Note: This blog post is a bit longer than usual…in it I add up the cumulative impacts of changes in income and credit on the overall economy.

Much is being trumpeted by the government and the press about “the bottom being in” and that a recovery is right around the corner. The recent stock market gains are being used as a primary source of evidence for this idea.

But is the stock market a good indicator of anything? We might note, somewhat critically, that the stock market did a terrible job of predicting the downturn (see below) and wonder why it should be any better at predicting the recovery.

In a completely expected move, politicians from around the world gathered and made the decision to spend a lot of money that they didn’t have and which doesn’t exist (yet).

I am referring to the recent G20 meeting, where the global crisis was the main topic. As you may know from my past writings, I hold it as a near dead-certainty that national politicians can be counted upon to spend instead of cut and to print instead of tax. It’s just natural to want to take the path of least resistance.

If local politicians had a printing press, they’d print, too. But they don’t, and so they hike fees and taxes on things like roads, gasoline, fishing licenses, and building permits when things get tight.

Printing money out of thin air is inflationary and unfair. It steals from savers and preferentially enriches those at the head of the handout line. It diminishes all the money accumulated from past production and inappropriately reinforces the belief that something can be had for nothing.

So I was more than a little intrigued when I read about the $1.1 trillion pledged by world leaders to the IMF. Where did it come from? Who was donating what? As always, the devil is in the details.

Well, Obama is talking tough with the Big Three, even letting on that the bankruptcy of GM and Chrysler is a very real possibility and may happen soon.

Since these are bankrupt companies, I suppose this makes a certain amount of sense, leaving aside the perplexing silence on why a similar approach is not being taken with insolvent banks. I guess it’s possible that manufacturing paper profits is now “more American” than fashioning real goods out of hard materials.

But it goes further than this. The current administration might as well be worrying about the fact that the US government itself is hurtling towards bankruptcy.

Not only are debts exploding – moving smartly past “unsustainable” and into “ruinous” – but revenues (tax receipts) are falling like a rock.

Yesterday it was reported that the difference between Social Security income (taxes) and outlays (benefits payments), which is known in Washington-speak as “the SS surplus”, would shrink to zero next year.

Alan Abelson has a tremendous article in the recent issue of Barron’s where he recounts some of the massive statistical revisionism that accompanied a broad swath of government data released this past week.

In this two part dance, the government first employs some highly dubious statistical tricks, in this case “seasonal adjustments” and then the press runs off with the information often slathering a layer of spin and hype on top of the obviously dodgy data. I wrote about this in my 3 posts last week on existing and new home sales and durables.

Here’s the relevant part from that article (all emphasis mine) – I especially love the opening paragraph:

Okay, this is really just desperate and sad. No I am not referring to my fixation on parsing government numbers, although I suppose I could be, but instead to government statistical wizardry and the press’ unquestioning rhetorical support for these tortured numbers.

First up, here’s the verbiage: