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THEY HAVE GOT TO BE KIDDING (Bogus GDP, inflation numbers)
Financial Sense University ^ | November 1, 2007 | Peter Schiff

Posted on 11/01/2007 7:01:20 PM PDT by Travis McGee

Yesterday, as the dollar fell to new record lows and oil and gold prices surged to new highs, Wall Street remained fixated on wholly meaningless government data that managed to report the lowest inflation in the last half century. These bizarre numbers were integral in allowing the Commerce Department to report 3.9% annualized GDP growth in the third quarter, which was heralded by the bulls as evidence that a resilient U.S. economy had shrugged off the problems in the housing and mortgage markets. However, the government’s ability to make “economic growth” magically appear is based purely on statistical finesse.

To arrive at this rate, the government had to assume that inflation during the quarter ran at an annualized rate of .8% (that’s less than 1%). That is the lowest rate of inflation used to calculate U.S. GDP since the Eisenhower administration. With oil priced at almost $100 per barrel, gold futures trading over $800 per ounce, the dollar hitting record lows, and the Fed printing money like it is going out of style, the government has the nerve to claim that current inflation is the lowest it has been in half a century. Unbelievable!

Just in case there is some confusion, the government adjusts nominal GDP gains using the GDP deflator, which represents the inflation rate during the time period being measured. This is done to strip inflation out of the GDP calculation so that only real growth gets counted: not nominal gains that result purely from inflation.

The consensus estimate for 3rd quarter GDP growth was 3.4%. The reason we beat that number was that the government adjusted the nominal 4.7% gain by a mere .8%. Had the government assumed a higher rate of inflation, say 2.6% (identical to the rate used to deflate second quarter GDP,) the 3rd quarter gain would have been only 2.1%, well shy of the consensus forecast. My guess is that inflation is actually running at an annualized rate closer to 10%. Therefore using a more honest deflator, the U.S. economy is actually contracting, which would explain the recent anecdotal evidence provided by various economic polls, voter dissatisfaction and consumer sentiment numbers. In fact, if one simply measures U.S. GDP using gold or any other currency, it is clear that we are already in a recession.

Similar illusions are created in other numbers, such as retail sales, corporate earnings, and stock prices, which are all rising merely as a result of actual inflation being higher than the official reports. For example, higher retail sales reflect consumers paying higher prices for the products that they buy. They may in fact be buying less stuff, but are paying more for it. Further, part of the gains result from tourists using their appreciated foreign currencies to buy products cheaper here than they can in the own countries. I have heard about Canadians checking into U.S. hotels with empty suitcases, crossing the border to indulge in weekend shopping sprees.

Corporate earnings, particularly those of multi-nationals, are padded as their foreign currency denominated earnings translate into more dollars when those earnings are repatriated. However, such gains are illusions, as companies merely earn more dollars of diminished value for the goods they sell. The actual volume of exports does not necessarily improve much, as evidenced by weak industrial production and manufacturing employment. When those additional debased dollars are paid out as dividends, they confer no real increase in global purchasing power to shareholders.

Similarly, just as inflation causes prices to rise for goods and services it causes stock prices to rise as well. Though such gains may be less than the actual increase in the cost of living, as long as the government gets away with using bogus CPI numbers which fail to fully reflect inflation, Wall Street takes credit for nominal gains as if they were real.

However, as ridiculous as the phony GDP number was, yesterday’s biggest joke was a report on global competitiveness put out by the World Economic Forum in Davos, Switzerland, which ranked the U.S. economy as the world’s most competitive. To arrive at this conclusion, the forum has obliterated the obvious under a mountain of theory. In determining country rankings, the WEF weighed strengths in their "12 Pillars of Competitiveness", including: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation. Completely ignored however are the measurable results of competitiveness, notably a trade surplus and a strong currency.

It is as if the WEF decided to judge a weight loss contest without using a scale, by instead focusing only on mental attitude, dedication, perseverance, and nutritional education! As a result the prize is awarded to the fattest contestant. Based on the empirical evidence of a gargantuan trade deficit, staggering global indebtedness, and a declining currency, the United States is clearly not the most competitive economy in the world.


