Fed's Lacker Slams Permabulls, Pours Cold Water On The US "Growth Story"

Tyler Durden's picture


Unlike the other Fed presidents who are all too happy to lie in order to instill some confidence in a centrally-planned economy and market, not realizing that by doing so they hurt their own credibility, non-voting member Jeffrey Lacker and president of the Richmond Fed has a different approach - telling the truth. Which is why we read his just released speech this morning with interest since once again, it contains far more truth and honesty than anything else the FOMC releases. Sure enough, it has enough fire and brimstone to put even fringe bloggers to shame.

First, just as we have been warning for the past two quarters, all US growth was on the back of inventory - a trend which everyone now realizes is unsustainable. So does Lacker:

Economists' hopes have been bolstered of late by a recent string of data releases indicating that 2013 ended on a positive note. Second-half growth in real GDP — our broadest measure of overall economic activity — was stronger than we've seen in quite some time. While that figure was boosted significantly by inventory accumulation that is unlikely to persist, there was some evidence of momentum that might carry forward.

That evidence, however, is on the back of a consumer who may or may not be back and spending freely once more. To Lacker, it is "may not":

... It's no surprise that credit is no longer available on the same terms. And it's no surprise that consumers have been paying off debt and building up savings in order to restore some sense of balance to their household finances. These developments appear to have contributed to a persistent cautiousness in household spending. Over the last three years, real consumer spending has increased at an annual rate of 2.1 percent. Although consumption grew rapidly at the end of last year, we have seen similar surges since the last recession, only to see spending return to a more moderate trend. Consumer spending trends are likely to depend on whether the dramatic events of the last few years are only a temporary disturbance to household sentiment or if they instead represent a more persistent shift in attitudes about borrowing and saving. At this point, I am inclined toward the latter view.

Next, Lacker slams the permabulls and their perpetual optimism that an improvement is just around the corner:

Many forecasters are citing the recent surge as support for projections of sustained growth at around 3 percent starting later this year. It's worth pointing out, however, that this has been true at virtually every point in this expansion. In other words, ever since the recovery began, most forecasters have been expecting the economy to pick up speed in the next couple of quarters with the easing of headwinds that have been temporarily restraining growth. My own forecasts (at least initially) followed this script as well.


Despite these perennial hopes, the actual results have been more modest. Real GDP grew by 2.0 percent in 2011, 2.0 percent in 2012 and 1.8 percent for the first half of 2013. This record of relatively steady but modestly paced expansion, despite forecasts of an imminent increase in growth, helps motivate the more cautious economic outlook that I will share with you today.

Hoping that this is finally the year in which that long overdue CapEx spending will finally take place (and which is being halted by none other than the Fed as we explained nearly two years ago)? Don't.

Businesses also appear to be quite reticent to hire and invest. A widely followed index of small business optimism fell sharply during the recession and has only partially recovered since then. Interestingly, when small business owners were asked in the latest survey about the single most important problem they face, 20 percent answered "government regulations and red tape." This observation accords with reports we've been hearing from many business contacts for several years now. They've seen a substantial increase in the pace of regulatory change and a substantial increase in uncertainty about the shape of new regulations. Both are said to discourage new hiring and investment commitments.

Then there is the government, whose absolute inability to craft any credible fiscal policy has hit record levels in the past years. Why? "Get to work Mr. Chairman" - after all why should politicians expose themselves to the risk of voter ire if the Fed can simply boost stocks higher and make it seem that all is well.

Adding to the uncertainty is the continuing cloud over our nation's fiscal policy. The most recent round of budget deliberations has certainly been a welcome relief from the recurrent legislative cliffhangers of the last several years. The lower odds of an imminent fiscal showdown may ease some business and consumer concerns, and that may aid growth. But overall government spending has been declining lately, and, given continuing fiscal pressures, that category is likely to make little, if any, contribution to GDP growth in coming years.

