Fed Revises its wrong estimates--again

Have you noticed the pattern? Early estimates are always optimistic. They know that they can always come back later and revise them when reality sets in, and no one holds them accountable for lying earlier.

That's because it is their job to speak happy words in order to fool people into spending or investing their money foolishly. One man's foolish investment is another man's gain.

Well, the Fed has once again had to admit that its forecast from last January was way off target.

http://money.cnn.com/2009/05/20/news/economy/fed_minutes/index.htm

Their manipulated unemployment figures (MUF) last January was for 8.5 to 8.9% this year. Well, we passed that figure in April with no end in sight. The official MUF is now 8.9%. So now the forecast is 9.2 to 9.6%, to which I say, "may it be so." But I suspect that we will pass that figure in July or August at the latest.

The Fed's forecasts, released as part of the minutes from its April meeting, show that its staff now expects the unemployment rate to rise to between 9.2% and 9.6% this year. The central bank had forecast in January that the jobless rate would be in a range of 8.5% to 8.8%, but the unemployment rate topped that in April, hitting 8.9%.

These figures, of course, have more to do with those who are claiming unemployment benefits--not all of those actually unemployed. Nor does it reflect the underemployed or those who had to find a job at McDonalds just to have any work at all. The true unemployment figure is close to 15%.

The Fed also now expects the gross domestic product, the broadest measure of the nation's economic activity, to post a drop of between 1.3% and 2% this year. It had previously expected only a 0.5% to 1.3% decline.

The Fed's earlier estimate was unrealistic from the beginning. If we get by with a mere 2% drop this year, we will be one of the lucky ones. Germany's economy crashed 16% in the first quarter of 2009, and Japan's dropped 4%. Both were record drops. Because of globalization, the problems of one nation almost always have an effect upon everyone else. In fact, our own milder problem has been the cause of theirs, and now they are about to return the favor.

According to the minutes, Fed members did indicate they expected GDP to increase slightly in the second half of this year. However, it would not be enough to overcome the anticipated declines in the first half. GDP shrunk more than 6% in the first quarter.

More happy thoughts. If they were so wrong in January, you can bet that they are wrong again. The underlying causes of this depression are nowhere near resolved, and some problems are just getting started. Like this one . . .

The Fed disclosed plans to begin buying $300 billion's worth of such Treasurys in March in order to try and keep long-term rates down and boost economic activity.

This simply means that China and Saudi Arabia, who have been buying our debts (as part of earlier agreements) are getting tired of losing money. They are slowing down or stopping their purchases of treasury bonds to finance the American way of life (i.e., overspending and borrowing as if debts would never have to be repaid). That means the Fed is having to "monetize the debt." That means the creation of another $300 billion in new money, and that means the value of the dollar is being further diluted.

This news is probably behind the most recent drop in the value of the dollar, and every time the dollar drops a penny, China loses billions. China and Saudi Arabia are now diversifying and slowly converting their dollar assets to gold, trying not to draw attention to their actions. They don't want to spook everyone and crash the dollar, because they still hold too many of them.

This is a problem that has yet to get really ugly. And when it does, the Fed will do precisely what it has chided other countries for doing in past decades. It will monetize the debt, create more money, and push the inflation buttons to record highs. That is the only politically feasible solution, as every other government has discovered.

But this should come as no surprise. After all, in 1990, when Japan's banks found themselves holding piles of worthless commercial debt due to falling property prices, the Fed tried to browbeat them into admitting the true value of their loans--and letting the banks collapse. They refused, and so gave birth to the so-called "lost decade." Now we are in precisely the same situation, and we are doing what the Japanese did in 1990. It seems that we love double standards. Doing "the right thing" is for other people only.

But God does not like double standards. He mandates equal weights and measures. Jesus interpreted this law in Matthew 7:2,

"For in the way you judge, you will be judged; and by your standard of measure, it will be measured to you."

In other words, God will judge the judge according to his own standard of measure. America judged Japan for its economic policies back in 1990. Now we are being judged by the same standard of measure.