TOPICS: Business/Economy
KEYWORDS: conspiracytheories; gdp; goldbuggerer; inflation; moonbat; nutjob; paranoiawilldestroya; paulbearer
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1 posted on 11/01/2007 7:01:21 PM PDT by Travis McGee
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To: Hydroshock

Econoping


2 posted on 11/01/2007 7:01:41 PM PDT by Travis McGee (---www.EnemiesForeignAndDomestic.com---)
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To: Travis McGee

Econo double speak.


3 posted on 11/01/2007 7:07:25 PM PDT by golfisnr1 (Democrats are like roaches - hard to get rid of.)
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To: Travis McGee
United States is clearly not the most competitive economy in the world.

So who is?
Cuba, Iran, perhaps Venezuela?

4 posted on 11/01/2007 7:13:00 PM PDT by chaos_5 (Fred & Hunter '08)
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To: Calpernia; cbkaty; Nervous Tick; ex-Texan; RockinRight; NVDave; Neidermeyer; Travis McGee; sbMKE; ..

Economy/Credit/Housing Issues Ping List

If you want on or off this list let me know


5 posted on 11/01/2007 7:13:15 PM PDT by Hydroshock ("The Constitution should be taken like mountain whiskey -- undiluted and untaxed." - Sam Ervin)
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To: Travis McGee

Gibberish. Shiff is using polls and “feelings” of people and not economic data. No matter what he believes about our economy as a whole, it’s still better than most, if not all, other countries.


6 posted on 11/01/2007 7:15:52 PM PDT by Ron in Acreage (Conservative 1st, republican sometime)
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To: Travis McGee

I don’t know about the WEF global ranks, but our own government’s reporting about domestic inflation rates are a joke...of course they may have to lie because of those inflation-indexed bonds...What a web they wove.


7 posted on 11/01/2007 7:21:08 PM PDT by Shermy
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To: Ron in Acreage

Don’t know about you but my anecdotal experience suggests there’s far more inflation in prices than the .8% in the latest report.


8 posted on 11/01/2007 7:23:34 PM PDT by saganite
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To: Travis McGee
My guess is that inflation is actually running at an annualized rate closer to 10%. Therefore...

Not to say I necessarily take numbers in government reports at face value, but this rebuttal is lame. On one side we've got a claim, presumably put forth by some economist working for the government (not "the government"), that inflation was 0.8%. Is that correct? I have no idea. I do know, however, that saying "my guess is" and then pulling a number out of the clear blue sky, is not a counterargument.

Further, part of the gains result from tourists using their appreciated foreign currencies to buy products cheaper here than they can in the own countries.

Which....what...."doesn't count"?

Corporate earnings, particularly those of multi-nationals, are padded as their foreign currency denominated earnings translate into more dollars when those earnings are repatriated.

That's right, I suppose. If you owed a company in yen rather than dollars you are sad, and the company is happy, because they have earned more. So what? I suppose this is another thing I am supposed to think "doesn't count"?

However, such gains are illusions, as companies merely earn more dollars of diminished value for the goods they sell.

No, the gains (from being paid in an appreciating foreign currency) are real. The sale of goods domestically, in dollars, is a separate issue. But let us note that this guy hasn't made the argument he's trying to here, either. True, maybe the company is getting more dollars for the goods they sell, but those dollars are worth so much less that overall the company has lost out.

But that's not the only possibility. Maybe while the dollar is down the company is selling more at a pace that outweighs that. Or maybe the two effects actually balance. Again, an actual argument is required to settle the issue, not merely waving one's hands and saying "my guess is 10%".

The actual volume of exports does not necessarily improve much, as evidenced by weak industrial production and manufacturing employment.

What does "actual volume of exports" have to do with anything in the first place? Thought we were talking about GDP, not, er, GDV.

When those additional debased dollars are paid out as dividends, they confer no real increase in global purchasing power to shareholders.

Again, an argument is needed for this. Maybe dividends go up at the same time in a way that balances or outweighs the inflation. Anyway, there's more to GDP than dividends so I'm not sure what he's trying to prove exactly.

To arrive at this conclusion, the forum has obliterated the obvious under a mountain of theory.

Yes, another instance where some stupidhead insisted on using formulas and data ("a mountain of theory") instead of just saying "my guess is" because that's "the obvious".