Next Lacker reminds the world of one more thing: even though the US budget deficit has improved in recent months, this is only a temporary phenomenon. Some time in 2015 the demographic tide will ebb and the amount of spending on welfare and benefit will explode.

From a longer-run perspective, it's worth noting that current law still implies an unsustainable path for federal expenditures and receipts. My fear is that the recent decline in the federal deficit will dampen the sense of urgency about fixing the longer-run budgetary imbalance. The sooner we resolve uncertainty about how the costs of those fixes will be allocated, the better off we will be, I believe. Dealing with the federal budget sooner rather than later would allow us to spread the cost out over time and reduce the ultimate burden. Moreover, it would remove a potentially important source of uncertainty hanging over investment and spending decisions.

Putting it all together, and Lacker gets 2014 GDP growth ofd 2%.

That leaves net exports, which for various reasons also are likely to contribute little to growth next year. Adding up all these categories of spending yields a forecast for GDP growth of just a little above 2 percent — not much different from what we've seen for the last three years.... The pickup in growth late last year is certainly a welcome development, and it may well be a harbinger of stronger growth ahead. But experience with similar growth spurts in the recent past suggests that it is too soon to make that call. My suspicion is that we will see growth subside this year to closer to 2 percent, about the rate we've seen since the Great Recession

Even that will prove optimistic.

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Tue, 02/04/2014 - 09:59 | 4399769 eclectic syncretist
eclectic syncretist's picture

It's like Motown in the 60's..... the hits just keep on coming!

Tue, 02/04/2014 - 10:02 | 4399781 XAU XAG
XAU XAG's picture

Hope his pension is safe!

Tue, 02/04/2014 - 10:05 | 4399793 Arius
Arius's picture

how these people make it to the FED is beyond me ... get rid of him!


if they dont believe in the US, they better leave the ship!

Tue, 02/04/2014 - 10:14 | 4399829 nightshiftsucks
nightshiftsucks's picture

Wow Airus, you're a fucking idiot.Only someone as fucking stupid as you would believe in the corrupt USA.We were once great now no more.

Tue, 02/04/2014 - 10:18 | 4399840 Keyser
Keyser's picture

He must not have gotten the memo that he is not supposed to be telling the truth. 

To those of you who still think the US is the greatest thing since sliced bread, good luck with that. 

Tue, 02/04/2014 - 10:22 | 4399851 Arius
Arius's picture


i believe the duty of the captain is not to point that there might be leaks on the ship ... but to go down with the ship if necessary!

Tue, 02/04/2014 - 10:41 | 4399887 Oh regional Indian
Oh regional Indian's picture

This Lacker is no slacker. But the system always has a Kucinich/RP type to be the limited hangout for the rest.

Statiing the stunningly obvious, raised to a fine art. Also false outrage.




Tue, 02/04/2014 - 11:59 | 4400264 Spastica Rex
Spastica Rex's picture

If only one guy says there's a problem, or asks questions, he's a crackpot and a good example for everyone to see.

Our whole world is a story.


Tue, 02/04/2014 - 12:08 | 4400289 john39
john39's picture

time for a new story teller.  this one is way beyond its use by date.

Tue, 02/04/2014 - 12:13 | 4400298 fonestar
fonestar's picture

Only 2% growth?  == Fed Doomer

Tue, 02/04/2014 - 11:17 | 4400065 bigkahuna
bigkahuna's picture

Duty of captain is to keep the ship afloat and save mariners lives when in an emergency. If you have to warn the mariners to turn the ship around to keep from going off the waterfall, thats what you do. You dont lie to them until you are over the fall, then tell them on the way down you had no idea.

Tue, 02/04/2014 - 20:49 | 4402190 MeelionDollerBogus
MeelionDollerBogus's picture

Nonsense, this fine vessel is UNSINKABLE!

Tue, 02/04/2014 - 10:24 | 4399859 Whoa Dammit
Whoa Dammit's picture

He's just setting the stage for more QE. This time a few facts got thrown into the storyline.

Tue, 02/04/2014 - 11:13 | 4400053 CH1
CH1's picture

He's just setting the stage for more QE.

