The Real Numbers Behind America's Phony Recovery

Tyler Durden's picture

Submitted by Bill Bonner via Acting Man blog,

Today is the big day. Investors are on the edges of their seats, waiting to find out what the Fed will do. Taper? No taper? Or maybe it will taper on the tapering off?

Our guess is the Fed will not commit to a serious program of reducing its support to the bond, equity and housing markets. It's too dangerous. Ben Bernanke – the man who didn't see the housing crash coming – won't want to see the stock market collapse just before he leaves office. He'll want to go out on a high note…

…and that means guaranteeing more liquidity.

Investors don't seem worried. On Monday, the Dow rose 130 points. Gold was up $10 an ounce. Most of the reports we read tell us the economy is improving. Unemployment is going down. Meanwhile, manufacturing levels are rising. Compared to Europe, the US is a powerhouse of growth and innovation, they say. Compared to emerging markets, it is a paragon of stability and confidence.

How much do investors love the US? Let us count the ways:

1. GDP per capita is running 7% – ahead of where it was in 2007. Among the world's major developed economies only Germany can boast of anything close. All the rest are falling behind.

2. The budget deficit – which was running at about 10% of GDP – is now down to just 4% of GDP.

3. Unemployment is going down, too. Heck, just 7 out of 100 Americans are officially jobless. Didn't Bernanke say he would tighten up when it hit that level?

4. And look at prices. Consumer price inflation is running at just 1% over the last 12 months. No threat from inflation, either.

Statistical Folderol

But wait …

What if all these things were delusions… statistical folderol… or outright lies? What if the true measures of the economy were feeble and disappointing? What if the US economy was only barely stumbling and staggering along?

Well, dear reader, you surely expect us to tell that the US economy is a hidden disaster… and we won't disappoint you. GDP? Carmen Reinhart studied the performance of rich economies following a financial crisis. Her paper, "After the Fall," showed that, six years after a crisis, per capita GDP was typically 1.5 percentage points lower than in the years before the crisis. But in the US, per capita GDP growth is running 2.1% lower than its pre-crisis level – significantly worse than average.

Deficits? Super-low interest rates have helped debtors everywhere. "Never have American companies brought a greater share of their sales to the bottom line," writes Bill Gross. How did they do that? Largely by taking advantage of the Fed's interest rate suppression program. But hey, the US government is the world's biggest debtor. It is the primary beneficiary of the Fed's miniscule rates.

That's part of the reason why deficits are low. Let the yield on the 10-year T-bond return to a "normal" 5%, and we'll see deficits soar again. (Interest payments, under this scenario, would add an additional $360 billion a year to the deficit.) Besides, it's not only the deficit that counts. It's also the total level of debt… and particularly the debt financed with funny money from the Fed.

Only twice in US history has the ratio of US Treasurys held at the Fed gone over 10% – once in 1944 and again today. The first time, it was a national emergency: World War II. Now, the Fed is merely fighting to protect a credit bubble.

Inflation? Yes, consumer price inflation is low. But what that shows is that real demand is still in a deleveraging trough. The money multiplier – the ratio of money supply to the monetary base – collapsed in 2008. It has not come back. Neither has the economy.

Unemployment? The rate has been doctored by removing people from the labor pool. The workforce is now smaller – as a percentage of the eligible pool – than at any time since 1978.

Besides, what is important is not the rate, but what people get from employment. On that score, it is a catastrophe. According to a Brookings Institution study, the average man of working age earns 19% less in real (inflation adjusted) terms today than he did during the Carter administration!

A Strange Kind of Recovery

What kind of economy is it that reduces a man's wages over a 43-year period? We don't know. But it's not likely to win any prizes. But why, with so many strikes against it, does the US economy still have the bat in its hands?

It's partly because the Fed has pumped up stock, bond and house prices – not to mention net corporate profit margins (by reducing the interest expenses on corporate debt) and consumer spending (through entitlement programs funded through the Treasury with ultra-low interest rates). So, the averages look pretty good… and they mask the ugliness beneath them.

