Summers: U.S. Nears Escape Velocity

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That was the front page leading headline in the weekend issue of the Financial Times. Of course, the headline is referring to Larry Summers, who is the chief economist of the Obama Administration. Summers said, “I think the economy appears to be moving towards escape velocity. You hear a lot less talk of W-shaped recoveries and double-dips than you did six months ago.

Of course, the talking Summers is referring to is strictly from the mainstream. That the mainstream has talked about a depression is amazing enough. But most of the talk we hear in America is parrot talk. The Administration itself starts the propaganda machine in motion and it is all geared to spinning feelings and emotions rather than conveying the truth. I really do believe that the last place you can go to for reliable information and truth is the mainstream media these days, which is why most of the special guests on my radio show, like this week’s guest, Adrian Salbuchi, are not deeply imbedded in the mainstream.

Another economist who has escaped the lies of the mainstream is John Williams. So, regarding the above noted Summers propaganda, here is what John had to say about the U.S. economy in his No. 289 issue of Shadow Government Statistics, dated April 2, 1010.


“March Employment Report Looks Stronger on the Surface. Net of the temporary hiring of part-time and intermittent workers for the 2010 census, March payrolls were reported up by 114,000. The latest data also included upside revisions totaling 62,000 to prior January and February reporting. While the gains were not statistically significant, part of the relatively stronger March report has been attributed to rebound effects from February’s blizzards. While I would contend that blizzard effects were minimal, any impact there would be non-recurring in April. As discussed in the Birth-Death/Bias Factor section, however, I estimate that the government currently overestimates monthly payroll growth by at least 250,000, which suggests that more-accurate current reporting still would be very much in negative territory. On the unemployment-rate side, the broader measures increased, and the headline U.3 number would have too, but for some rounding and census hiring.”


Please note, the chart above on your left is based strictly on the government’s numbers and do not reflect the optimistic bias that Williams is talking about.

Imploding Liquidity

But one of the most important statistics from John Williams, in my view, has to do with the massive shrinkage of M-3 Liquidity shown on your left, along with non-farm payrolls. Note that M-3 is absolutely plunging and in fact is contracting at an annual rate of 6% per year.  This is what John had to say about this matter:

Signal Deepens for Intensified Economic Downturn.  As discussed in recent Commentaries (see Commentary No. 277, for example), declining year-to-year change in real (inflation-adjusted) M3 signals a pending economic downturn or pending intensification of an existing economic contraction. The following updated graph reflects both the annual payroll change and the approximate annual real contraction in the SGS Ongoing M3 Estimate as of March 2010. The M3 plot is shifted forward on the time scale by six months so as to show its leading relationship to payrolls. The March real M3 estimate is based on approximations of 4.0% annual nominal M3 contraction and 2.1% annual CPI-U, for a total 6.1% contraction, versus a 5.2% contraction in February. Assuming the March estimate holds, such would be the sharpest annual decline of real M3 in modern reporting. A formal M3 estimate for March will be published over this weekend.

“As the ongoing credit contraction squeezes personal and business consumption, most major economic series should begin to soften "unexpectedly" in upcoming reports and in economic releases of the next several months.”

I note that technical analysts like Arch Crawford, Dr. Robert McHugh, and Roger Wiegand are all anticipating a downturn in the equity markets starting as early as next week. The underlying economic picture described by John Williams would fit this technically based timing very well. Again, this is the reason for my caution. I am not buying the mainstream propaganda that all is well again with the economy. If anything, now is the time to build up cash and wait for a major buying opportunity ahead. Some horrible news over the next week or so could provide the impetus for the next decline. Stay tuned.  

Jay Taylor
Gold Investor

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