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GOVERNMENT PRO FORMA ACCOUNTING
LARGER THAN ENRON & WORLDCOM?
by Stephen Tetreault
July 18, 2005

Is the Governmental pro forma accounting / fuzzy-math a larger and more dangerous under-reported scandal than what we have seen on Wall-Street��.larger than Enron / WorldCom�s scandals?

After reading through the latest release of the CPI report/data, I felt sick to my stomach, at how the government has been manipulating the numbers�.as the pro forma accounting, and hedonic accounting and manipulation utilized to artificially keep inflationary data low is plainly sickening� according to the release the Consumer Price Index (CPI-W) increased 0.1% in June, prior to seasonal adjustment. I believe this manipulation is a concerted effort by those in government to keep the CPI rate very low so as to artificially inflate GDP, the stock market along with the various markets, but there is also a self serving financial element as well. It helps to reduce the federal budget, and it severely limits the COLA�s (cost of living adjustments) that are paid out to Social Security Retirees, those on disability, retired government employees disenabled American Servicemen/women and a host of other fixed income Americans that have seen their benefits in terms of real buying power erode significantly over the past 4-5 years.

Folks, what is very disconcerting and sickening for me, is that the manipulation of economic data and employment data from our government agencies is blatant, flagrant breech of trust, a concerted and manipulated effort to keep the vast majority of Americans in the dark. And this type of smoke & mirrors accounting�pro forma accounting and development of new-fuzzy math calculations pales in comparison in my humble opinion to the manipulative accounting found at Enron, WorldCom, Global Crossing etc. And it continues right before our eyes, and the financial media, news-agencies etc. have helped to promote and perpetuate this hype and what I'm calling out-right fraud by not investigating and alerting the public to these practices. This vast concerted and outright effort to distort the underlying data and information amounts to outright �economic-fraud� in my opinion as the current unprecedented stream of revisions/reworking and adjustments of long regarded benchmark data is creating a historic contagion, and is vastly reporting data that is a blatant economic lie. In some respects I must complement those fuzzy-math creators as they have elevated their accounting manipulations to an art-form, and since we allow, almost every governmental agency to contrive, manipulate, influence and account for data as each sees fit (with out any regard toward broad based accounting standards, and congruity�the most irrational process I have ever seen�unless there is an underlying deceitful rational); which compromises the ability to sift through and make accurate and logical comparisons in a timely manner, an huge task. Many times we are seeing complete yearly revisions taking place several years after original data has been released, and all we get as a reference is a camouflaged footnote as a reference. I continue to get more upset and depressed every weak/month after reviewing data that these so called governmental employees (that are employed by us) are developing/manufacturing with co-called adjustments on a multitude of time periods and matrixes most of which are entitled seasonal�then to make matters worse the further manipulate these numbers, by factoring in substitutions, so-called hedonic and quality calculation/adjustments and when their proverbial witches brew is finished not even they can always decipher how they came to their manipulated conclusions.

I was also amazed at the lack of negative tonality for the stock markets that should have been generated after the releases of this weeks CPI/PPI numbers�as what should be disturbing to the markets is that if we are to believe the reports; it indicates that firms are experiencing the inability to pass through increases associated with commodities, energy prices, and other related costs to consumers. And as commodities continue to surge, and consumer's debt-loads increase at a break-neck pace, coupled with consumer discretionary income being stripped away due to rising energy costs and other basic goods needed to sustain an expected (usual) standard of living; we will soon see a significant drop in demand for goods/services in my opinion, and this tsunami-tidal wave of consumer-retracement could hit right smack dab in the middle of the upcoming Holiday-Season�which would be disastrous for retailers�especially upscale retailers, we have already heard a multitude of announces that were started by the Auto-makers, eliminating quarterly/yearly bonuses as well as matching 401k benefits�again reducing excessive consumer liquidity heading into the Holiday Season.

What amazed me was that Energy costs according to this pro forma report declined for the second consecutive month, and I have a hard time figuring out how that is possible, however their data stated that energy cost declined 0.5% in June. Within the energy component, the index for petroleum-based energy decreased 0.8% and the index for energy services decreased 0.2%. The index for food rose 0.1% as did the index for food away from home post an increase of 0.3%. The index for all items less food and energy (I always love it how they strip out food and energy, the basic components for everyday life) increased 0.1% in June, the same as in May. According to the report the upturn in shelter costs (rents) was offset by declines or smaller increases in most other non-food and non-energy indexes. I have come to the conclusion that those responsible for this report are either blatant lairs or they must be locked away in a fall-out shelter as they certainly can not be shopping at the same stores as I do. If we are to believe this report, we must be floating on cloud nine as it stated that in June, gasoline costs dropped 1.2% and natural gas prices plunged 3.5%, the steepest fall in nearly four years. Data released also showed that so far this year, consumer prices have increased just 3.1% at annual pace, compared with a 3.3% rise for all of 2004; while "core" consumer inflation has been rising at an mere annual rate of just 2.2%. Well I also believe in Santa Claus, the tooth-fairy, and that Iraq had weapons of mass destruction/nuclear weapons imminently threatening our lives (just kidding).