The rich got richer on the Fed's EZ money. But the average "capita" is actually poorer. The bottom 90% of the population – people in 9 houses out of 10 – have 10% less income than they had 10 years ago.

This is not a success story. It's a disaster. And not one that tempts us into an overvalued US stock market.


As Rick Santelli previously raged...

On CNBC and all the channels that cover business, we have person after person after person, buy side, sell side, upside, downside:

  • How is the economy? Economy is great.
  • What about stocks? You got to buy them.
  • What if they break? You have to buy the dips.
  • What's wrong with the economy? I don't hear these people saying anything is wrong with the economy.

So what's wrong, Ben? Why can't we get out of crisis management mode?


There's always going to be something.




Why don't these people kick the tires?


They take a press release from the Federal Reserve and they think it was written by God.



Santelli demands we ask Bernanke - "what are you scared of," that keeps you pumping this much money into the system for this long?

Simply put, Santelli's epic rant is the filter that every investor (or member of the public) should be viewing financial media and the Fed today (or in fact every day).

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TeamDepends's picture

Hmmm, why would Democrats initiate a bill that would eliminate the death penalty for Treason?  The Shadow knows (maniacal laughter).

Ying-Yang's picture

Geeeeeeeez Tyler... I was feeling good until I read this.


Hippocratic Oaf's picture

Simon is a pussy just like all the cheerleaders of the farce that is CNBS

nope-1004's picture

QE is a backdoor bailout of the large insolvent banks - plain and simple.  We are told it is related to the "economy", such as labor, inflation, etc...  But that's all just one big f'n lie.

That is why I contend the $85 Bil /mo will never be removed.  Doing so would cause systemic bankruptcy.




donsluck's picture

It may be removed, you would have to add up all the impared MBSs and divide by 85 billion to get the number of months required. I am assuming 7 trillion in lost equity ( If banks had to cover ALL OF IT it would take about 107 months, or 9 YEARS. Throwing in a factor of say 30% of actual loan losses it amounts to about 3 years. Sounds about right.

OutLookingIn's picture

The other day, Ira called this the "ToTo Econonmy."

"Taper on - Taper off"

Boris Alatovkrap's picture

Toto is Japanese brand of bathroom fixture. "Toto Economy" is one head down crapper.

ZH Snob's picture

so true.  QE is for the insolvent banks, not the american economy.  the fed is simply protecting their own.  the bankers getting the cash are the stockholders in the federal reserve.  it is that simple.  they couldn't care less about unemployment, housing or the quality of life in the USA. 

Boris Alatovkrap's picture

Shhhhhhh,... You are reveal secret agenda of Central Bankster Establishment. Sheeple is discontent if know real truth. Go back to business, nothing is to see here folk.

mess nonster's picture

This tells me something I always suspected- the 90% no longer matter.

It doesn't matter if we can't work, spend or consume. The 90% has become irrelevant- the few generations when it was relevant were just a momentary abberation. For most of history, the 90% has never mattered economically. Long live feudalism, the inevitable result of lazzez-faire capitalism without fossil fuel inputs.

The numbers we're seeing ARE real numbers. Yes, they are numbers that ignore vast numbers of people, but that simply tells us the truth by itself:

We don't matter. if you have felt left out of the economy, guess what? You were!

NotApplicable's picture

First, you're correct, the TPTB doesn't care about "useless eaters," except to the extent they can be stolen from.

Blaming it on freedom though, just shows how your ignorance works to aid those same upper 10%.

If captialism were truly lazzez-faire, corporatism would never have the chance to gain a foothold in ANY area of the economy.

Undermine the currency with a central bank however, and there is no part that can survive unscathed.

The idea that violent coercion (i.e. "regulation by the criminal class") can be used to create a harmonic economic system is pure insanity.

SeattleBruce's picture

"the 90% no longer matter."

