Jamal Harwood

“There are three kinds of lies: lies, damned lies and statistics.”

On the first Friday of each month the Bureau of Labor Statistics (BLS) release the “Non-Farm Payroll” numbers for the US economy. It is probably the most eagerly awaited economic indicator in the financial system. Friday the 5^th of October was no exception. President Barack Obama had just endured a universally acknowledged poor showing in the first televised election debate against Mitt Romney, the economy continues to flatline, and the record US debt – now over $16 Trillion – continues to rise. Despite coming to office on a platform promising real change and to get the US back working, official unemployment numbers have stubbornly risen to and remained above 8% during Obama’s term. So one can imagine the surprise when the unemployment numbers on the 5th, and the last before the election, came in at 7.8%. Obama on his campaign trail immediately trumpeted the employment figures: “Today’s news should give us some encouragement. It shouldn’t be an excuse for the other side to talk down the economy just to try to score some political points.”

One would have to look hard to find anyone in the media that was ‘talking down the economy’, quite the opposite. Any shred of good news is spread far and wide by a compliant media, whereas much of the critical analysis is left to independent bloggers and analysts, who are not allied to the main political parties or key vested interests – read the financial community. In a month in which 116,000 new jobs were supposed to be created, the population grew by over 200,000, yet the unemployment rate dropped from 8.1% to 7.8%! How could this happen?

Looking beyond the political spin the answers are not difficult to find.

The headline unemployment rate is calculated with a set of seasonal adjustments. The September number results in revisions to the August number, but the revisions are not published. Too much emphasis is put upon a “household survey” for estimates, but the margin for error of this survey is bigger than the full number of new September jobs! The numbers treat part time jobs as the same as full time jobs and many of the 5.2 million of new jobs Obama is pleased to report in the private sector over his term are part time jobs.

The biggest factor re the decline in unemployment has been the constant removal of people from the overall total supposedly seeking employment! If the long term unemployed are removed (un-employable?) or put on disabled programmes, then the workforce contracts and any new jobs will look good. Problem solved.

So taken as the totality of the population the employment rate is falling and reflects the dire state of the US economy.

Yahoo Finance ran a survey immediately after publication of the unemployment numbers provided, and 57% did not believe the figures. As Mark Twain once said: “There are three kinds of lies: lies, damned lies and statistics”. And what of those that need to rely on these highly spun statistics. It is not only the investment community which is disadvantaged, political decision makers from the local to state level, service and welfare providers and international trading partners are all given a highly prejudiced picture of the US economy. Even the Federal Reserve says it is relying on employment numbers to determine its degree of quantitative easing (money printing stimulus).

A Major Shock

There was another unbelievable event at the time of the NF Payrolls release on the 5^th of October. Someone dumped onto the futures markets the equivalent of one and a half years US supply of silver in a vain attempt to smash down the price of the precious metals (silver and gold). Even if anyone had unfettered access to that amount of silver (which they don’t) it would be madness to sell it all in a 5 minute window. The plan – which has been implemented dozens of times in recent months – is to depress the price of the precious metals. The protagonists “short sell” massive amounts of futures contracts on the commodities exchanges knowing full well that they can depress price, and cover (buy back) their positions later when prices have been hit. Rather conveniently lower prices for gold and silver make the fiat paper US dollar (and US outlook) look better than it should, particularly as the Federal Reserve is printing more dollars hand over fist to keep up with the ballooning US deficit. The trading patterns are highly illegal, and distort markets, but make the politicians look good.

Despite innumerable complaints to the authorities of manipulation of the commodity markets by the major players (bullion banks, large commercial banks) no one has been charged or prosecuted. Despite a 4 year investigation by the Commodities Future Trading Commission (CFTC) into silver market manipulation nothing has come forward and no prosecutions or even directives to stop the fraud is forthcoming. It is all too convenient that the “too big to fail” banks can book large profits to rebuild their balance sheets and strengthen perceptions of the US dollar at the same time.

Rather than accept the conditions of the Dodd Frank law which sought to curb the practice of building excessive futures positions in key commodities (any Bank holding of short contracts for example greater than 20% of the market provides a massive opportunity to move the market to its advantage) in late September a helpful judge ruled that the law was ambiguous and handed the major banks a key victory in their domination of the markets at the expense of the public.

Political Relations

Relationships in the US political/financial establishment run deep. The above examples may seem subtle in comparison to some of the recent scandals rocking the markets. When Financial services firm MF Global collapsed, taking with it $1.6 billion dollars of supposedly protected client funds it was assumed that prosecutions of the wrong doers, starting with senior management would ensue. The money did not disappear or “vaporize” as some insiders wanted to suggest, client funds were illegally transferred offshore prior to the collapse of the firm. One would expect senior executives including former Goldman Sachs chief executive and New Jersey Governor Jon Corzine to face prosecution for the multiple failings of the firm. Bloomberg reported that a memo produced by congressional investigators quoted an internal company e-mail as saying Corzine gave “direct instructions” to use customer money to cover the company’s own shortfalls prior to bankruptcy. Yet as the New York Times reported the:

“lack of charges in the largest Wall Street blowup since 2008 is likely to fuel frustration with the government’s struggle to charge financial executives.”

Whether it is the willful distortion of government statistics, the manipulation of markets and condoning of large scale fraud at the highest levels of corporate America, the meaning is the same, a loss of respect for the rule of law and open decay of a rotten system. Open crony capitalism on a massive scale involving the highest levels of public office is becoming obvious.

Some final thoughts

Earlier this year I debated with the Editor of the Sunday Times Financial pages (David Smith) over lessons from the financial crisis. The Islamic solutions with respect to the above were well aired including:

• forbiddance re short selling of commodities
• spot trading (only) for gold and silver contracts
• strict limits on futures contracts to certain agricultural commodities only
• forbiddance of monopoly causing situations
• strict independence of the judiciary from the executive
• a strident punishments regime with no one above the law.

But the most poignant moment in my memory was in response to a question from the floor: “within the system what should have happened in response to the worst excesses of the financial crisis of 2008”.

A few eyebrows were raised when I responded that sadly with capitalism the predominant perception was that no one did anything wrong, hence no one was prosecuted. And despite the noises about radically changing banking, new regulation, and the promise to never again see the enormous bailouts, no real change has occurred. Few are confronting the systemic crisis despite the appalling lack of respect for the rule of law from the top down.

Evidence of recent months is that indeed nothing has really changed and it is getting worse. At some point you realize it is the system that is failing us all, and needs to be changed.

Jamal Harwood is a regular contributor to New Civilisation.  He is a lecturer in Finance, and a member of the UK Executive Committee of Hizb ut-Tahrir Britain.