The Failing Pretense of Growth

Wolf Richter's picture

Wolf Richter

Hasbro, the second largest toymaker in the US behind Mattel, confessed that it would miss fourth-quarter revenue estimates. Christmas wasn’t kind. Despite “double digit growth in our emerging markets business,” as CEO Brian Goldner said, revenues fell by 2% for 2012 and by 3.8% for the quarter. But 4% inflation, preferably more, would have covered up that debacle.

The consequences are brutal. There will be a pile of restructuring charges, and 10% of the people will be axed—a collective punishment that the Romans used to dish out to lackadaisical legionnaires. They called it “decimation” (Latin for “removal of the tenth”). One in ten soldiers, determined by drawing lots, would be stoned or clubbed to death by his buddies. It did wonders for morale, and the whole empire collapsed.

Procter & Gamble, the consumer products giant with a myriad of ubiquitous brands, brimmed with optimism in its earnings call on Friday as CFO Jon Moeller praised its “growth strategy.” But in the end, sales grew only 2%, about the rate of inflation. It’s tough out there.

A decimation had already been announced last February: 10% of non-manufacturing employees, “roughly 5,700 roles,” he said. Not people, but “roles.” 5,500 of these roles were already gone. The rest would be gone soon. Ahead of schedule. But it still wasn’t enough. In November, P&G “committed to do more,” that is axe another 2% to 4% of “non-manufacturing enrollment,” but “any additional enrollment progress”—enrollment progress!—in fiscal 2013 would give P&G a “head start” for their 2014 to 2016 “enrollment objectives” [for a peculiar American conundrum, read Making Heroes of Those Who Slash Jobs].

But why this decimation? Sales growth. Or rather, the lack thereof. Which Moeller said, would be “1% to 2%.” Below the rate of inflation. Other large companies are in a similar predicament. Microsoft, for example, admitted on Thursday that its revenues rose a paltry 3%. Inflation is just too embarrassingly low for these corporate giants that are dependent on incessant price increases to doll up their top line.

Fed to the rescue! And it has been trying. After years of escalating waves of QE, the Fed has finally managed to print so much money that its balance sheet officially as of Friday, and for the first time in US history, broke through the $3 trillion mark. Here is a screenshot to eternalize the historic event:

On August 1, 2007, when the prior all-time-craziest Fed-inspired credit bubble was showing signs of blowing up, there were “only” $874 billion in assets on that balance sheet. Over the last two months alone, the Fed printed enough dollars to mop up $160.4 billion in securities. The two largest asset groups on the balance sheet: US Treasuries ($1.697 trillion) and mortgage-backed securities ($983 billion). Every month the Fed will add $45 billion in Treasuries and $40 in mortgage-backed securities. Until it comes up with something new.

Other central banks have also run their printing presses until they’re white hot. As all this money went looking for things to buy, it pushed bonds into the stratosphere, and yields into hell. Risk is no longer compensated. Some governments have been borrowing at negative yields. Even 10-year Treasuries yield less than inflation. And junk bonds with a considerable chance of default, if the free money ever dries up, yield as little as a 1-year FDIC-insured CD used to yield before the financial crisis. Commodity prices have been driven up. Food has become unaffordable for many people in poorer parts of the world. And equities have been driven to lofty heights. China just warned that “hot money” fresh off the US and Japanese presses would wash over China and drive asset bubbles to even more insane and dangerous heights.

But the one thing all this money-printing just hasn’t done in the US in 2012 is create the kind of substantive inflation that a lot of corporations need to beautify their revenues. Inflation creates the pretense of growth—just like salaries that have been rising, but less than inflation. It makes things look good on the surface, and analysts can go around and hype the company’s “growth strategy,” and everybody is happy. Reality be damned.

Meanwhile, European talking heads have been reassuring us on an hourly basis that the worst of the debt crisis is over. But the Japanese trade deficit, a measure of reality, not words, tells a different story about the crisis in Europe. And about troubles coming to a boil in China. But neither can be cured by Prime Minister Shinzo Abe’s plan to demolish the yen. Read.... What the Japanese Trade Deficit Says About the Fraying Fabric In China And Europe.

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TraderTimm's picture

Forget markets, munis, CDs, Interest rate checking yields.


01/01/13 13.304

01/27/13 17.900


Happy New Year, if you're into a system that doesn't actively debase its currency, that is.

willwork4food's picture

That's wonderful, but aside from drugs and socks, what can you buy with them?

TraderTimm's picture

I'm done explaining it to people. Do your own research, there's more available than you think.

