The Westsound Bank in Bremerton, WA proved to be less than sound when, on Friday, FDIC regulators closed the institution, making it the U.S. 33rd bank failure this year. It was another week of discouraging economic news. Eurostat said that real GDP in the EU-27 was down 2.5% in the first quarter and down 4.4% from a year ago, weaker than expected and the worst quarterly drop since records began in 1995. Consumer prices were up 1.2% in April from a year ago in the region. StatsCan said manufacturing was off 2.7% in March to the lowest level in nearly ten years. Real GDP in Germany was down 3.8% in the first quarter, weaker than expected. Real GDP in France was down 1.2% in the first quarter. Real GDP in Hong Kong was down 4.3% in the first quarter and down 7.8% from a year ago. Corporate bankruptcies in Japan increased 15.4% in April relative to a year ago. The Federal Reserve said U.S. industrial production was down 0.5% in April – the 15th decline in the past 16 months – and that’s a number due to contract further as the sting from Chrysler and GM plant closings sets in. The Labor Department said U.S. consumer prices were unchanged in April but down 0.7% from a year for the biggest decline in 53 years. The core CPI, which excludes food and energy prices, jumped 0.3% last month, the largest increase since June 2008 and well above economist expectations for a 0.1% increase. Hogwash, we say. We are compelled to comment that U.S. inflation data is a pack of lies. That has been known for a very long while. But there are more lies on the way. The Obama administration has initiated rule changes for federal deficit reporting. The changes only reduce the reported level of the federal deficit; they do not impact the Treasury’s excessive funding needs. The twelve-month moving deficit through April 2009 rose to $1,278.6 billion from $1098.8 billion in March, based on last month’s accounting rules. Based on the new rules, the April number was $1,103.6 billion in April, versus $923.4 billion in March. Lies, damned lies and statistics, as the old saying goes portray perfectly the conundrum facing economists and analysts, consumers and producers who attempt to rectify their experiences with information imparted in official data releases. Despite official data to the contrary, sharp rallies in crude oil and gasoline during May are, in concert with rising agricultural commodity prices and crumbling bond values, evidence of the bottom in deflationary concerns. Stocks rallied over the past eight weeks on fictitious bank profits founded on the same fairy tale accounting employed in government data; economic data that – while still dour – came out better than expected; and notions that – among other things – sharp declines in U.S. business inventories are good things. All the while, un- and under-employment continue to grow; home prices in the U.S. dropped by the greatest amount ever recorded in the first quarter; and the U.S. auto industry has entered a full-fledged death spiral. The dollar index hit an intraday high of 90.31 on 6 March and, after posting a key reversal lower, has trended down since. If the dollar is going to correct in the short-term, it could rally back to about 86.00 on the index but we don’t expect a short-term recovery is the start of anything sustainable in the long-term. A correction from the dollar’s intact downtrend would presumably pressure energies and agricultural commodities and hold back stocks. It might last about six weeks, crossing the threshold into the second-half of the year. It will not help businesses, reinvigorate employment, bolster manufacturing or inspire confidence. And when the rally comes to an end, it may have something to do with the recognition that government rule changes (for deficit reporting, banks’ toxic asset valuations and whatever else is changed between now and then) do nothing to bring about an improvement in underlying conditions. That, among other things, reductions in business inventories, is the set-up for full-blown shortages. That a government which can’t keep its own accounting rules straight is in no position to run banks or car companies. That 500,000 job losses per month is still a helluva lot of jobs to lose and not counting those who’ve been unemployed for more than a year doesn’t mean there are fewer jobless. If the dollar is able to rally for the next little while, we see it as the greenback’s last rally opportunity for a long while.