollars.

April 11, 2006 - (Bloomberg) - Federal prosecutors will charge people who worked for Merrill Lynch & Co. and Goldman Sachs Group Inc. with insider trading, said Megan Gaffney, a spokeswoman for U.S. Attorney Michael J. Garcia in Manhattan.  The arrests will be announced at a press conference today. The defendants are charged with participating in a massive international insider trading scheme.

June 15, 2006 - WASHINGTON (Reuters) - It will be many years before Fannie Mae, the largest home mortgage entity in America, has the proper financial controls in place following an $11 billion accounting scandal, which cost shareholders up to $30 billion, the acting director of the Office of Federal Housing Enterprise Oversight told a Senate panel. Previously, Fannie Mae reported record profits year after year - - now admitting such was bogus. (also see March 2005 above).

November 2, 2007 - (Bloomberg) - Merrill Lynch & Co. fell the most in six years after Deutsche Bank AG said the world's biggest brokerage may write down an additional $10 billion for losses on subprime assets. "We have increasingly lost confidence in the financials of Merrill," Deutsche Bank analyst Michael Mayo said. Regulators are examining whether Merrill used off- balance-sheet transactions with hedge funds that were intended to postpone disclosure of losses. In a further sign investors' confidence in the firm's creditworthiness is deteriorating. The SEC will probably examine whether dealings with hedge funds complied with accounting rules or whether Merrill ``tried to engage in what looks like sleight of hand,'' said Peter Henning, a former attorney in the criminal division of the U.S. Justice Department. Goldman Sachs Group Inc., the largest securities firm by market value will announce additional writedowns. Spokesman Lucas Van Praag said there was "no truth in the rumors, some of which smack of rather poor attempts at market manipulation."

November 15 2007 - Fortune - Fannie Mae's fuzzy math. The mortgage lender has quietly changed the way it calculates its bad loans -- and it could be camouflaging steep credit losses, writes Fortune's Peter Eavis. "Investors might want to take a closer look at Fannie Mae's latest earnings report. Lost in the unsurprising news of the mortgage lender's heavy losses was a critical change in the way the company discloses its bad loans -- a move that could mask that credit losses that are rising above levels that the company predicted just three months ago."

In addition to Education and Economic Revisionism we have public manipulation regarding trust funds - -

D. Government Surpluses & Trust Fund Wizardry and Manipulation
Regarding Government Debt and Surpluses

The fact federal government debt continued to rise to new record highs each year (see Federal Govt. Debt Report) That also proves the misrepresentation in the latter 1990s that government ran a surplus in its general accounts while paying down debt, since debt increased every single year. Since then deficits are purposely understated. Of course we know how that is done - - it's done by siphoning-off cash surpluses incoming to trust funds and using same to cover operational deficits of the general government - - and covering-up this theft by placing in the trust funds non-marketable IOUs with zero budget plan to pay it back in cash or marketable securities.

This chart shows the cumulative amounts siphoned off from trust funds to date.

As of end of 2010, trust fund surpluses siphoned-off total $4.6 Trillion, of which $2.4 Trillion involved social security.

This is another area of manipulation, not just with data but with hard cash intended to be saved for the future, yet squandered.

This government practice of siphoning-off social security trust fund surpluses and spending same on on stuff un-related to senior pensions, is a crime on the books in every state if such practice was done by private business with its pension plans.

This chart shows the cumulative amounts siphoned off from the social security trust fund.

In the past 19 years the federal government siphoned off Social Security and other trust fund money worth $4.6 trillion (incl. $2.4 trillion from the social security trust fund) to cover general government operational deficit spending. For 2007 alone, they siphoned-off another $204 billion from the various trust funds, of which $175 billion came from Social Security.

This subject is fully documented in Trust Fund Surplus Report and Siphon-off Trust Fund articles

A Request

The author of this report requests inputs from others regarding the subject - - information to add, corrections to be made - - as we seek truth.

Lastly, it is requested that all government agencies which change measurement criteria of any major items be required to publish current, future and all historic data by both old and new methods - - for at least the first 5 years after changes - - in addition to more comprehensively revealing the rationale for making changes. Such must be done to assure more trustworthiness and creditability in both government and corporate America, so dangerously lacking - -

KEEP IN MIND THAT WHILE THE ABOVE REPORT INCLUDES STATISTICAL WIZARDRY and fraud reporting through 2008 such was but a minor fore-runner as to what would occur in the major finanical crisis of 2008-2011, where instead of the defrauding finanicial sector firms paying fines when many should have been bankrupted and closed - - now they got off near scott free (with soaring bonuses) - - as the U.S. Government provided TRILLIONS OF DOLLARS in bailouts together with near free loans and suppressed interest rates at the expense of those who saved for their retirement, claiming the same defrauding institutions as reported above were now called 'TOO BIG TO FAIL,' although it was considered perfectly OK to charge it all to 80% reduced income paid seniors on their funds saved over a life time for their own retirement, while additionally bankrupting many homeowners, plus charging trillions and trillions in added debt to their children and grandchildren.

All proof that the game of perpetual fraud (created by the financial sector and supported by the federal government & political sector) continues stronger and more evasive than ever before. And the game of STATISTICAL REVISIONISM AND WIZARDRY will continue to be played by the financial and government sectors against its citizens - - until somehow it is stopped cold and prosecuted and these sectors are significantly reduced in size relative to the economy - - or the system collapses.

additional reading this subject

The reader may further explore this subject in the Productivity Report , the Inflation Report , the Foreign Trade Report , the America Total Debt Report , the Trust in Government Report , the FINANCIAL TERRORISM AGAINST SENIORS , (note, links in that article should be redirected to new location shown in table of contents of The Grandfather Economic Report) and the Voter Turn-out Report.

- - and > The Numbers Racket - 'why the economy is worse than we know it.' - Harpers, May 2008, by Kevin Phillips
- - and > George Orwell' 1984 today which contains all the predictions, including its section 'Ministry of Truth'.)

Michael Hodges, author of The Grandfather Economic Report , may be reached by email

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Copyright © 1997-2005 Michael W. Hodges. The Grandfather Economic Report series is the intellectual property of its author; all rights reserved under Copyright Conventions. Permission to redistribute all or part of this series for non commercial purposes is granted by the author, provided the associated web page address is included and full credit given to the Grandfather Economic Report and the author, Michael Hodges. Notice appreciated via email.