W vs. Barry: Major Departure or “Bush on Steroids”?

About a year ago I was having coffee with a friend in a Starbucks who had voted for Barack Obama and commented with a resigned disillusionment that he was just “Bush on steroids”.  Now in the middle of American campaign season and everyone arguing over how different they are and everything being compared to the Bush Jr. administration, let’s take a brief minute to examine just how different the two most recent American presidents have been.

Health Care:

George W. Bush passed a prescription drug bill with questionable legislative tactics, minimal support from Democrats, that was fiscally irresponsible.

Barack Obama passed a health care bill with questionable legislative tactics, minimal support from Republicans that was extremely fiscally irresponsible.

Fiscal Responsibility:

George W. Bush promised to be fiscally responsible while passing an across the board tax cut.  In 8 years President Bush ran total deficits of $3.5 trillion in deficits and total public debt grew from  $5.5 trillion to $10.9 trillion.

Barack Obama promised to raise taxes only on the wealthy while returning American to fiscal responsibility.  In 4 years under President Obama, the United States has run total deficits of $6 trillion and total public debt has grown by $5.8 trillion.

Foreign Policy:

George W. Bush as a candidate promised not to engage in adventures and nation building while standing tall against the economic policies of China.  George W. Bush invaded Afghanistan and Iraq, pushed sanctions against Iran, pursued a multilateral negotiation strategy with North Korea, and took a soft line against Chinese economic policies.

Barack Obama promised as a candidate to end wars in Iraq and Afghanistan while standing tall against Chinese economic policies.  Barack Obama redeployed troops in Iraq to Afghanistan to support a significant surge, pushed sanctions against Iran, pursued a multilateral negotiation strategy with North Korea, and took a soft line against Chinese economic policies.

Education:

George W. Bush passed with Democratic support the No Child Left Behind Act which increased teacher pay requiring yearly student tests designed to increase performance.

Barack Obama created the Race to the Top initiative which gives schools and teachers more money for innovative ways to improve student performance.

Civil Rights:

George W. Bush passed the Patriot Act and engaged in rendition, extra-judicial detention, warrantless eaves dropping, created Guantanamo Bay for foreign terror suspects, and other significant expansion of police powers.

Barack Obama strengthened the Patriot Act, engaged in rendition, extra-judicial detention, warrantless eaves dropping, preserved Guantanamo Bay, kills American citizens on his order and other significant expansion of police powers.

Political Style:

George W. Bush promised to work across party lines but left office as a polarizing figure extremely disliked by Democrats.

Barack Obama promised to be a uniter but campaigns for a second terms as a polarizing figure extremely disliked by Republicans                        .

The point of this exercise is not to change the potential votes of anyone in the upcoming election or change your opinion of Obama or Romney.  You may  like or dislike George Bush, Barack Obama, or Mitt Romney as you see fit.  However, ask yourself how different are their policies?  Do you like them based on the policies they have implemented and executed (or propose to implement) or just because you like their style?

As the old political saying goes, he may be a bastard, but at least he’s our bastard.

The Link Between Chinese Stimulus, Las Vegas Gambling, and Singaporean Accounting

There is a great Wall Street Journal article about how the rapid increase in high stakes Chinese gamblers in Las Vegas is prompting money laundering concerns.  Given that Chinese citizens are only legally allowed to take $50,000 USD out of China a year, how can they wager up to $400,000 USD in Las Vegas?

There are three things in this story however that really caught my attention.  First, take a look at this graph which shows the rapid rise of baccarat revenue in Las Vegas over the past few years.

Prior to the 2008 financial crisis, baccarat and gambling revenue was flat and declining.  Late in 2008 the Chinese government passed a stimulus package equal to about $500 billion USD which also included another $1.5 trillion USD in lending.  In 2009, Chinese bank lending tripled from 2008.  Not coincidentally, revenue from baccarat in Las Vegas  has risen enormously while all other gaming revenue has continued to decline.  It bears worth asking how much of that Chinese stimulus package ended up in Las Vegas baccarat tables?