The 90% don't matter to the 10%...but we do matter.  And we can change things and be heard from, if we want to be.  Unplug from the fake economy, and GET REAL by investing your time, talents and treasures in what is REAL.  Start raising food, invest in yourself, your family and community.  Of course stack and invest in REAL companies, that produce REAL things.  Create bonds and ties that can't easily be broken, and that you can rely on during a crisis reset period.  Drop out - as much as possible - from the TBTF banks, and from crony corporations, from the captured political parties (lodge protest votes (if you vote at all.))  Get involved in local government - as an independent voice (if that will help.)  Train your kids, grandkids and anyone else who will listen to do the same.  They will be the generations that somehow will pick up the pieces.  At a certain point in time, we'll all have to get involved in city, county, state and even national politics again - during the reset - when it will matter the most.  Right now, national politics barely matters at all - it's so pathetic and captured.

We matter.

LawsofPhysics's picture

Simple, for the same reason the banking lobby writes laws that decriminalizes their current business practices.  Someone is about to "come clean" and does not want to face any real consequences.

PT's picture

Works both ways.
Does this mean that Snowden will be safe?
Will drones get refitted with Tasers instead of guns? 

Emergency Ward's picture

They'll add a rider exempting Snowden.  And the militarized police will continue to mete out street executions with impunity.

aint no fortunate son's picture

that may very well be his best rant ever, at least of the ones I catch here, since this is my only source for them since I put cnbs on channel block 5 years ago

Max Damage's picture

An Ode to Ben and Obama, that describes them perfectly

SheepDog-One's picture

Pretty lame how it's all come down to trained dogs sitting up and begging for a treat from 1 master.

Cursive's picture


...and with all of the bulls, hogs, and lambs slaughtered, the Master turns to the dog for one last meal....

buzzsaw99's picture

the looting will continue until morale improves

NoDebt's picture

You got the first part right.

As for morale... there's a dirtly little secret I'm going to let you in on.  NOBODY IN A POSITION TO CHANGE THIS WANTS TO.  They don't care any more if you see through their illusions.  They don't care if you've figured out their lies.  They don't care that this system bleeds the country to enrich the top .000001%.  They don't care about widows, orphans or any of the great unwashed masses like you and me.  In their mind they DESERVE it because the laws that tilt the whole table in their direction (which their lobbyists got written on their behalf) SAY they deserve it.  And they're NEVER going to let it go at anything short of gunpoint.


Van Halen's picture

NoDebt, you hit the nail on the head. When I try to tell people what is going on, I summarize it by saying that in order to understand exactly what is being done to us, you have to understand that we are being directed by a very small group of people who are interested in only two things: money and power.

donsluck's picture

Freud would say they only care about money and power to secure sexual favors. And as they are satisfied, their loss of morals leads to more and more deviant sexual gratification.

the not so mighty maximiza's picture

what a joke civilization

Cursive's picture

@the not so might maximiza

Nothing has changed since the Tower of Babel.  You don't have to believe in the story of Adam and Eve to understand that Man is fundamentally flawed and any attempts at achieving Utopia only result in a dystopian nightmare.  There is no solution for this (because it is what it is); the best approach is to strenghten the institution of family and individual rights and let people regulate each other's behavior.  Any attempt at centralized authority beyond local policing be damned!

Hobbleknee's picture

They want utopia for themselves; not the rest of us.

TahoeBilly2012's picture

What if our media leadership has trained us to appreciate lies? What if "hope" as a form of positivity and "deception" as a form of power and control were two things pounded into our brains over and over as a means of, oh, I don't know, destroying traditional values? Someone is gently talking us into accepting all this, whereby making it something we actually accept as desirably.

papaswamp's picture

When this thing is going to be huge. How much longer can they keep this up? I guess as long as the sheeple have their colluseum games, they wont realize how destitute they are... Classic Roman Empire tactics....still works today.

SmallerGovNow2's picture

I live in south texas.  went to a mall in a great neighborhood around lunch time monday.  the mall was empty.  not just of customers, but of retailers.  the whole first floor were clinics, colleges, and all maner of service industry.  second floor was about 50% full with retailers.  store front after store front empty.  food court empty.  four options where there were once a dozen or more.  we are in decline regardless of what you hear on the lame stream media...