[...]Completely ignored however are the measurable results of competitiveness, notably a trade surplus and a strong currency. [...] Based on the empirical evidence of a gargantuan trade deficit, staggering global indebtedness, and a declining currency, the United States is clearly not the most competitive economy in the world.

I'll give him half a point here, only because I don't know what the heck "competitive" is supposed to mean in the context of an "economy". Maybe the U.S. is, or is not, the "most competitive economy" - I don't know, and I don't care.

But the real question is who is this guy, and why are his arguments so weak?

9 posted on 11/01/2007 7:24:43 PM PDT by Dr. Frank fan
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To: Travis McGee

“Further, part of the gains result from tourists using their appreciated foreign currencies to buy products cheaper here than they can in the own countries. I have heard about Canadians checking into U.S. hotels with empty suitcases, crossing the border to indulge in weekend shopping sprees.”

How dare them! How HORRIBLE! How could they do this?

My inflation ravaged 401K is killing me. 30% growth year to date just sucks. If I don’t start getting 50% return, I’m going to tell those pollsters that the economy is going to hell.


10 posted on 11/01/2007 7:28:28 PM PDT by listenhillary (millions crippled by the war on poverty....but we won't pull out)
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To: saganite
Don’t know about you but my anecdotal experience suggests there’s far more inflation in prices than the .8% in the latest report.

You have anecdotal experience of buying a representative basket of things at the beginning of the third quarter and then buying a comparable basket of things again at the end of the third quarter, and noticing a significant price difference?

I'm going to go out on a limb and say: No, you don't.

11 posted on 11/01/2007 7:28:46 PM PDT by Dr. Frank fan
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To: Travis McGee

The libs are in denial. If you live in Michigan, NY, or Ohio, then yes, things look pretty bleak and you can’t believe the numbers. But the rest of us are doing pretty well. Even here in Florida, where we’re reminded daily that we have the second worst foreclosure problem in the nation (behind CA), the economy is doing OK. It’s just certain sectors, where people made bad choices, that are hurting.


12 posted on 11/01/2007 7:29:01 PM PDT by Brilliant
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To: Travis McGee

You can make our economy appear to be doing whatever you wish if you are trained in statistical finesse.


13 posted on 11/01/2007 7:30:54 PM PDT by B4Ranch (( "Freedom is not free, but don't worry the U.S. Marine Corps will pay most of your share." ))
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To: chaos_5

China, most of the country is no wage slave labor.


14 posted on 11/01/2007 7:32:32 PM PDT by Tarpon
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To: Travis McGee

I don’t thinkI’m as pessimistic as the author, but he is absolutely right in at least one sense.

Measuring inflation in nominal dollars is meaningless when our currency is being flushed down the bowl by our central bank and our profligate spending. We need to raise interest rates by about 1.25 points, and instead we lowered them today. If there has ever been a time for tight monetary policy, it’s now, and instead we’re literally printing money. I could not be more pissed off at the people who are supposedly ‘’managing’’ our economy.


15 posted on 11/01/2007 7:33:08 PM PDT by Turbopilot (iumop ap!sdn w,I 'aw dlaH)
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To: Dr. Frank fan

You’re going out on the wrong limb then. And why would you doubt that I’ve seen higher prices on food and fuel? Are you just whistling past the graveyard? Or maybe it’s wishful thinking on your part since you want to believe those growth numbers.


16 posted on 11/01/2007 7:33:20 PM PDT by saganite
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To: saganite
I save every receipt from everything. If an item I purchased is to be used in my biz, I yellow hilite it or circle the item and the price.
I’ve noted the container sizes have shrunk yet the price remains similar.
I’m putting inflation, based on a market basket of stuff I buy every week at about 15% to 17%in the last 12 months. Obviously, this does not include fuel or housing so anyone can take exception to it.
17 posted on 11/01/2007 7:33:30 PM PDT by investigateworld ( Abortion stops a beating heart.)
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To: Travis McGee

Inflation is low because housing prices are coming down (read: deflation) and U.S. exports are up 1/3.

Oil is up, that’s true, but oil is a smaller part of our GDP than is housing.