According to the recent EIA report (another government reporting agency)�reported this past week, the average price of retail gasoline rose to a record $2.369 a gallon, the EIA stated (7/11/2005) and prices have surged 10.6% in the past six weeks. They went on to state that crude-oil prices are likely to average $59 a barrel this quarter, up $6 from last month's estimate and $15 more than last summer's price. Now unless my math skills are terrible�I find it extreme hard to do this math to ascertain the so-called drop the CPI data is suggesting �.The rise in oil prices, from around $30-32 a barrel a year ago to about $58.00-$61.00 a barrel in recent weeks seems like a jump of almost 100%. In a nutshell folks, notwithstanding other manipulated figures within the CPI data for food, healthcare and other basic living costs. When I factor in just the recent rise (year/year) in energy costs the CPI data should reflect an increase in inflation of 4.8-5.0% (I didn't have time to dig-out the figures for the past 4-5 years), and as you can imagine if this figure was reported, the markets would go into a tail-spin�another reason I believe the Federal Reserve is a long way from stopping their rate-increasing cycle (but that is another story). The following information helps to substantiate my claims...

A changed paradigm

As I have stated before �Just how expensive is gasoline getting really getting for the average worker in America�well lets switch paradigms for a minute folks�lets look at want I will call a "gasoline affordability index," which provides an ready comparison of how much gasoline the average American worker can buy for every hour worked; and interesting matrix if you thinks about it. According to current stats the average prices at the pump will average about $2.40 a gallon this summer which means that according to a very basic and simple math formula. According to the labor department�s release this past Thursday (LINK)�The average worker will be able to buy only about 5.85 gallons for every hour worked ($539.45 average weekly wage for June 2005 divided by a 40-hour work week equates to approximately $13.50 per hour, now divide that number by a conservative $2.30 average national cost of gasoline per gallon)�now lets do a backward comparison�this figure is down considerable from the figures calculated with last years data as the average American could afford 8.85 gallons per hour worked last year when gasoline was trending $1.78 a gallon and what is even more dramatic is that back just 5+/-years ago the affordability ratio came in at 14.0 gallons per hour worked when gasoline was averaging $0.94-0.98 a gallon. Well I hope so far that I haven't sent you into a mass-depressive state�but as you can see from the data that the Average-American is working more than 2.3x the number hours to buy the same quantity of gasoline that they did just over 5-years ago.

The American consumer sure has done her/his part�.thanks to the rhetoric of the Bush administration for the consumer to spend with reckless abandon after 911�as according top the cheerleaders these are the best-of-times, we have seen the American consumer take on record debt loads, extrapolate large portions (if-not all) of their accrued equity from their homes through refinancings, and push up debit-loads on their credit cards to histories levels�.In my opinion the American Consumer is a credit junkie�and The Federal Reserve / Banking-Loan Industries the credit pushes (and they utilized the same technique drug pushes use to get junkies hooked on Cocaine and Heroin�they appeared to give it away for free, and once their hooks are in deep they own the junkie, and the habit is so hard to kick) and this addiction to so-called easy/cheap credit will be the number one reason the economy comes unraveled (I will write more on this another time).

Uncle Al Greenspam printing cheap/easy money at a break neck�infusing hordes of cash into our system with out real regard toward true economic principles; and historic low interest rates leading to huge multiple rounds of refinancing (leading to the stripping out equity from homes, and re-invested for the most part into diminishing assets of spent on trips, and personal toys) has been the main driver of the so-called economic expansion during the past 4+/- years. Oh, let's not forget, the American worker has also been the proverbial sacrificial-lamb during the past 4-5 years as well. As we saw the vast majority of corporations embarking on planned broad based systematic elimination programs of American-Workers, in the classis �Chain-Saw-Al� manner, where corporations laid-off, fired American workers in droves, closed plants and shipped these jobs off to 3rd world countries in record numbers to exploit cheaper labor (which has increased their bottom lines) but has crushed the buying power of the American consumer, which will eventually impact the bottom lines of many corporations as well s they have been reducing their own available customer base in the process.