Second, the Casino Regulatory Authority who reviews the applications in Singapore for those pursuing business opportunities in the gaming industry in China found evidence that a one tour operator targeting Chinese gamblers “because he listed more than $250 million in cash and assets he couldn’t account for, according to the two people.”  Given their obvious skill in forensic accounting, I wonder if the Casino Regulatory Authority would be interested in reviewing the financial statements of Temasek, GIC, and the Singaporean government?

Third, given the expanding Singaporean gaming industry and the prevalence of Chinese gamblers and their questionable financial background, the Casino Regulatory Authority would be wise to ensure the background of their funds.

The IMF Re-Re-Statement of Singaporean Public Finances

Earlier this summer, I wrote about the International Monetary Fund restating the historical Singaporean public surplus by an astounding $158 billion SGD.  The IMF increased the size of the Singaporean government surplus from $271 billion SGD to $429 billion SGD between 1990 and 2011.  Most interestingly, the increase in the surplus came not from an increase in revenue but rather a decrease in government expenditure.  I wrote about this and proceeded to research why there would be an expenditure would be reclassified as public savings.

However, when I subsequently revisited the IMF World Economic Outlook database to double check the numbers, the IMF had re-stated their restatement making it a re-re-statement.  The original surplus figures from September 2011, the April 2012 restatement, and the August 2012 re-restatement are below in Table 1.

What is interesting is that the IMF has re-restated the surplus back to near its original value.  The difference between the original value of $271 billion SGD and the re-restated value of $267 billion SGD is slightly more than $4 billion SGD.  In other words, the IMF magically made a $158 billion SGD restatement appear and then disappear.

Concerned by the discrepancy and having been questioning the IMF about the original $158 billion SGD restatement, I tried to contact the IMF with numerous questions about the re-restatement.

The IMF initially responded by saying the re-restatement in August of 2012 was to “address some technical issues” with the original restatement.  When I followed up about the nature of the “technical issues”, I was then informed that “backward extrapolation erroneously assumed” the first restatement which was published in error.  I was rather confused at this point as I had assumed that the IMF was working with actual data provided by Statistics Singapore or the Singaporean Ministry of Finance as noted in the data tables.  The IMF then responded that the 1990-2002 was mistakenly estimated on the year 2003 expenditure level, which remains unchanged, prompting a large shift in the total surplus from 1990-2010.  The IMF continued saying that it was only after a “subsequent statistical check”.

The IMF has refused to answer any questions about specific budgetary items that were reclassified or classified and then re-reclassified.  In short, the only thing that the IMF will confirm is that a re-restatement of the April 2012 data was made in August 2012 due to a mistaken estimation and faulty assumptions related to of Singaporean public finances after a “statistical check”.

This incident with the IMF raises numerous and disturbing issues.

  1. It is incredibly disturbing that the IMF is using assumptions and estimates to produce basic data.  This is not some technical result but one of the most basic questions of producing economic statistics: how much money did Singapore spend?
  2. It is incredibly disturbing that the IMF despite making multiple large statistical restatements cannot or will not provide any evidence supporting its actions.  The IMF increased the size of the historical Singaporean public surplus by approximately 50% of GDP, then restated the historical public surplus back to 1% of GDP, and provided no evidence to support its ongoing financial restatements.
  3. The IMF appears quite weak in the face of political pressure.  It was only 1 month after I initially published the post about the enormous discrepancy that the IMF re-restated their data.  Then despite regular emails and questions on public forums about this issue, they initially refused to even admit a change had been made.  Then they refuse to provide any data about the original restatement and the subsequent restatement to verify their statement that now the data is correct.  Given the size of the multiple restatements it would seem important to provide information about what items were reclassified both in the original restatement and the re-restatement.

Probably the most disturbing part of the IMF restatement was my research conducted believing the original restatement.  (In a following post I will detail the importance of the original restatement).  I was very easily able to uncover many large transactions that would fit the first re-classification description reducing expenditure but increasing the total surplus.  When I wrote the IMF that I easily found a large number of transactions that fit the first restatement asking them to explain the discrepancy, they responded that they “have answered all (my) questions regarding data revisions by the IMF.”  In other words, despite having data the fits the first restatement, the IMF is refusing to answer questions about why they restated the data back to near its original value or consider data that would negate their latest restatement.  This is extremely troubling.