18 posted on 11/01/2007 7:34:04 PM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: Turbopilot
I don’t think I’m as pessimistic as the author...

The author isn't pessimistic. He makes this crap up to shill more gold. He doesn't believe it at all.

19 posted on 11/01/2007 7:36:59 PM PDT by Petronski (Here we go, Steelers. Here we go!)
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To: Hydroshock

On, please.


20 posted on 11/01/2007 7:38:02 PM PDT by TEEHEE
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To: saganite
Or maybe it’s wishful thinking on your part since you want to believe those growth numbers.

I think it's wishful thinking on your part because you DON'T want to believe the growth numbers.

21 posted on 11/01/2007 7:38:05 PM PDT by Petronski (Here we go, Steelers. Here we go!)
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To: Tarpon
Cheapest doesn't necessarily mean most competitive. Quality and productivity is usually poor with slave labor.
22 posted on 11/01/2007 7:38:11 PM PDT by chaos_5 (Fred & Hunter '08)
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To: Travis McGee

When Schiff can back up his words with mathematics; I’ll listen.

However, as long as all that he presents are his “feelings”, then he’s just another Economic AlGore. He’ll have a fanclub, I sure, ... (they all do)... heck, he maybe even win an award or two; but that’s about it. [shrug]

Bring numbers or stay home, Schiff.


23 posted on 11/01/2007 7:39:04 PM PDT by OkiMusashi (Beware the fury of a patient man. --- John Dryden)
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To: chaos_5

well yes that’s true, quality does count. The Chinese just build enough product overage to cover the replacements. They assume you will tire of sending them back before they run out of replacement junk to send you.


24 posted on 11/01/2007 7:40:03 PM PDT by Tarpon
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To: Petronski

I would like to believe those numbers but I am always reminded that they are produced by a government agency. I tend to believe the stock market and the commodities market much more than the govt. You should too.


25 posted on 11/01/2007 7:41:12 PM PDT by saganite
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To: Turbopilot

Why raise interest rates? Why not lower to the lowest possible rate and then stop printing money?


26 posted on 11/01/2007 7:41:31 PM PDT by I got the rope
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To: saganite

You are correct. The inflation numbers from the government don’t include a lot of things, like food, energy, taxes etc. Things that are absolutely going up more than .8%


27 posted on 11/01/2007 7:42:24 PM PDT by Ron in Acreage (Conservative 1st, republican sometime)
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To: saganite
I would like to believe those numbers...

Doubtful.

28 posted on 11/01/2007 7:43:42 PM PDT by Petronski (Here we go, Steelers. Here we go!)
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To: Dr. Frank fan
You have anecdotal experience of buying a representative basket of things at the beginning of the third quarter and then buying a comparable basket of things again at the end of the third quarter, and noticing a significant price difference?

Consider the lowly can of tuna. It has reached nearly farcical water/solid proportions.

While the price PER CAN has increased a relatively modest 25% in price over a two year period, the contents have dropped by at least 50%.

Apparently, the canneries cannot afford to retool the plants to stop using the old 16oz can so they just change the water/oil ratio.

The label is still correct (ie the former 16oz can of tuna now holds around 7-8 oz of fish) only the price and amount have changed.

There are many anecdotal examples like this, universally adjusted by the experts to discount their significance.

At the end of the day, people, regardless of income levels have a sinking sense "something is not right"

They are correct.

Best regards,

29 posted on 11/01/2007 7:45:20 PM PDT by Copernicus (Mary Carpenter Speaks About Gun Control http://www.youtube.com/view_play_list?p=7CCB40F421ED4819)
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To: Dr. Frank fan
But the real question is who is this guy, and why are his arguments so weak?

Peter Schiff is a noted Bear, well known as 'Dr. Doom'. He was trained by his father, Irwin Schiff, who wrote books explaining why you don't have to pay your income tax. As a result he is now in a Federal Pen!

30 posted on 11/01/2007 7:48:50 PM PDT by Lucius Cornelius Sulla (Ron Paul Criminality: http://www.wired.com/politics/security/news/2007/10/paul_bot)
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To: investigateworld

What are you buying that’s up 15 to 17% in the last 12 months. Even dairy products except Milk aren’t up that much.


