Main Street

In the first three parts (Part 1, Part 2, Part 3) of this disheartening look back at a century of central banking, income taxing, military warring, energy depleting and political corrupting, we made a case for why we are in the midst of a financial, commercial, political, social and cultural collapse. In this final installment we’ll give our best estimate as to what happens next. There are so many variables involved that it is impossible to predict the exact path to our world’s end. Many people don’t want to hear about the intractable issues or the true reasons for our predicament. They want easy button solutions. They want someone or something to fix their problems. They pray for a technological miracle to save them from decades of irrational myopic decisions. As the domino-like collapse worsens, the feeble minded populace becomes more susceptible to the false promises of tyrants and psychopaths. Anyone who denies we are in the midst of an ongoing Crisis that will lead to a collapse of the system as we know it is either a card carrying member of the corrupt establishment, dependent upon the oligarchs for their living, or just one of the willfully ignorant ostriches who choose to put their heads in the sand and hum the Star Spangled Banner as they choose obliviousness to awareness. Thinking is hard. Feeling and believing a storyline is easy.

While the world is currently glued to the events surrounding Syria; the reality is that such an event has very little to do with the real economy.  The surges in expectations by business is very interesting given the actual demand that drives the real economy.  Real employment remains weak and corporate earnings are struggling given the diminishing returns of cost cutting. The recent increases in interest rates also have a very important "tightening" effect on the "Main Street" economy which will also likely suppress consumption in coming months somewhat.  Also not likely factored in to current survey's is the upcoming debt ceiling debate and the onset of the Affordable Care Act (ACA).  The ACA is a de facto increase in taxes and there is a potential for further tax hikes coming from the budget debate. The current NFIB survey suggests that the economy is still stuck in "struggle mode" and an acceleration above 2% real economic growth is currently unlikely.  The divergence between expectations and real demand will likely converge in the next couple of months so we will see businesses follow through with their optimisitic outlooks - "Overall, the Index of Optimism says the small business sector is going nowhere and that's what it feels like."

Despite trillions of dollars of interventions and zero interest rates by the Federal Reserve, combined with numerous bailouts, supports and assistance from the Federal Government, the economy has yet to gain any real traction particularly on "Main Street."  Are we currently experiencing the second "Great Depression?"  That is a question that we can continue to debate currently, however, it will only be answered for certain when future historians judge this period. One thing is for sure.  With the lowest rate of annualized economic growth on record there is a problem currently that is not being adequately recognized. The depression may indeed be on "Main Street" once again with the only difference being that the "breadlines" are formed in the mailbox rather than on street corners. And while many are quick to dismiss comparisons to the Great Depression, there is one important difference: the rate of population growth which, as opposed to the depression era, has been on a steady and consistent decline since the 1950's.

There has been much discussion as of late about the need for interest rates to rise as they have been historically way too low for too long.  However, is that really the case? The average long term interest rate in the U.S. has been 5.49%  (median is 4.91%) since 1854.  However, that average rate would be much lower if the "spike" in interest rates in the 1960's and 70's were removed which would mean that the current long term interest rate is likely more aligned currently with historical norms.  This is particularly the case when compared to the much slower rates of economic growth that currently exists. What we find find most interesting currently are the ongoing discussions about whether or not the U.S. is in a recession.  The reality is that such discussions are relatively pointless in the broader context.  The "Great Depression" was not just one very long "recessionary" period but rather two recessions that "bookended" a period of relatively strong economic growth.

In Part 1 of this article we documented the insane remedies prescribed by the mad banker scientists presiding over this preposterous fiat experiment since they blew up the lab in 2008. In Part 2 we tried to articulate why the country has allowed itself to be brought to the brink of catastrophe. There is no turning back time. The choices we’ve made and avoided making over the last one hundred years are going to come home to roost over the next fifteen years. We are in the midst of a great Crisis that will not be resolved until the mid-2020s. The appearance of stability is illusory, as the civic fabric of the country continues to tear asunder. Record high stock markets do not trickle down. The masters of propaganda seem baffled that their standard operating procedures are not generating the expected response from the serfs. They have failed to take into account the generational mood changes that occur; propaganda loses its effectiveness in proportion to the pain and distress being experienced by the citizenry.