I would like to make three final points.  First, the restatement or the re-restatement by the IMF do not in any way change the fundamental conclusion that there remain enormous discrepancies in Singaporean public finances.  I will provide much more detail about the discrepancy in a future post.  Second, I will provide much more detail in a future post about the original restatement, the serious questions it raises, and the evidence supporting the first restatement that the IMF refuses to discuss.

Third, though I had not planned to write on this topic so soon for various reasons I won’t discuss at the moment, I was forced to rush this forward due to the self serving actions of someone.  They had copied my research about the $158 billion SGD restatement and then refused to listen to me when I attempted to notify them that the IMF had restated the data.  Rather than consider the information that I had provided confidentially so as to help them avoid any legal issues, this person willfully and without regard for the sensitivity of the matter, published a public declaration of the IMF data restatement prior to being ready to discuss it more fully.  Given the sensitivity of the matter and ongoing work, this is incredibly unwise and rash decision making by someone who has selfishly copied my work and presented it as his own.

I continue to work on the matter to present a much fuller and detailed picture that will explain the enormous discrepancies in Singaporean public finances.  I will post as soon as is prudent and a more complete picture becomes available.

The Fairytale of Chinese Data

During one of my classes I taught at Peking University, I was delivering a lecture that included some data I had downloaded from the Peoples Bank of China (PBOC) website.  A student cautiously raised their hand and asked where I had gotten the data.  Trying to blend into the Chinese university system, I proudly replied “The Peoples Bank of China website.”  The student looked at me sheepishly and asked “Do you believe that data?”.  Not wanting to engage in a discussion about the truthfulness of PBOC data during my early days at Peking University, I turned it around and asked “you tell me.  Should I?”  The student who asked the question shook his head and said no like he was teaching me something everyone already knows and the rest of the class agreed.

Chinese economic data is like surrealist or cubist art: it bears a vague resemblance to the underlying subject but no connection to reality.  Let me state this as plainly as possible: official Chinese economic data is science fiction.  Manufactured.  A figment of some party officials imagination.  Bogus.  As real as a 10 rmb DVD from a street vendor in Beijing.

It is a regular parlor game among China watchers to point out the number of errors in Chinese data.  No less than the US Federal Reserve was the latest to point out that official Chinese data may not be what it claims to be.  People have written entire books  dedicated to deciphering the absolute mess that is official Chinese data.  Earlier this year, Tsinghua University professor and noted China blogger Patrick Chovanec (who you should read if you don’t already)  “kick(ed) up a hornets nest” when he said during a Bloomberg interview that “I was finding it harder and harder to reconcile China’s official CPI, GDP, and PMI numbers with what I was seeing and hearing on the ground.”  What is more astounding is that these blatantly and obviously manipulated figures would be believed by the financial industry, journalists, academics, and the world at large even when the fraud is so glaring.  Look at the latest provincial 2011 GDP figures in the figure below.

China declared an official GDP growth rate of 9.2% for 2011.  Interestingly however, only six provinces out of 30 comprising 25% of Chinese population declare GDP growth rates equal to or less than 9.2%.  The CNBS must have invented a new type of math to come up with these growth numbers.  If GDP was reported based upon population weighted provincial GDP, 2011 Chinese GDP would be 11.8% instead.  Do not however make the mistake of believing that the 11.8% number is any more real than the 9.2% number as they both come from the Party’s imagination.  The CNBS conjuring the data with a magic wand couldn’t make its own numbers add.

Disturbingly and surprisingly, most people don’t realize or for some reason even care they are using completely worthless data.  Let’s consider the issue of prices.  The Chinese CPI data is just as fabricated as the GDP data.  Let’s take one component that is easy to track over time: the CPI component of housing cost.

Let’s start with the increase in private housing according to the Chinese National Bureau of Statistics.  Figure 2 comes directly from the CPI component of private housing from the CNBS dating back to the year 2000 normalized to equal 100.  Consequently, 2010 equals the cumulative price change between 2000 and 2010 according to the CNBS. 

