‘Bill, you admit that you are often wrong…or “early”…’begins a sympathetic letter from a dear reader, ‘so what makes you any different from all the other economists on Wall Street?’
Good question. We’ll work our way around to an answer.
But first, we will remind readers that our opinion — unchanged from the bottom of the crisis in 2009 to today — has been not only that the economy was not recovering, but also that it couldn’t recover — not as long as the feds were on the case.
Today, we have more evidence…
A massive shift in wealth
Six years after the ‘recovery’ train supposedly left the station, and GDP is backing up again. That is according to the feds’ own numbers, just revised.
They tell us that the economy shrank at a 0.7% annual rate in the first quarter. Household spending growth, meanwhile, was cut in half from the last quarter of 2014.
If there were any recovery, it certainly isn’t visible in these numbers. Which shouldn’t surprise you. Instead of unloading excess and unpayable debt, the feds were adding more.
According to McKinsey, global debt grew by $57 trillion between the fourth quarter of 2007 and the fourth quarter of 2014.
Worse, cheap credit has shifted real wealth from Main Street to Wall Street.
In doing so, the feds have perverted the entire system…and stopped real growth. After all, Main Street — factories and businesses — is where wealth is created, not on Wall Street.
The rich — who own financial assets — got richer. The poor, the young, and middle class — who mostly have only their labour to offer — got poorer.
Since 2009, the US stock market almost tripled shareholders’ portfolios.
But it added nothing to the net worth of the working stiffs, as illustrated by the following calculation: In 1982, a typical workingman could buy the entire S&P 500 with 15 hours of his time. Now, the poor fellow would have to work two and a half weeks to get his hands on the same assets.
The system is corrupt…and dangerously dysfunctional. But why does no one say so?
Opinion makers such as Paul Krugman and Larry Summers misunderstand intentionally. As though the feds had not put up enough obstacles already, they want more.
‘More regulation!’ ‘More redistribution!’ ‘More credit…more spending…more debt…more wars…more crackpot schemes of all sorts!’
They want more ‘management’ by the same people who’ve made such a mess of it already — people such as themselves. And the elite (and almost everybody else) is 100% behind them.
They are committed to trying to protect and extend the magical economy of the last three decades. This was made possible by a huge increase in debt. This led to big increases in stocks, bonds, real estate, contemporary art…and bonuses on Wall Street.
Almost everybody wants to see the past three decades continue.
But who speaks for the next three decades? Who speaks for Main Street…for the young…and for the unknown, surprise-filled future?
Who stands with the mysterious angels, inviting a depression to clear away the mistakes of the last three decades…and cheering on creative destruction, as it whacks the cronies and starves the zombies?
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This is the point we have been edging toward in a recent controversial Diary issue. Everyone wants more credit, more inflation, more bubbles, more subsidies, and more special privileges.
Who’s on the other side of the trade?
Almost no one.
But for the last 20 years, we’ve been building a network of researchers, analysts, economists, and (sometimes quirky) thinkers that is independent of Wall Street, government, and academia.
No cronies. No zombies. No fast talkers or midnight walkers.
Our motto: Sometimes right, sometimes wrong, and always in doubt.
Every day, we try to connect the dots. How come central banks, big business, Wall Street, government, and academia are all on the side of the policies that don’t work?
How come the old…notably fast-aging baby boomers…have gone over, too, to take the devil’s part?
A pernicious bias
We are not just referring to the financial and monetary policies of the last six years, but also to a deeper and more pernicious bias.
The US federal government has been running almost continual budget deficits — effectively passing the cost of today’s benefits on to tomorrow’s wage earners — since the Carter administration.
The Fed has been fighting credit corrections — while being the handmaiden of credit bubbles — since the 1980s. And for the last six years, the feds have been so actively and aggressively defending the past that the future hasn’t had a chance.
It was obvious from the get-go that adding more debt, bailouts, and regulatory weight was not going to make progress any easier. Still, recovery was always ‘right around the corner.’
But each corner we looked around revealed no recovery at all. And now, we have just turned another corner…and the train is going nowhere!
There are fewer real breadwinner jobs today than there were 15 years ago. The average household income is lower, too. You might think Janet Yellen would throw up her hands: ‘Really, what we are doing isn’t working. So, we’ll stop doing it.’
Fat chance. That would be the equivalent of the US military, the CIA, NSA, and all the defence contractors in Northern Virginia admitting: ‘These wars in the Middle East aren’t getting us anywhere. Frankly, we can’t even remember who is an enemy and who is a friend. From now on, we’ll let the local people sort out their own problems.’
Not going to happen.
Because the Fed’s easy money has corrupted the entire system…
More to come…
For Markets and Money, Australia