Either that or for really pulling the plug... politicians be damned.

Tue, 02/04/2014 - 10:29 | 4399841 TeamDepends
TeamDepends's picture

Case in point, this was released to the world last week, but censored in the US:  Snowden said the Obama regime does not fear stateless whistleblowers such as himself, but rather an angry and armed populace who are beginning to demand the constitutional government they were promised. 

Tue, 02/04/2014 - 10:48 | 4399951 Drifter
Drifter's picture

"an angry and armed populace who are beginning to demand the constitutional government they were promised."

Demand?  What a joke. 

Sheep don't demand anything.   They just whine and fuss and make noise. 

Ditto for sheep with guns.

Tue, 02/04/2014 - 11:02 | 4400006 TeamDepends
TeamDepends's picture

A flock is made up of many individuals, no two alike.  NEVER underestimate the ability of the flock to stand behind the one, the ONE, who has balls and stands up.

Tue, 02/04/2014 - 12:39 | 4400401 onewayticket2
onewayticket2's picture

the sheep demand their EBT, obamaphone, SSA, AFDC, heat subsidies, obamacare subsidies, and so on....just TRY suggesting these get cut back.  Love, Mitt Romney

Tue, 02/04/2014 - 13:03 | 4400500 Richard Chesler
Richard Chesler's picture

well they sure know how to stand behind the ONE with no balls.


Tue, 02/04/2014 - 17:03 | 4401449 Drifter
Drifter's picture

Bullshit.  Your wives won't let you "go join some crazy militia thing". 

Not just sheep.  Pussy-whipped sheep.

Tue, 02/04/2014 - 20:46 | 4402186 MeelionDollerBogus
MeelionDollerBogus's picture

You mean OVER-estimate.
Usually it's a pack of lone-wolves that see mutual survival - never the sheep of the flock.
The flock is precisely a flock because they are precisely identical in the only ways that count.
yes, some sheep are fatter, some bleat louder, perhaps some other minor details. None change the behaviour nor make a flock-member not a sheep.
The sheep do NOT oppose anything as individuals, nor elect a leader to follow. Ever. They flat out move as a single herd unit.

Tue, 02/04/2014 - 13:22 | 4400583 lordylord
lordylord's picture

Ever try to convince a statist to picture a life without big gov?


"I've invented a marvelous machine that can propel a wagon and its passengers at tremendous speed all the way across the city! I call it an internal combustion engine."

"It looks heavy, can one horse pull it?"

"No, no, we don't need horses. My machine supplies all the power."

"If the horse is not pulling it, then is it pushing it?"

"No, my good man, you misunderstand me. No horses"

"We need horses, otherwise what will pull the wagons?"

"My machine does it. Look, here it is."

"I don't see anyplace to attach the harness."

"Without horses, we don't need a harness."

"But without a harness, how will the horse pull it?"

"Sir, please stop and consider. Everything we need is in this machine right here. It is not pulled by a horse"

"Oh, I get it, so it carries the horse too? It looks too small to fit a horse. "

"No, it does not carry the horse at all."

"So the horse walks alongside it?"

"No, it goes much faster than a horse can run."

"So the horse won't be able to keep up? If you do away with the horse, what do you replace it with? A cheetah, perhaps?"

"We don't need any animal. This engine does all the work."

"But if you don't replace the horse, then what will pull your wagon?"

"No animal pulls it."

"So your wagon just stays still? Hey! Look everybody, this man has lost his senses, he is trying to sell us wagons that don't move! Hahahah"

By Kyle Bennett

Tue, 02/04/2014 - 11:04 | 4400014 jughead
jughead's picture


Tue, 02/04/2014 - 11:08 | 4400032 Doowleb
Doowleb's picture

Lech Walesa

Tue, 02/04/2014 - 11:16 | 4400071 dtwn
dtwn's picture

Do you have a link?  Can't find anything.