According to official Chinese data, the consumer cost of private housing rose 1.5% between 2000 and 2010.  That is not 1.5% annually.  That is total.  Official Chinese data claims that between 2000 and 2010 the consumer cost of private housing rose only 1.5%.  Putting this in real terms, according to the Chinese government, the real consumer price of private housing fell 18% (using official inflation for what it is worth)!!  Before I even present actual market data, as anyone who has had anything to do with China in the past 12 years can tell you: this number is absurd.

A 2010 NBER paper published in cooperation with the Institute of Real Estate Studies at Tsinghua University in Beijing found that between the first quarter of 2000 and the first quarter of 2010, a real estate price index of constant quality apartments in 35 major cities nearly tripled as can be seen in figure 3.  Similar private housing price indexes in China reflect this general trend with varying numbers though all producing large magnitude increases.

While it should be noted that the private housing CPI component will not be perfectly correlated with a real estate price index, they are by no means neutral or negative.  Real estate market price index increase of nearly 300% vs. a Chinese government CPI housing component nominal increase of 1.5%, you be the judge.  In a period of time when, according to official sources (again for what it is worth), nominal per capita GDP or wages surged fourfold, the Chinese government publishing data that private housing cost increased by only 1.5% is comical.

To put the sheer absurdity of this number in perspective, in the US over the same time frame, the Case-Shiller Index grew at an annual rate of 3.21% with a large run up and subsequent decline while the US housing CPI grew at an annualized 2.43% with a smaller run up and subsequent decline.  These numbers are both close to the annualized US CPI of 2.4% between 2000 and 2010.  In other words, the numbers have some clear obvious relationship to other data that should track in some manner the official data.

Probably more important for economists than the errors or the size of the error is the systematic bias of the errors.  Taking the two examples presented here, provincial GDP is systematically biased upwards while the CPI errors are systematically biased downwards.  This is absolutely no accident.  Communist leaders in China keep their jobs by inflating GDP numbers and fudging inflation down.  However, at the national level, China has an interest in moderating its official GDP.  That is why even though China has higher real GDP growth rates than other major economies like India, Germany, and the US, the standard deviation of its growth rate is much smaller.

I should emphasize that I am not claiming that China has not grown substantially  for instance, but I am stating unequivocally that Chinese data should be considered a propaganda tool of the Chinese Communist Party.  The reality of prices is vastly different from the official data.  The realities of GDP are far from official propaganda.  Citing PPP/CPI data or government proclamations on apartment vacancy rates is an exercise in futility.  The problems I pointed here are easy and obvious, but there remain many more obvious flaws not to mention the problems of the underlying data.  Statistical propaganda is pervasive and extends to all manner of official data.  Not one corner of the Chinese data world is immune.

Here is hoping that more people outside of China realize that the statistics bureau is just another propaganda tool of the Communist Party.

Memo to Xi Jinping: Tell your statisticians to at least try to make it a little harder to point out the obvious fraud in Chinese data.  This is just embarrassing for you.

Memo to Researchers and Phd Students: if you are using official Chinese data, unless your paper is about trying to get a better number or you can prove the veracity of your data, toss your paper in the circular file and start fresh.  Your results and conclusions are worthless.

Singaporean Update and Poll

I have received a number of emails inquiring about when I am going to post Part II explaining Singaporean accounting. I want you to know a number of things. First, I am hard at work on the matter and hope to post as soon as possible. Second, this is a very complex and time consuming task to assemble the data and proof to present this in a credible manner. When I am going to present these specific accusations, I want to be detailed and provide the necessary information to prove my point. Third, for those of you who have followed what I have written about Singapore and know the history of “unknown” hackers I have had to deal with, I have been dealing with even greater “complications” in this last part. When the time is right, I will detail the “complications” I have encountered but for the moment, let’s just say that it is quite amazing. I promise to provide detail once the work is completed.

For the moment, I am preparing another interesting post and for that I would appreciate your help. Please take part in the poll below answering one very simple question. Pass it around and ask others to vote. It will only take two mouse clicks and will greatly help. Thanks and I will be posting the answer to this question on Monday next week.

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