By the way, overlooked in all of the panic in our business media and stock exchanges these last couple of weeks was the fact that productivity growth in America jumped to 4.9% in Q3.  Real hourly compensation was up 3.1% overall, and 2.7% in nonfarm business.

I'm going to ask again:  Why have interest rates been cut seventy five basis points since September?

Someone's got to tell me how this possibly amounts to anything other than a much better picture than we could've expected, or else these rate cuts are complete and utter horseshit.


Where's your motherf*%&ing flag pin?

                  Eight Levels of Inflation
         Annual Inflation for June to September 2007
       Measure                                     Jun    Jul    Aug    Sep  
       I.1 Core PCE Deflator                   1.9%   1.9%   1.8%   n.a.
       I.2 Core Chained-CPI-U                  1.8%   1.8%   1.7%   1.7%
       I.3 Core CPI-U                          2.2%   2.2%   2.1%   2.1%
       I.4 PCE Deflator                        2.3%   2.1%   1.8%   n.a.
       I.5 Chained-CPI-U                       2.3%   2.1%   1.8%   2.3%
       I.6 CPI-U                               2.7%   2.4%   2.0%   2.8%
       I.7 Pre-Clinton CPI-U                   6.1%   5.7%   5.4%   6.1%
       I.8 SGS Alternate Consumer Inflation   10.3%  10.1%   9.9%  10.4%

"As suggested by the SGS-Alternate GDP, an annual third-quarter contraction of roughly 2.3%, the same as in the second quarter, is more in line with underlying fundamentals."

"SGS-Ongoing M3 Annual Growth Tops 15%. Subject to tonight's release of the large time deposits at commercial banks for the last week in October, the SGS-Ongoing M3 estimate of October annual growth tentatively is at 15.2%, the highest level since August 1971 (closing of the gold window), up from 14.7% in September and 13.9% in August."

"SGS" figures are explained on his site, but, essentially, they mean data based on the CPI format previous to 1983.

Here are some interesting excerpts from his monthly report of December 2006:

"The U.S. economy and financial markets face significant peril in 2007, with the dollar sitting on the brink of a major collapse. The positive 2006 U.S equity markets and reasonably tranquil credit markets belie the pending turmoil that already has been set in motion by a rapidly deepening inflationary recession and exacerbated by the de facto long-term insolvency of the U.S. government.

"Financial concerns in the year ahead should become dominated by growing recognition of a severe structural recession that is beyond traditional remedies, high inflation against which the Fed will appear impotent, and a sharp loss in the foreign exchange value of the U.S. currency. In conjunction with the inflation woes, the dollar crisis will lead to significant loss in the greenback's global purchasing power.

"This environment will not be a healthy one for equity and bond prices, as the dollar's weakness increasingly will mirror the flight of foreign capital and liquidity from the U.S. markets. On a financial-weighted basis, the dollar has the potential to lose more than 30% of it value. Gaining from these difficulties will be the precious metals, particularly gold, which has the potential easily to push above $1,000 per troy ounce in the year ahead. Enhancing the demand for that safe-haven metal likely will be continued deterioration in the U.S. and global political environment.

"Ultimately, the current circumstance will evolve into a hyperinflationary depression. Although such is not likely until the end of the decade, that financial end game for the current markets will tend to come sooner rather than later and will break with surprising speed when it hits."

And some more:

"Recession Recognition Likely in 2007. The 2005 to 2008 recession is getting worse, and continues to be reflected in a number of key economic series, ranging from retail sales to the purchasing managers survey, which showed an outright decline in November manufacturing activity. The various employment indicators remain in deterioration, while payroll growth broadly remains statistically indistinguishable from contraction.

"The U.S. economy is in a deepening and protracted recession that likely will endure through 2007 and into at least 2008. With recent economic history properly accounted for, this downturn is the second leg of a double-dip recession that began with the downturn in 2000. The economic contraction is structural in nature, driven by the loss of production jobs to offshore manufacturing facilities in recent decades.

"The effect of this structural change is that most consumers are unable to sustain adequate income growth beyond the rate of inflation. The only way that personal consumption -- the dominant component of GDP -- can grow in such a circumstance is for the consumer to take on new debt or liquidate savings. Both those factors are short-lived and have reached untenable extremes.

"The federal government and the Federal Reserve also are in untenable positions, with standard economic stimuli unavailable. From the standpoint of the federal government, traditional fiscal stimulus in the form of tax cuts or increased federal spending have reached their practical limits with the actual annual budget deficit running out of control at $4.6 trillion per year (see this month's Reporting/Market Focus).

"From the Fed's standpoint, it can neither stimulate the economy nor contain inflation. Holding or lowering rates will do little to stimulate the structurally-impaired economy, and raising rates may become necessary in defense of the dollar. Similarly, raising rates will do little to contain a non-demand driven inflation, such as seen in the current circumstance that is so heavily affected by high oil prices."

And one more:

"Of some concern, annual M3 growth is accelerating, picking up to 10.8% in December from 10.4% in November. Such is enough to begin raising issues of inflationary pressures from excessive monetary growth."

I suggest that his predictions are close enough to current reality to qualify his work as worthy of a hearing.  In some previous comments I have discussed the concurrence of his model with specific examples such as the prices of postage stamps and gasoline.

paul spencer