31 posted on 11/01/2007 7:49:44 PM PDT by rb22982
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To: Brilliant

Exactly right. The forclosure numbers are up in some formerly “hot” markets. I’m here in WPB, FL and the For Sale signs on homes are like campaign signs on a monday before election day. Most are on homes that were purchased at the peak and not on those of us who bought 5 or more years ago.


32 posted on 11/01/2007 7:49:46 PM PDT by Ron in Acreage (Conservative 1st, republican sometime)
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To: I got the rope

Huh? Interest rates are controlled by the amount of money we print. If interest rates were lowered to the ‘’lowest possible levels’’ it would be because we were printing money like Robert Mugabe.


33 posted on 11/01/2007 7:50:02 PM PDT by Turbopilot (iumop ap!sdn w,I 'aw dlaH)
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To: Copernicus
There are many anecdotal examples like this

Anecdotal = unscientific.

34 posted on 11/01/2007 7:50:46 PM PDT by Lucius Cornelius Sulla (Ron Paul Criminality: http://www.wired.com/politics/security/news/2007/10/paul_bot)
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To: Ron in Acreage
The inflation numbers from the government don’t include a lot of things, like food, energy, taxes etc

The inflation # DOES include food & energy in them. They also release a seperate # that does not. If you do not see the word "core" it is the overall inflation including food & energy.

35 posted on 11/01/2007 7:51:04 PM PDT by rb22982
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To: Copernicus

So why are grocery stores showing annual growth of 1-5% and not 25+% in the last 2 years? Surely you don’t think we’ve cut eating amounts by 25% in 2 years.


36 posted on 11/01/2007 7:52:23 PM PDT by rb22982
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To: Petronski

Whatever


37 posted on 11/01/2007 7:52:24 PM PDT by saganite
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To: Lucius Cornelius Sulla
Adjusted statistics = unscientific

Best regards,

38 posted on 11/01/2007 7:53:48 PM PDT by Copernicus (Mary Carpenter Speaks About Gun Control http://www.youtube.com/view_play_list?p=7CCB40F421ED4819)
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To: rb22982
Who told you grocery stores show 1-5% growth and why do you believe them?

Best regards,

39 posted on 11/01/2007 7:56:02 PM PDT by Copernicus (Mary Carpenter Speaks About Gun Control http://www.youtube.com/view_play_list?p=7CCB40F421ED4819)
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To: Ron in Acreage
The inflation numbers from the government don’t include a lot of things, like food, energy, taxes etc.

The government produces at least two rates of inflation. One, 'Core Inflation', does not include food and energy, the other does. As far as taxes are concerned, they are not generally considered consumable goods.

40 posted on 11/01/2007 7:56:43 PM PDT by Lucius Cornelius Sulla (Ron Paul Criminality: http://www.wired.com/politics/security/news/2007/10/paul_bot)
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To: Copernicus
Adjusted statistics = unscientific

Amusing, but the reverse of the facts.

41 posted on 11/01/2007 7:59:22 PM PDT by Lucius Cornelius Sulla (Ron Paul Criminality: http://www.wired.com/politics/security/news/2007/10/paul_bot)
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To: Brilliant

Actually per capita, Nevada, Georgia and Michigan rank the states with most or highest number of foreclosures.


42 posted on 11/01/2007 8:00:57 PM PDT by dragnet2
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To: Ron in Acreage

You’re not sure are you? At one time their was no doubt about the standing of our economy. That certainity no longer exists.


43 posted on 11/01/2007 8:02:24 PM PDT by em2vn
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To: Southack

You will change your mind about oil when it gets to 150/barrel. There is no other product that touches EVERY part of our economy like oil, nothing. Not just your Ferrari, but its tires, paint, plastic, vinyl, leather processing, aluminum, grease, steel, copper, glass, and yes, even the asphalt or concrete it rolls on. Oops, forgot about the gas.
And how about at home? Lumber, electricity, paint, water, heating, washer & dryer, clothing, dishes, trash hauling, pool heater, lawn mower, tools, etc.
Oh, and the store? Packaging, transportation, flooring, refrigeration, freezers, lighting, ALL types of food processing, etc.
There is nothing, nothing in anyones life that is not touched by petroleum products, whether in manufacturing, distribution or use.