Also, your answer reeks of some smart-ass reply constructed in haste. So, go fuck yourself :)


steveo77's picture
I made this chart, yes the Nuke Pro made it. Several other blogs have copied it nearly verbatim, and I am happy that others want to spread actionable information to protect people (would have been nice to get a proper credit though). I had the chart translated to Japanese as i was sending a Geiger to Japan to help families address their real risk. See bottom for the Japanese version.

This is a super condensed table on how to interpret Geiger Readings. Use it to supplement your own research and getting a "block of knowledge".

If you take this radiation stuff at all seriously, then get a Geiger. All the rest is guesswork.

Son of Loki's picture

Sales tax in Britain has just gone up to its highest ever as part of the effort to bring down the country’s huge budget deficit.


Wait until the internet sales tax, municipal taxes an dproperty taxes kick in here in the USA.  Consumers will be swimming in more debt.

"Grwoth" in the West is something I do not see in the near future...maybe not for a generation at least. Even The bernank openly states he will "print ad infinitum."

gorillaonyourback's picture

Print money. First comes commodity inflation like food and energy. Then after a lag of 3 to 4 months we get asset price inflation. CEOs and corporations make money. After another ten or so years we labor get the FUCKIN crumbs. Deflation in goods helps us the 99%

roadhazard's picture

4% Visa and Master card charges by businesses hit consumers starting tomorrow. It's back to writing checks for me. 

Grand Supercycle's picture

Wile E Coyote sell off awaits...

As mentioned – central bank intervention prolongs and postpones but can not oppose natural market forces indefinitely.

Peter Pan's picture

If prices according to government have remained stable but half of my household income has evaporated by 50% due to the loss of a job in the family, then as far as I am concerned inflation is running at 100%.

You can only measure inflation honestly by comparing how many goods and services you can buy from one period to the next.

FreeMktFisherMN's picture

Inflation is the expansion in money supply/credit. Its effects obviously include rising prices (which is already a lot more than .gov would have us believe and  will happen big time as Asian countries send dollars back in a tsunami back to our shores) but also all the malinvestment based on thinking there is actually a stock of savings that really is not there. People don't get the definition of inflation correct. But if they just care about the price increases, then looking at the price change in standard commodities like coffee, corn, silver, gold, oil suffices. No hedonics or other sleight of hand of statisticians. 

But contrary to the view that people hold that 'it's their loss' in reference to the Asians producing only to take our export: dollars, those dollars still exist and the leverage moves into their court as they could unload them and send that inflation right back. 

Colonel Klink's picture

"Why aren't these cocksucker in JAIL?"


Because the other criminal cocksuckers like Eric "place" holder and the rest of the criminal cable in Washington are protecting them.


Or was it a rhetorical question?

ebworthen's picture

Yeah, those corporate assholes are also lobbying to move the retirement age to 70.

I'm considering moving to Iceland, because the U.S.S.A. is the biggest cheating lying lover I've ever had.

andrewp111's picture

We need the Treasury to mint some Trillion Dollar Coins to get inflation moving again.

Of course, Pelosi will be restored to power in Jan 2015. That will fix it.

Omen IV's picture

  ......"push for affirmative-action mortgages has done "enormous" harm to the credit system."

"ENORMOUS".....say 99.5% bank fraud "practices" versus  .5% affirmative action "talk"

Notarocketscientist's picture

The Utouchables - PBS Frontline


Why aren't these cocksuckers in JAIL???

AnAnonymous's picture

Why aren't these cocksuckers in JAIL???

Why is Lance Armstrong not in jail?

Because you do not punish 'americans' for behaving the 'american' way. You reward them.

At least if they are Indo-european 'americans'...

akak's picture

Please tell us again your fairy tale of how US 'american' citizenism (sic) "blobbed-up" all the resources of Easter Island, and caused the downfall of their moai-raising society, even though that collapse happened many decades before the Easter Islanders' very first contact with the outside world, and almost two centuries before the founding of the USA itself --- I really like that one.

TheFourthStooge-ing's picture

Verily, amongst the fanciful fairytales which make up the repertoire of Chinese citizenism imaginated fabled past, the Easter Island story is a favorite.

If I know my Chinese citizenism fabled past, and I do, the peaceful Eastern Islanders lived in a utopian communauty until they were brutally stomped out by George Washington and his magic band of US citizenism minutemen on 1276,July,4th, during the Yuan Dynasty.

