David Rosenberg On CNBC This Morning: 3Q GDP Revisions

This morning's CNBC Squawkbox program featured former Merrill Lynch economist David Rosenberg as guest host.

I was particularly impressed with his sensible and cogent explanations for his gloomy economic forecast. And his easy manner of deflecting CNBC's senior economic buffoon, Steve Liesman.

Rosenberg calmly noted how, for both 2Q and 3Q GDP results, once government spending and credits were stripped out, the private sector has been flat all year. This morning's 3Q restatement of GDP met expectations of its being trimmed from 3.5% to 2.8%.

While I'm not privy to it, references were made to an 11-page forecast Rosenberg published earlier this month. Liesman contended it was so dire as to make him want to get guns for all the co-anchors on CNBC's morning show to facilitate their suicides.

In my opinion, only one firearm would be necessary, and Liesman wouldn't have had to bother anyone else about it, either.

However, back on topic, when Liesman accused Rosenberg of forecasting a 'never ending recession,' the latter replied with an astute comparison to the Great Depression. Specifically, Rosenberg noted that there were a number of recessions, with small, brief 'recoveries,' within the decade-long depression, that were only ended by WWII.

Rosenberg then derided the notion of a recovery when state and local government tax revenues are down 11% from last year, which was, itself, a weak year for tax receipts. He wondered how you could describe the current US economic situation as strong or normal and recovering, when most of the GDP growth is essentially from government spending of borrowed money, and the state and local governments are in extreme shortfall.

I found Rosenberg's assessment actually comforting, in that he offered credible evidence and a reasoned contrast to what he described as a rush to confirm a recovery by every other economist.

In a particularly acrimonious exchange, Rosenberg was constantly interrupted when attempting to reply to a question regarding Warren Buffett's recent purchase of BNI. Despite the co-anchors' talking over his answer, Rosenberg noted BNI''s price being secularly depressed, and Buffett's reliance on the ability of a regulated utility with efficient performance to ride out a not very robust near term economic situation.

Another exchange of interest involved former Fed member Rick Mishkin, Rosenberg and Rick Santelli, regarding Ron Paul's amendment to allow Congress to conduct 'audits' of the Fed. Mishkin, of course, argued the Fed party line, i.e., that this amendment, more than any other in history, seeks to undermine the Fed's authority. That Congress would politicize interest rates and seek to keep them low indefinitely, intimidating any Fed chairman who chose to obstruct that policy.

Rosenberg, with Santelli's support, noted how dismal the Fed's record on interest rates has been, especially right now. How the Fed has politicized itself by monetizing Treasury's debt, so much so as to have simply begun purchasing privately-issued mortgage-backed securities.

I used to feel the way Mishkin does. Until, that is, I watched Alan Greenspan over-inflate the stable economy Paul Volcker bequeathed to him. Compounded by an additional flood of unnecessary liquidity by Bernanke, the recent decade of Fed performance is hardly grounds on which to argue for more independence. Rosenberg is not far wrong arguing that Congress certainly couldn't do much worse for the dollar or inflation.

Finally, when criticized for having missed the recent equity market rally since March, Rosenberg responded astutely with the notion of risk-adjusted returns. He conjectured that those equity managers who rode the recent rally to good returns, and will probably attract more money as a consequence, have little understanding of the real risks they are now running. He also tied the judgement of many economists that the US economy is in recovery to their citing of the equity markets, rather than fundamental economic growth statistics.

In effect, Rosenberg once again drew the comparison to the 1930s, wherein there were several equity rallies amidst the worst general slump in equity prices in thirty years.

Rosenberg's calm, reasoned assertions provided me with reinforcement for my own view that the US economy is not, in terms of the private sector, anywhere near a robust "recovery," nor remotely free from the serious effects of a weak dollar and coming inflation due to the Fed's misguided liquidity policies.