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David Stockman's Non-Recovery Part 3: Borrowed Recovery On Borrowed Time
Following Part 1's exposure to the faux-prosperity of the post-2009 'recovery' and the precariousness of the Bernanke bubble, Part 2 of the series explained the dismal internals of the jobs numbers the utterly politicized calculation of the “unemployment rate” that disguises the jobless nature of the rebound (as breadwinner jobs languish). In Part 3, David Stockman (from his new book "The Great Deformation") starts an explanation of the why. As he notes, the Fed’s post-crisis money-printing polices gifted Wall Street speculators, as intended, but they also delivered an utterly botched recovery on Main Street. The reason the Main Street economy refused to follow the Keynesian script, however, could not be found in the texts of the master or any of the vicar’s uncles. The Keynesian catechism has no conception that balance sheets matter, yet Main Street America is flat broke, and that is the primary thing which matters.
Via David Stockman's book 'The Great Deformation',
The Fed’s post-crisis money-printing polices gifted Wall Street speculators, as intended, but they also delivered an utterly botched recovery on Main Street. The latter was thinly disguised by an uptick in the conventional cyclical markers: purported “green shoots” like jobs, consumer spending, and inventory rebuilding. Wall Street economists touted this smorgasbord of traditional signposts, contending that even if halting and subpar they added up to another conventional business cycle recovery.
Nothing could have been further from the truth. Beneath the paint-by-numbers simulacrum of recovery espied by Wall Street was a drastic lapse into “borrow and spend” that was a veritable affront to economic rationality. By September 2012, the American economy was fifty-seven months past the late 2007 peak, but there was no rejuvenation of its capitalist engines - just a tenuous bounce in the spending accounts that was plainly unsustainable and unhealthy.
Personal consumption expenditures, as indicated, had risen by $1.2 trillion during that five-year period. Yet $625 billion, or half of this modest gain in PCE - the preponderant 70 percent sector of the GDP - had been financed with transfer payments. This was literally off the historical charts: transfer payments had never previously financed even 20 percent of the five-year gain in PCE after a cyclical top.
Worse still, the sources of consumption spending outside of these government subventions were equally cockeyed. Another $330 billion came from wage and salary disbursements from the service sector, consisting heavily of fiscally driven gains in the HES complex. Thus, behind the tepid expansion of consumption—averaging just 2.4 percent annually in nominal terms during the five years—was a massive amount of federal borrowing, not an organic recovery of incomes.
Indicative of the flagging condition of incomes is the data for wage and salary disbursements to workers in the breadwinner economy. At the peak of the second Greenspan bubble in December 2007, these jobs generated about $3.4 trillion of annualized wages and salaries. Five years later that figure was only marginally higher, having risen by just $70 billion. In other words, wage and salary disbursements in these core sectors of the American economy had amounted to only 6 percent of the $1.2 trillion gain in consumption spending, and had actually shrunk by 7 percent after adjustment for inflation.
Likewise, there had also been only a trivial gain of $25 billion over that five-year period in the other major source of private income; namely, the $3.4 trillion accounted for by proprietors’ profits, rental incomes, and interest and dividends. These accounts were also down by about 8 percent in real terms, a five-year shrinkage that had never before occurred in the postwar era.
The $7 trillion core of the American economy’s income ledger has thus plateaued. The sum of proprietor’s profits, rents, and financial income plus breadwinner wages rose by a trivial 1.4 percent during the five years after the December 2007 bubble peak, and has accounted for less than 8 percent of the PCE growth during that span. This, too, was freakishly off the historical charts, as is evident in the comparable figures for the five years after the late 2000 cycle peak. During that period these same core income components grew by $1 trillion, not $100 billion, and they accounted for 50 percent of the gain in PCE, not 8 percent. In short, the historical income-based recovery of consumption spending had now been replaced by a modest rebound coming mainly from the fiscally supported periphery.
The American economy was thus still in a debt-push mode, but was losing traction rapidly. During the five-year period ending in September 2012, and notwithstanding the massive fiscal medication after the Wall Street meltdown, PCE grew at only a 0.7 percent annual rate after accounting for inflation. This was a sharp fall from the 3 percent annual rate during the preceding five-year period, and the source of this deceleration was not hard to identify; namely, there was no more MEW; the home ATMs had gone dark.
Not surprisingly, the failure of core income components to recover was echoed in other key macroeconomic performance variables. As indicated previously, fixed business investment in plant, equipment, and software is the sine qua non for long-term economic growth and health, but the anemic rebound that began after June 2009 had already rolled over by the third quarter of 2012.
This was a startling development because it meant that capital spending was now retreating even though it was still 7 percent below its peak of five years earlier in constant dollars. Needless to say, there was no historical parallel. Five years after the 1981 peak, for example, real fixed business investment was up by 11 percent and even after the modest 2001–2002 downturn real business investment rose by 5 percent during the next half decade.