Van Halen's picture

@smallerGovNow - not the malls where I live! They are packed - PACKED! With new stores coming in and expansion year after year. And there have only been a few of us who ask how in a dying area of the world where we live these malls - and grocery stores - can be so busy all the time. We all believe it is being done on credit. I've begun taking a quiet inventory of my friends and I am indeed finding out (so far to the tune of 100% who I've been able to get info from) that they are running their credit to incredible levels to keep their expensive lifestyles going.

Of course, I could be wrong about all this. But sometimes you gotta trust your instincts and mine say that there are way too many people around me spending way too much money.

Blues Traveler's picture

Papaswamp -  i wish you were right but it does not end.  It is a slow, tortous transformation into the abyss. The colluseum game is the people scrambling for scraps from what is becoming the only table and unfortunately those scraps are appeasing enough that they are oblvious to the stench of the decay and the barbarians on the horizon.  You can thank the press.





White Owl's picture

Delusions? Lies? False data? I can't believe the rulers of DC would ever do that! No way! I trust the federal government in everything they say and do. There is no way they would ever ever ever ever ever lie to me.

I wonder if those mushrooms I ate last night were tainted? I told my wife they looked funny when she picked them. I must be hallucinating.....


SmallerGovNow2's picture

I'm quite sure everyone believed the 1929 headlines as well...

donsluck's picture

If you peruse headlines from that era you will see a much more free press. They did not cover up the calamity.

kenezen's picture

Great article!! Uncovering idiotic numbers and non-factual lies to soothe the populous. The question realy is how much longer can it go and what form of government action will follow the resultant failure once made clear?

the not so mighty maximiza's picture

it is sorta of obvious , they know the lies will not be working soon, thats why the ammo buying and militerization of all domestic pig agencys, they will simply start killing the people as they wake up to whats going on. 

drdolittle's picture

I had a chance to see one of those armored personnel carriers up close at Battlefield Vegas and it looks formidable. Small arms won't penetrate and can't imagine molotov's would do anything. They definitely have the upper hand

ShortBusDoorGunner's picture

They had a great technique for disabling tanks in "Saving Private Ryan", if I remember correctly...

22winmag's picture

Yeah... Americans bought more guns and ammo in 2013 than ever before because everything is going great and the recovery is real.



Shizzmoney's picture

Santelli tilts the fuck out of me, but that rant is really great.

He's right: What *is* the Fed afraid of?

Disorder.  That's what they are afraid of. 

When SHTF in America, it won't be as "cute" as Cyprus in 2012, the London Riots in 2011, or even the Arab Spring. 

These motherfuckers in power think they have it all covered, and many believe them.  Boy, are THEY going to be in for a shock.


BandGap's picture

So the Spainish loan default rate and this are one and the same?


firstdivision's picture

I will put all of my powder into SPY equities if Ben closes his remarks with "...and I'm out, bitches!" 

toady's picture

Don't forget the holding the microphone out and dropping it. That's the best part!

akarc's picture

" Yes, consumer price inflation is low. But what that shows is that real demand is still in a deleveraging trough. "


WTFUD's picture

The greatest story never told!

WTFUD's picture

The band plays on; carry on regardless; keep dunkin' your donuts sheeples.

corporatewhore's picture

I prefer Miley's twerking

r101958's picture

"Inflation? Yes, consumer price inflation is low. But what that shows is that real demand is still in a deleveraging trough. The money multiplier – the ratio of money supply to the monetary base – collapsed in 2008. It has not come back. Neither has the economy."

This is true if you believe in the inflation numbers released by the gov't. Understating the inflation rate is one of the most insidious forms of financial repression. It affects everything else. It is used to determine yearly private sector and government raises, it is used to determine cost of living increases for pensioners, SS recipients and many other things. But, even more than that it is used to determine many other gov't released statistics- GDP for one. If inflation is under reported then the GDP deflation figure is incorrect. If the gov't says inflation is at 1.5% then use that against whatever the gain is in the GDP. So, if the gov't states that GDP was up by 2.0% then the nominal gain in GDP over last year's GDP was actually 3.5%. However, if inflation is really 7% then that nominal gain of 3.5% actually equates to a Y/Y GDP of -3.5%. Lies, lies and statistics eh?