The 'americanist' 'americans' mowed down the Eastern Islanders with semi-automatic assault muskets. Any survivoring islanders were dumped into the sea, along with their dead chums.

The 'americanist' conquest of Eastern Island gave US citizenism 'americans' a base from which they could launch their takeover of the Canal Zone in Panama, which they did in 1066.

The Ming Dynasty, upon its ascent in 1368, sent many thousands of Indo-European Han volunteers to work for Ben Franklin on construction of the Panama Canal. They completed the canal in 1491, one year before the Magellan-Elcano expedition sailed through it in 1492 and discovered the Pacific Ocean.

Fortunately, for exterior people who are not subjected to lifetimes of Chinese citizenism endocrination, when they study the US history, they might legitimately come with a very different and truer version. But far less entertaining.

FeralSerf's picture

Who's going to put them in jail?  Their buddies?   It's the biggest, most corrupt, and best armed Mafia in history.  The robbers own the cops and some of the cops are robbers too -- a giant revolving door.  There's alway a very well paying job for any cop that wants to be a robber for a while.  And there's always suicide for any that have problems with their conscience.

They lie; they cheat; they steal and they kill.

willwork4food's picture

Yes, but Jonny has such a good heart...

Dewey Cheatum Howe's picture

Keep in mind this was written in 2008.


Let's see how true the part about banking and finance rings today.


The banking system has already been partially nationalized. Bush and Paulson intend for their share purchases to be only non-voting preferred shares, but the law does not specify that. How hard will it be for Obama, new holder of $700 billion in bank equity, to demand "accountability" and a "voice" for the taxpayers?

The capital markets are not freezing up now, mostly because of what has happened, although community organizers' multidecade push for affirmative-action mortgages has done enormous harm to the credit system. Markets are forward looking.


A quick review of the socialist takeovers in Venezuela in 1999, Spain in 2004 and Italy in 2006 show the same pattern--equity markets do most of their plummeting before the Chavez's of the world take power. Investors anticipate the policy shift in advance; that's their job.

It's not just equity markets, though; debt markets do the same thing. Everywhere I turn I hear complaints about bankers "hoarding" capital. "Hoarding" is a word we've heard often from violent socialists like Lenin and Mao. We also hear it from the democratic left as we did during the 1930s in America. The banks, we're told, are greedy and miserly, holding onto capital that should be deployed into the marketplace.

Well, which is it, miserly or greedy? They're not the same thing. Banks make money borrowing low and lending high. In fact, they can borrow very, very low right now, as they could during the Great Depression.

So why don't they lend? Because socialism is a very unkind environment for lenders. Some of the most powerful members of Congress are speaking openly about repudiating mortgage covenants. Local officials have already done so by simply refusing to foreclose on highly delinquent borrowers. Then, there's the oldest form of debt repudiation, inflation. Even if you get your money back, it will not be worth anything. Who would want to lend in an environment like this?


andrewp111's picture

Banksters get their money for free. They would lend it out if there were creditworthy borrowers - i.e people who could actually pay the loans back. But there isn't.

espirit's picture

Not just the banksters hoarding capital, the corporations have been doing it for a while.  With growth barely matching inflation, dividends are coming out of the bottom line.  Stock buybacks were life support so the trillion dollah question is...

Just how long will the charade ponzi go before they pull the plug on the terminally ill profits?

Fishhawk's picture

So, deflation in things that are normally bought on credit (houses, cars, capital equipment) and inflation in consumer goods and operating costs.  Companies can afford to expand, but falling market demand will not allow it.  Thus unemployment will continue to rise, demand will continue to fall, and the Bernank will continue to print, until he can't.   


StychoKiller's picture

"Welcome to the working week" -- Elvis Costello

hairball48's picture

I agree. Many believe that it'll be one or the other: inflation or deflation when the SHTF. IMO, It'll be both at the same time depending on the particular asset one looks at. In general, financials will deflate and "real" assets, hard assets will be inflated as fiat money is traded for "real wealth".

That's the redneck view from where I sit anyway....

Oldwood's picture

Our loving masters are only trying to ease the blow to us when the SHTF, and we are being so unappreciative by pointing out their lies. They care about us way too much to tell us the truth, and I guess as they are working so hard to maintain the deception, we shouldn't begrudge them sucking up all of the wealth for their trouble. Peace be with us till the end, suckers!

resurger's picture

lol Epic Bull eying the BS +5

EnslavethechildrenforBen's picture

When they refer to growth, they are refering to the rate at which they are increasing the quanity of weath they are stealing from you.