TrimTabs Demonstrates Why US Final Demand Is Weak And Why Fed Interventions Are Pointless
TrimTabs does a simple yet elegant analysis that seeks to explain why US final demand is not only sluggish but declining, and is ultimately the reason why the US government needs to consistently pump more and more capital in the economy to keep GDP at best flat. TrimTabs focuses on the "consumer spendables" indicator - It consists of the sum of three components: 1. After-tax income from wages and salaries; 2. After-tax income from non-wage sources, such as capital gains, dividends, and interest; 3. Cash harvested from home equity when mortgages are refinanced. As TrimTabs shows, and this should come as a surprise to nobody, "much of the economic growth in the middle of the previous decade was fueled by an explosion of consumer debt. Consumers treated their homes like automatic teller machines—cash-out refinancings topped out at $804 billion in the four quarters ended in Q2 2006—and they borrowed freely on low-rate auto loans and credit cards given to almost anyone who could fog a mirror. Now that the era of easy consumer credit is over, the economy is resetting to a lower level of activity. We believe the interventions of the Fed and the government to try to head off this adjustment will do more harm in the long run than the adjustment itself." In other words the ongoing debate on whether the US is undergoing inflation or deflation is moot - the primary driver continues to be deleveraging, as Rick Santelli likes to shout on occasion. And all the other monetary phenomena are merely a side-effect. Alas, as long as deleveraging is the primary driver in the economy, nothing else matters: it has long been our contention that deleveraging must run its course. However, the Fed will not let that happen, and in doing so, it will attempt the last thing in its arsenal - in essence, suicide the economy, by destroying all faith in the actual medium of monetary exchange. At that point inflation, deflation and/or stagflation will be the last thing on anyone's mind.