A government that is operating under the credo "by the corporation for the corporation",  rather than "by the people for the people." 

We recently discussed the possibility that the US is "worse than Japan in the 90s" but, against all consensus, we wonder, will the US soon enter a Recession or is it actually in a Recession? Is there a possibility the US is in a Stealth Depression?

“We have to turn the page on the bubble-and-bust mentality that created this mess,” President Obama stated authoritatively in his weekend radio address... but do not get too excited by the possibility of a real end to the Keynesian experiment and a return to 'free' markets for the President, in his oh-so-not-trying-to-start-a-class-warfare-battle way, blames bubbles not on Central banks (who have done "an outstanding job") but on the skewed distribution of income. As Bloomberg reports, Obama states “When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy." The problem with his way of thinking is best described by the status quo defender Sarah Bloom Raskin who offered up this insight into what the manipulation of market interest rates gives us, "asset bubbles are a feature of our financial landscape." So there it is, a feature (not a bug) that the President wants to get rid of (and yet wants to maintain the illusion that unrealized profit (and debt) is wealth).

One of the main reasons that investors so often get caught up in major market meltdowns is due to the short-sighted, near term, focus of market analysts and economists.  The data has to be analyzed with relation to the longer term trends and a clear understanding that all things, despite ongoing central bank interventions, do eventually end.  The problem with the current environment is that the artificial inflations have detached the market from the underlying economic fundamentals which has historically led to larger than expected reversions and outright crashes.

Presented with little comment aside to note that while every night we are told by how much the Dow closed green, many await the day the chart below flashes anything but red.

How would America ever survive without the central planners in the Obama administration and at the Federal Reserve?  What in the world would we do if there was no income tax and no IRS?  Could the U.S. economy possibly keep from collapsing under such circumstances?  The mainstream media would have us believe that unless we have someone "to pull the levers" our economy would descend into utter chaos, but the truth is that the best period of economic growth in U.S. history occurred during a time when there was no income tax and no Federal Reserve. We never needed a central bank, we never needed the IRS and we never needed an income tax.  America would be doing just fine without any of them. But instead, America chose to go down the path of collectivization and central planning, and now we are heading toward the biggest economic disaster in the history of mankind.

This insane world was created through decades of bad decisions, believing in false prophets, choosing current consumption over sustainable long-term savings based growth, electing corruptible men who promised voters entitlements that were mathematically impossible to deliver, the disintegration of a sense of civic and community obligation and a gradual degradation of the national intelligence and character. There is a common denominator in all the bubbles created over the last century – Wall Street bankers and their puppets at the Federal Reserve. Fractional reserve banking, control of a fiat currency by a privately owned central bank, and an economy dependent upon ever increasing levels of debt are nothing more than ingredients of a Ponzi scheme that will ultimately implode and destroy the worldwide financial system. Since 1913 we have been enduring the largest fraud and embezzlement scheme in world history, but the law of diminishing returns is revealing the plot and illuminating the culprits. Bernanke and his cronies have proven themselves to be highly educated one trick pony protectors of the status quo. Bernanke will eventually roll craps. When he does, the collapse will be epic and 2008 will seem like a walk in the park.

Just a few days ago on July 27th President Barack Obama said that the next Fed head had to consider average Americans when setting monetary policy. If only that were true.

Despite Tom Keene's best efforts to appear fair-and-balanced, this brief interview on Bloomberg TV places ECRI's Lakshman Achuthan in the uncomfortable position of destroying every propagandized 'fact' that the mainstream media is entrusted with disseminating to the Pavlovian investing community. From recessions with job growth ("a US recession began in 2012") to the wealth divide and from GDP revisions to job quality differentials, Achuthan warns the US is becoming Japan, "U.S. growth over the last five years is weaker than Japan during the Lost Decades." Keene's insistence that things are on-the-up (though admitting that Achuthan's call on the decline in growth was correct) is met with the rhetorical question, "you wouldn't have four years of zero-interest rate policy and quantitative easing if everything was okay."

The Fed publicly claims it wants to help the economy and Main Street. However, as we are now discovering, the Fed is more than willing to sacrifice the good of the people in order to prop up a few insolvent big banks.