And as to the governments calculation of core inflation? They obviously don’t have to drive to work and feed a family, especially when it comes to the seasonally adjusted bull crap and their swapping of the “basket items”.


44 posted on 11/01/2007 8:04:27 PM PDT by biff
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To: biff

You are correct. The cost of energy effects the cost of everything, and it aint pretty


45 posted on 11/01/2007 8:05:42 PM PDT by mylife (The Roar Of The Masses Could Be Farts)
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To: Copernicus

For starters I work at the corporate office for a grocery chain in 18 states and have access to all of our costs & sales of data that we have. Second, you can read the sales reports for all of the big ones for same store sales fairly easily for pretty much any public company. Same store sales for most are 1-5% growth.


46 posted on 11/01/2007 8:05:50 PM PDT by rb22982
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To: Brilliant
It’s just certain sectors, where people made bad choices, that are hurting.

For the average worker, the increase in medical insurance and gasoline prices, by themselves, more than wipes out any wage increase. That's why most people don't think the economy is doing as great as those who watch the stock market or corporate profits to determine how well they think the economy is doing. Workers are offsetting this reduction in real income with huge increases in debt, especially credit card debt. The only way this can be sustained is for inflation to increase enough to force wage increases that will allow previous debt to be paid off with devalued dollars. Of course, this cannot be sustained forever and the sine wave will not be denied.

47 posted on 11/01/2007 8:11:21 PM PDT by Prokopton
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To: Prokopton
For the average worker, the increase in medical insurance and gasoline prices, by themselves, more than wipes out any wage increase.

Welcome to my world

48 posted on 11/01/2007 8:13:03 PM PDT by mylife (The Roar Of The Masses Could Be Farts)
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To: Travis McGee
Here’s a story that I think explains the future of the liberal “piggies” who want more and more in their troughs...and the sheeple who stand idly by and watch.

__________________________________________________________
There was a Chemistry professor in a large college that had some foreign exchange students in the class.

One day while the class was in the lab the professor noticed one of the exchange students kept rubbing his back and stretching as if his back hurt.

The professor asked the young man what was the matter. The student told him he had a bullet lodged in his back. He had been shot while fighting communists in his native country who were trying to overthrow his country’s government and install a new communist government.

In the midst of his story he looked at the professor and asked a strange question. He asked, “Do you know how to catch wild pigs?”

The professor thought it was a joke and asked for the punch line. The young man said this was no joke. You catch wild pigs by finding a suitable place in the woods and putting corn on the ground. The pigs find it and begin to come everyday to eat the free corn.

When they are used to coming every day, you put a fence down one side of the place where they are used to coming. When they get used to the fence, they begin to eat the corn again and you put up another side of the fence.

They get used to that and start to eat again. You continue until you have all four sides of the fence up with a gate in the last side.

When the pigs, who are used to (and by now dependent on) the free corn start to come through the gate to eat, you slam the gate on them and catch the whole herd. Suddenly the wild pigs have lost their freedom. They run around and around inside the fence, but they are caught. Soon they go back to eating the free corn. They are so used to it that they have forgotten how to forage in the woods for themselves, so they accept their captivity.

The young man then told the professor that is exactly what he sees happening to America. The federal government keeps pushing us toward Communism/Socialism and keeps spreading the free corn out in the form of programs such as supplemental income, tax credit for unearned income, tobacco subsidies, dairy subsidies, payments not to plant crops (CRP), welfare, medicine, drugs, etc. while we continually lose our freedoms - just a little at a time.

One should always remember ‘There is no such thing as a free Lunch!’

49 posted on 11/01/2007 8:15:55 PM PDT by airborne (Proud to be a conservative! Proud to support Duncan Hunter for President!)
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To: Prokopton

The reality, which is not being mentioned by the libs’, is that the spending on the war on terror is added into the GDP, and makes the economy look good, even though our standard of living has not substantially increased. But that is a choice that the American public (including the Dems) has made. They would rather be safe than have another chicken in the pot. And I can’t disagree with that choice. If you want to blame someone for the stagnating standard of living, blame the Islamacists who made this necessary.


50 posted on 11/01/2007 8:18:50 PM PDT by Brilliant
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