Broadly speaking, "blowback" is the unintended consequence to the civilian population of secret government operations. It is typically used to describe the consequences of overseas covert operations:

Blowback:

The term blowback first appeared in the the CIA internal history of the US’s 1953 Iranian coup d'état. Examples of blowback include the CIA’s financing and support for Afghan insurgents to fight an anti-Communist proxy guerilla war against the USSR in Afghanistan; some of the beneficiaries of this CIA support joined al-Qaeda's terrorist campaign against the United States.

But there is another kind of blowback brewing in the U.S.: the negative consequences of massive covert manipulation of the domestic economy by the Federal Reserve and agencies of the Federal government. A key feature of propaganda is the "documentation" presented to support a politically advantageous distortion.

In this case, the statistical support for the "recovery" rests on three numbers:

1. the stock market

2. the Federally issued jobs report

3. the GDP

In all cases, the numbers are doctored in a coordinated covert campaign to persuade the public that the economy is growing smartly. The stock market has doubled as a consequence of a declining dollar and other policies of the Federal Reserve designed to incentivize speculation in "risk trades" such as stocks and "carry trades" in currencies.

I have broken down the distortion many times, for example: The Stock Market As Propaganda (March 10, 2010).

The jobs report is heavily reliant on the "birth-death model" of small businesses, an opaque Federal guesstimate of the number of new small businesses being started and those being closed.

As reliably as clockwork, hundreds of thousands of "created out of thin air" jobs are logged as if they were real by the Bureau of Labor Statistics' "birth-death model." Yet in the real world, the number of small businesses has been in a three-year free-fall: Few Businesses Sprout, With Even Fewer Jobs (WSJ.com).

In the real world, small business income is down 5%. Small Business: Still Waiting for Recovery.

According to data from the Bureau of Economic Analysis. Proprietors' income-- the profits of unincorporated businesses such as partnerships or individuals who work for themselves--is down nearly 5 percent from two years ago, while corporate profits have jumped 21 percent in that period.

About 19.9 million partnerships and sole proprietorships with no employees existed in 2008, the latest year for which U.S. Census Bureau data are available. That number fell almost 2 percent from the previous year.

In a private-sector workforce of about 106 million, that's about 19% of all people with a job. Recall that the BLS counts you as employed if you work one hour a week or if you're "self-employed," even if you aren't making a dime.

Only in the world of massaged statistics does nobody notice that self-employed people who are seeing revenues and profits fall do not need to hire someone: they're sinking all on their own.

Small business understands uncertainty is now permanent. That's why 26% of all new private-sector hires are temporary.

Buried deep in the "news" announcing 244,000 new hires last month is the reality that income rose by a paltry 1.9% and hours worked were flat. The broader measure of the unemployment rate, which includes people who stopped looking for work and those settling for part-time jobs, rose to 15.9% in April from 15.7% the previous month.

The GDP rises because the Federal government has borrowed roughly $5 trillion in the past three years and sent much of it out as "income" where it is of course added to the GDP. Never mind where the money came from or what it will cost our children--the only thing that matters to the manipulation operation is that GDP rises every quarter. If it doesn't, then the "recovery" lie collapses.

According to the Consumer Metrics Institute, their Daily Growth Index resumed its movement into record negative territory, setting a new all-time low representing a 6.39% year-over-year contraction on May 3, 2011.

Although our data about consumer spending is clearly weaker than that being provided by U.S. Bureau of Economic Analysis (BEA) or the U.S. Department of Commerce (DOC), there are a number of reasons to suspect that the consumers that we monitor really are less enthusiastic about the economy than Mr. Bernanke:

-- We have often commented that the metrics used to measure retail sales are seriously flawed, creating at least a "survivor bias" in the statistics and a sampling bias that over-represents the elite large cap retailers. We have expected that the numbers would eventually be quietly revised. Last week the Census Bureau did exactly that, lowering their baseline historical data substantially for some segments of the retail sales data. Specifically, they reported that 2010 "furniture and home furnishings stores" sales were 3.6% weaker than previously reported (turning a meager 0.8% year-over-year gain into a -2.4% contraction), the highly discretionary "sporting goods, hobby, book, & music stores" group was down 3.9% from the 4.6% in prior reports, and the less easily sampled "miscellaneous store retailers" dropped some 6.7% from their earlier numbers (nearly wiping out completely the earlier 7.6% alleged gain).

On the flip side they also noted that gasoline stations had actually collected sales that were 4.6% greater than what the Census Bureau had told us before -- indicating that their sampling methodologies grossly under-reported the impact of rising pump prices.

Our problem has always been the reliability of the reports, since their version of history often undergoes dramatic rewrites long after the fact. In this particular case a 7.6% year-over-year gain becomes a 0.9% year-over-year gain, and a 0.8% year-over-year growth was admittedly actually a 2.4% contraction -- all done quietly and without media scrutiny. In short, retail sales were not as good as previously purported -- for all the reasons we have previously described -- and hardly anyone noticed.

-- We have always held Gallup's measures of the the U.S. consumer's psyche with high regard -- if for no other reason than that their very livelihood depends (unlike the BEA or DOC) on them evolving their polling techniques to stay in contact with even those "households" that connect with the outside world only through Facebook or Twitter. They have recently published three polls that show far greater consumer caution than is commonly suspected:

Last week Gallup issued their regular update on consumer confidence. In it they found that only 27% of U.S. consumers feel that economic conditions are "getting better," down from 41% who responded in the same manner one year ago.

In a separate poll they found that self-reported consumer spending was flat in April and essentially flat year-over-year. This means that there was actually a reduction in discretionary spending, since relative to a year ago consumers were also reporting that a substantially larger share of that spending is going for gasoline and groceries.

And in yet another consumer view of the economy, they reported that over half of U.S. consumers think that -- at least for them -- the 'Great Recession' has never ended. Although the polling numbers have improved since the very bottom of the recession, they have again deteriorated from last year.

-- And it isn't just U.S. consumers who are being cautious. Eurozone consumers have also become more frugal, with German consumers in the vanguard with a 2.1% monthly contraction in spending. The overall drop is 1.7% for the year, and it is now at the lowest level since November 2009. The German thrift is even more remarkable given that unemployment is far less of a concern there than anywhere else in Europe. And in some countries the downturn is clearly not a one-month fluke: the March 1.4% fall in retail sales in Spain extended the string of losses to twelve consecutive months.

In other words, the "recovery of consumer spending" is bogus. The pyramid of the American economy is instructive:

Memo to Mr. Bernanke: it's called blowback, baby, when the public finally sees through the covert ops propaganda. The institutions which are reporting the "proof the economy is recovering" will lose what remains of their credibility, as will a Mainstream Media which has unquestioningly "reported" the distortions as fact for years.

All this coordinated misinformation and distortion is setting up the delegitimization of the complicit institutions, which include the Federal Reserve, the Treasury, the White House, Congress, and all the agencies tasked with documenting the "recovery."

Today the stock market is rallying on the wondrous "news" of hundreds of thousands of new jobs created--the last of the three metrics which the Status Quo needs to complete its picture of "recovery." As the gap between the "good news" and reality widens, the forces of blowback and delegitimization only coil tighter.

NOTES TO READERS: Thank you for your many emails this week. Due to various emergencies and pressing real-world demands, I have had no time to respond. Please accept my apologies.

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