What is disturbing me most of late folks, is the vast amassing of cash �liquid� reserves, and what bubble-vision is often calling profits amongst the majority of corporations�US based and abroad and I'm also seeing many governments and central banks (out side of ours which is spending money at break neck pace) increasing what is often referred to as savings. As if our economy is really so strong and the global economy catching a draft right behind us (which I do not believe for an instance) then why are we seeing such a hording of cash by corporations and now nations. I'm consistently seeing reductions in capex spending R&D spending and the organic growth with corporations (not a growth sign despite inflated stock prices) the only spending being done is on mergers and acquisitions to acquire market share, and to reap the benefits of so-called synergies (cost-reductions, mostly from lay-offs/firings, downsizing and of course outsourcing abroad.

NOW where is corporate American, we were told 2-years ago that they were stepping up to the plate and would be taking on a more active role in stimulating the economy with investments etc�well where are they?�I'll tell you they are in China, Korea, India, Pakistan etc. moving plants/services etc. and making investments in foreign lands at a break neck pace while stripping their investments from their native soil, and believe it or not our government is assisting them in their endeavors to do this�seems our congressmen/senators are in the proverbial back pockets of corporate America, the very backers of their political careers and as such are passing legislation daily for the benefit of big-business, while passing legislation to erode the pass rights of American citizens (from bankruptcy reform, social security reform, homeland security, patriot act and now they are evening supporting/promoting illegal aliens above the average citizen in several major areas).

PLEASE take heed folks and reflect upon the following�.�I want you to ponder, think and consider the following elements when evaluating the current market trend (and the so-called bull-market revival that we have heard on almost every bubble-vision channel I have tuned into) and their real valuations�.and then I want you to apply the conclusions that you develop to the current landscape and future out-look for the indexes and markets especially with regard toward the forward earnings picture.

Then why now are the stocks markets rallying (in the face of a diminishing liquidity environment) as the markets *outside of this patriotic rally* have basically stalled and have been lackluster and weak.

NOW�.What will happen, as most of that stimulus (liquidity) is exhausted and or starts to be removed from the system? Where will the money come from to stimulate and push the markets higher? We continue to see that US corporations are investing money aboard�yes tax receipts (after discounting for the repatriations and tax receipts generated due to soaring energy costs) are down not up as suggested. And so many state and local governments are being forced to reduce services and employees due to decreasing revenues�where will the stimulus come from. And let's not forget corporations are cutting back or eliminating bonuses and 401k matching benefits�while the real cost of living is exploding upward for average Americans�despite what Shills like Larry-Kudlow are professing real earnings of American workers are basically stagnant and for many real earnings are receding�hence where will the stimulus come from?

So quickly wall-street and the self-serving financial cheerleaders want you to forget the bursting of the stock-market bubble primarily in the Nasdog, and the pain it inflected on millions of investors.

I have not forgotten though folks, as the Nasdog fell over 4000 fricking points� off a proverbial cliff from the March 2000 highs of 5133, to the October 2002 lows of 1,108�that was a plunge of about 80% which wiped out trillions of dollars of wealth (mostly on paper), now since we have seen a nice bull-rally within a secular bear-market a gain of 1040+/- points (gaining back just 20% of the previous losses) the same hypsters they touting and professing that investors buy technology stocks and to back-up the proverbial trucks in doing so�I'm hearing even comments that Nasdog 5000 is the next target�these clowns (Like Cramer) are once again running around with reckless abandon. Now lets put the Nasdog into perspective�We have seen that since hitting the intraday rally high off of the October 2000 lows to the reactionary high posted on January 26th 2004 at 2,154 the so-called technology recovery has significantly stalled, and the Nasdog rolled over and dropped back to 1900, and even though it has staged a rally back to the same level�I do not see any signs here on a new-bull-market in technology. In fact the Nasdog is just about where it was 20 months ago, and it’s been a hell of a long wait for this index to recover. If this recover even takes hold and doesn't roll over.

HOW stupid can we be and how long will the average American tolerate this type of behavior�.

I'm outraged at the consequences, and ramifications of what, at first blush are illegal activities. This story and practice has far reaching contagions to our economy in my opinion. As the story states, (link #1) (link #2) (Link #3) (Link #4) Illegal immigrants never imagined that the U.S. government (nor would I) would help them secure ownership of a home within the good old USA, especially since they are here illegally. But last year, this couple secured mortgage which was secured by the FDIC (that's us the American tax-payer) to buy a home that they had been renting. The Wisconsin housing authority financed the loan. The Internal Revenue Service gave them an identification number that enabled them to apply for the loan and of course the greedy lusting bank officials, were happy to take their business�according to their own statement �We thought we would never buy a home, because of our (illegal) status," said Mrs. Garcia. And as you can see from this story (link) the practice has been going on for years as this article dates back to 8/2003.

