What an awful century! Worst we’ve ever seen.
Household incomes are down. Employment is down, with seven million people in the US of working age without jobs.
Productivity growth is down. GDP growth is down — to only about 0.5% per capita last year. Even life expectancies are down.
Drug overdoses are up. Suicides are up. One out of every eight children lives in a family getting food stamps. One of out every eight adults takes psychoactive drugs.
Half of all families get money from the feds. Half have less than $500 available for emergencies. Two-thirds aren’t saving for retirement. More than half cannot afford their own homes. And 49 million live in poverty.
What’s to blame for such a sucky century?
In addition to declining health and declining standards of living — as well as declining standards of decency — we also have wretched art, music, and architecture…unwinnable wars against poverty, drugs, and terrorism…$20 trillion of national debt…and overpriced assets that leave little of interest to the sober investor or desperate retiree.
And don’t get us started on the feds!
Meanwhile, the signs of another debt crisis — like a flash mob at a political rally — are growing.
The stock market has been going up far too long without a correction. The economy is overdue for a recession.
Federal Housing Administration mortgage delinquencies are rising. Student debt defaults are rising. Auto-loan repayments are slipping.
How did we get in such a lamentable state of affairs?
Sayeth Alan ‘Bubbles’ Greenspan, now Alan ‘Hard Money’ Greenspan:
‘We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.’
He’s right. And when money gets out of line, everything gets out of line.
For all we know, the Dow is on its way to 30,000. But it will have to go on without us. We can’t take that much excitement.
Besides, we continue to guess that the premise behind this great rally is false.
It imagines that stocks were fairly priced on 8 November, and now Mr Trump will be able to pass a major tax cut, paid for with tax increases. And it imagines that, somehow, this will lead to a boom doubling GDP growth rates.
‘Treasury Secretary Steven Mnuchin Sees Tax Overhaul by August,’ reads a Wall Street Journal headline.
In the 19th century, when the wonders of science and engineering were even more flabbergasting than they are today, Thomas Henry Huxley (grandfather of Brave New World author Aldous and evolutionary biologist Julian) travelled around Britain giving speeches on agnosticism.
Science, he argued, not mysticism or superstition, was the wave of the future. He further informed the often-benighted yokels that the Earth was a ball and that it revolved around the sun.
‘Not so fast, Mr Huxley,’ an old woman challenged him. ‘The Earth is flat.’
The scientist, seeing an easy foil, probed: ‘Then, madam, upon what does this flat Earth rest?’
‘Why, a turtle, of course.’
‘And upon what does the turtle rest?’
‘Well, surely that turtle must stand upon something. What?’
‘Oh, you don’t understand, Mr Huxley. It’s turtles all the way down.’
In today’s economy, we see fantasy turtles all the way down, too.
Crony grab bag
The stock market, for example, was way overpriced in November, and now rests on delusions about a coming tax cut (funded by a tax increase) and more federal spending (funded by more debt).
First, the plan will not pass Congress — not without so many exceptions, jiggers and collusions that it turns into another grab bag for crony lobbyists.
And second, even a real tax cut, unaccompanied by a spending cut, merely shifts federal funding to a less obvious source.
The resulting hotchpot ‘reform’ won’t reduce the win-lose deals ruining the economy. Nor will it boost corporate earnings by allowing businesses to make more win-win deals with suppliers and consumers and learn faster.
Instead, all they will learn is how to adapt to the new tax system.
Meanwhile, much of the reason for current stock prices can be found on the back of another imaginary turtle: stock buybacks.
In 2016, for example, S&P 500 companies spent more buying their own shares back (and then cancelling them) than they did on dividends and research and development combined.
Where do they get the money?
They borrow it. Money is made available to the biggest companies so cheaply that, after factoring in inflation, it is practically free.
Beneath that one, there’s another turtle snapping at investors.
It is the fraud that they can invest alongside the insiders on Wall Street…by simply buying ‘the market’…and profit as stocks become more valuable. And it even seems to be true…
Over the last six years, stock market earnings have been basically flat. So stock prices should be flat, too. After all, the underlying businesses are worth only what they can earn, right?
Instead, stock prices are up 80%. Go figure.
Below this carapace is the famous ‘put option’ pioneered by Alan Greenspan while still in his ‘Bubbles’ phase as Fed chairman, and left to his successors at the Fed.
Now investors feel they cannot lose because if there is ever another major selloff, the Fed will again rush to the rescue with another ‘put’ — more rate cuts and more QE…even actively intervening to buy stocks to push up prices to trigger a ‘wealth effect’.
And even further down is the feds’ fake money…which carries the whole shebang on its back. This is the real reason for much of the grief that is the 21st century.
It brings fake interest rates…phony stock market performance…globalisation…financialisation…fiscal recklessness…a $20 trillion pile of debt…and many of the other follies and delusions that have turned this century into such a disgraceful loser…
Turtles…all the way down!
For Markets and Money, Australia