Five years into the Bernanke bubble the Main Street economy was still languishing. In all of the previous postwar cycles the prior top had been substantially exceeded sixty months later, but this time there had been no gains in breadwinner jobs, business investment, or the core components of national income. Even the consumption accounts were stagnant. They appeared to have gained new ground only because they had been puffed up with borrowings from future taxpayers that had been intermediated through transfer payments.
The reason the Main Street economy refused to follow the Keynesian script, however, could not be found in the texts of the master or any of the vicar’s uncles. The Keynesian catechism has no conception that balance sheets matter, yet Main Street America is flat broke, and that is the primary thing which matters. In fact, half of the nation’s households have virtually no cash savings and live paycheck to paycheck (or government check), and most of the remainder are still too indebted to revert to borrowing and spending beyond their current stagnant and often precarious paychecks.
The simple reality is that the household balance sheet is still way overleveraged, and for the first time in the postwar Keynesian era this leverage ratio is being forced down on a secular basis, thereby permanently restricting the rate of consumer spending. It goes without saying that this dynamic is the inverse of all previous postwar cycles.
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You mean this shit that Ben pulled in the last 5 years isn't gonna work?
Oh fuck.
Haahahahahahahahaha
Who pulls the strings?
Who calls the shots?
Who are the enablers with your consent?
Ghostbusters?
Seriously...
You guys gotta chill, keepin' on actin' like there's no tomorrow that everything's going to shit.
I got some news for y'all.
There isn't even a complete evening tonight let alone tomorrow.
Fucking pessimists.
You guys don't know pessimism.
The crap is thicker smellier, more sticky, poisonous, toxic and bad juju than you can ever imagine.
Hah ha ha ha ha
Lemme see, where's that SEC job applicaiton....
By the way, where's that little fucker Krugman.
Paul, calling Paul!
What happened today?
They're going to print to infinity and nobody likes it.
Shit, man, help us
Paul, please help us ObiewanPaulKnowNobie
Globalist banking families in Europe? Oh shit, can we forget I said that? Sorry, NSA. Seriously I love you guys.
By the way, I seem to have picked up a nasty rootkit virus and haven't been able to get rid of it. Do you happen to know the number at the NSA you call to get a backup from them? Oh, wait, what am I thinking - guys, can you just fire me a quick e-mail with instructions on who I should talk to over there about getting a backup of my system from last week? Or better yet, could you just run a restore for me? Say last Thursday night's, that would be perfect.
Thx!
Dear NSA: I love Obama, yes I really, really do! SO, Don't drone me, Bro!
FORWARD SOVIET!
Half the households have no savings - well you gave to spend down your savings in order to qualify for most welfare benefits, free healthcare, or free Obamaphones. It is a disincentive to save, since even a few thousand in the bank (or in STOCKS!) means you lose thise bennies.
That's why half the country is on welfare of one form or another.
Bank accounts are empty. Health insurance costs are skyrocketing. Food prices are rising. Payrolls are shrinking. The stock markets go up on bad news. There is no Main Street. Main street is gone. There are only big box stores full of Chinese cheap S##T with worried patrons wondering if the electric bill, gas bill, mortgage, car payments and groceries will get covered this month. If this is recovery the next down turn will be quite the trip.
Organize without naivety towards the the dark side of all humans, that which is easily turned for quick but ultimately worthless gains.
In the end only the force of individuals acting in concert for their mutual self interest and defense will defeat, or at the very least, restrain, the forces of subversion and deceit which attempt to enslave them.
Just to reiterate, i am an athiest, the only thing i even come close to worshipping is the above statement.
Seems the money mongers just don't care about working people.
Too bad the working people have no clue about the money mongers.
The wage earners, the workers, really are the boss but have not risen to their rightful place during this time. Its interesting, and I do wonder if it has anything to do with how many of them are nearing (technical) retirement age. Maybe this is the cohort of "wage earners" that would have to take the lead in clarifying just who run barter town. Those that would spark, or play the meaningful part of any revolution.
Maybe, they could clarify just who it is that turns on the lights and makes the wheels go around. I see in my day to day a few of them who look like the're ready to break (free).
We'll see. The youngest ones I see have no clue at all their value. They've been convinced they are replaceable, and that is true, so long as there is disunity in the rank as to who actually makes things work.
Its one thing to starve the beast by not participating in the money madness be it taxes, not buying as much or any new cars. Its something wholly different when the wage earners are unified in not participating in the production.
They think they've won when there are "unlimited" chinese consumers. When they march against their masters we MAY grow some balls. A lot of us are avoiding feminizing plastics as fast as their are adding hormones to other things. They may just switch to chemtrailing at night with a new cocktail. We have seen the zombies and they are the future us. Watch for spontaneous car wrecks of people too confused to drive. Crunch time folks.