What is most disturbing is how this practice flies in the sense of pure logic�at a time when we are struggling to keep our borders secure, and at a time when Americans are losing quality jobs at a rapid pace, we see such a blatant disregard for our laws and respect for our legal citizens by corporate greedy bankers and those associated with this practice, and to believe that our own government condones and supports such acts is contemptible to put it mildly. And according to the wall-street journal article this activity could take on a cancerous life of its own. As it appears that many more banks in the pursuit of profits and compelled by greed are getting pursuing the same intentions and path of the Mitchell' bank which was aided by the FDIC a governmental agency which has reached out to banks in the Midwest to encourage them to lend to immigrants, regardless of their legal status in this country. According to the article many of the banks have become aggressive players in this undocumented illegal market. And according to Michael Frias, an FDIC official in Chicago "Our job is to encourage banks to lend and invest in underserved markets. We don't make distinctions of immigration status." So I guess they would condone other loans to other law-breakers as well. According to the article banks in such states like Ohio, Illinois, Iowa and Texas (Bush�s home state no less) have recently started offering illegal immigrants the opportunity to apply for home loans with an ITIN�and now larger institutions like Wells Fargo & Co. and Bank of America Corp., indicate that they plan to launch their own programs within months. I ask how this travesty can be happening. How can the government and regulated banks (under the scrutiny of the Federal Reserve) be encouraging what has to be an illegal activity as these recipients are illegally here�thus aiding and fostering illegal immigration by offering these home loans and the American dream to people who are here illegally while most likely denying others�I am very concerned at the tone that this message is sending.

For the past several months/quarters I have been mystified as to why Uncle Greenspam (as I call him) the creator of mega-bubbles has been keeping the printing presses running at full steam-ahead�pumping huge quantities money into the monetary system (increasing our M-3 supply) at significant rate that is far surpassing the so called current inflation rate; and this development and activity has perplexed me for many weeks now. Now after reading and reflecting upon the aforementioned stories I'm getting a better picture as to what has been happening. I have been pondering the question and rational for many weeks now as to why the Federal Reserve would feel compelled to inject such vast amounts of liquidity when they have been talking about and have been touting their supreme efforts to war their war against the inflation enemy. I have read references about the Federal Reserve encouraging banks to reduce their exposure too Fannie and Freddie mortgages/paper since we have heard Greenspam testify that he is concerned about the overall large risk exposure that many banks have succumbed too.

The Federal Reserve seems to be talking out of both sides of their proverbial mouths�.or they are completely oblivious to this practice, which is hard to believe. We have seen such a greedy move-push to enticement of new buyers legal and now-illegal (the majority which are now what use to be referred to as substandard into the housing bubble-mania market with low interest, and interest only loans, the no down payments enticement, the builder will pay closing costs and even provide the down-payments after inflating the underlying price etc. is not only scary its ludicrous by its very nature and it is being fostered by one of the strongest emotions known to man, called �GREED�. And after reading these articles it appears that these banks and soon to be many other lending institutions, are falling all over each other trying to do everything they can to lend the easy/cheap money that is being printed at break neck speed by the Federal Reserve and disseminated to people who never would have been considered for a loan before. What a great irrational greed-induced market system that we have on our hands here now isn't it?

The FDIC eludes too, that to be considered for a loan, illegal immigrants must fulfill the same criteria as applicants who hold Social Security numbers (proof of regular income and state residency). Well, how pray tell can illegal residents by their very nature meet these standards as I have to ask how the banks got around these basic requirements (for the verification process) in order to determine the creditworthiness of their new illegal customers since they typically did not have a credit ratings�well now how did they. Maybe Santa Claus or the Tooth fairy vouched for them. What is even worse is that the housing authority finances these mortgages (secures them) which the banks then sell to their other so called loyal customers�and magically through the beauty of smoke and mirrors and government intervention the underlying banks are no longer exposed to these extremely high-risk loans�we the American tax-payers are the proverbial bag holders�this is a very cute (and I have to believe illegal) shell game�as once again at the top of a proverbial bubble these greedy officials discover a way to push off their irresponsible behaviors and actions onto the backs of others. Its not bad enough that as taxpayers we are/will become the bag-holders and bailout mechanism for the vast under-funded pension and legacy obligations of corporate America (but that is another issue all together) but now the landscape is shaping up to obligate tax payers to foot the bill when these extremely risky mortgagees start hitting the default path. This is a crying shame!! And to make matters worse it appears that this activity is not only condoned by sponsored by several government agencies and Congress is fully aware of this contemptuous activity, and so many are obligated to and in the proverbial pockets of big-business and corporate America�and they are so prone to helping foster this incestuous greed-behavior at the expenses of the rest of us citizens. And to make matters worse the very thought that illegal immigrants (key word illegal) are being given preferential and aided treatment for buying homes while basically ignore the plight of our less fortunate is sickening.

© 2005 Stephen Tetreault
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Stephen Tetreault
T-Waves
Southern Maine, USA
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