Tue, 02/04/2014 - 13:51 | 4400661 wakablahh
wakablahh's picture

I'd prefer a link of the Fed's statement blocked in the USA..

Fri, 02/07/2014 - 04:35 | 4407062 MeelionDollerBogus
MeelionDollerBogus's picture

Who knows for how long but this SHOULD be mirrored everywhere.



Tue, 02/04/2014 - 10:28 | 4399875 Stuck on Zero
Stuck on Zero's picture

Speaking of inventory Mr. Lacker ...  the Fed has amassed an inventory of three to four trillion dollars worth of bonds and junk notes. 


Tue, 02/04/2014 - 10:59 | 4399992 Kaiser Sousa
Kaiser Sousa's picture

preseneted with out comment....



Tue, 02/04/2014 - 11:40 | 4400172 RaceToTheBottom
RaceToTheBottom's picture

Wait, they called that assets.  Balance sheet assets.  Where are the accountants to value those assets?

Tue, 02/04/2014 - 13:02 | 4400489 donsluck
donsluck's picture

It becomes inventory when they have to try to sell them! Ha ha ha ha,,,choke...gasp...hahaha!

Tue, 02/04/2014 - 20:45 | 4402181 MeelionDollerBogus
MeelionDollerBogus's picture

Accountants? Sir, you've been dreaming again.
We value balance sheets using unicorns & puppies.
Especially puppies riding in the Obamacopter.

Tue, 02/04/2014 - 10:26 | 4399876 Hooter Shaker
Hooter Shaker's picture

He knows the gig is about up and wants to keep his head.

Tue, 02/04/2014 - 12:06 | 4400283 Colonel Klink
Colonel Klink's picture

Hang him too for good measure!

Tue, 02/04/2014 - 10:43 | 4399904 Dr. Engali
Dr. Engali's picture

Ahhh to be young and naive. I used to think that way once. Then I watched in horror as our own country killed 3000 U.S citizens in two towers, and  promptly told us to go shopping. I watched people get behind the flag without asking questions as we used it as an excuse to bomb brown people around the globe. In 2008 I watched the intentional collapse of the financial system, and trillions of dollars get transferred from future generations to the oligarchs. I've watched in our face corruption from politicians and bankers alike. All this shit and what do we do? We keep arguing over the red and blue team as they both screw us while laughing all the way to the bank. Yes I used to believe in the U.S.... not any more.

Tue, 02/04/2014 - 11:00 | 4399995 Grande Tetons
Grande Tetons's picture

Bravo, Doc. 

Speaking/writing with courage is not easy. I could never have written something so poignant. 

Tue, 02/04/2014 - 19:16 | 4401925 Boozer
Boozer's picture

Always read Dr. E's comments!  ZH top 10 cat.  Sadly many other sharp guy's who

posted before this new policy have been booted.  Some fight club.

Tue, 02/04/2014 - 11:23 | 4400099 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Being young and naive in the 80's was a euphoric experience i'll never forget, now I am just existing, walking through life just to goto bed at night peacefully if possible. Pink Floyd's comfortably numb sums it up today's world precisely.

Tue, 02/04/2014 - 11:44 | 4400211 Hippocratic Oaf
Hippocratic Oaf's picture

(Use to be) easy credit and cheap drugs have numbed the populus. More debt=more drugs.

We may not be comfortable, but we are certainly numb.

Tue, 02/04/2014 - 13:19 | 4400569 green888
green888's picture

I am not young anymore so I no longer know everything

Tue, 02/04/2014 - 12:31 | 4400352 Son of Captain Nemo
Son of Captain Nemo's picture

Dr. E

By far one of your finest posts.

It says it all!

Tue, 02/04/2014 - 15:15 | 4401012 Stuck on Zero
Stuck on Zero's picture

Don't confuse the U.S. with corrupt politicians and crooked bankers.  It's like condemning Mother Teresa for the dog poo on the bottom of her sandals.


Tue, 02/04/2014 - 11:02 | 4400004 jughead
jughead's picture

as long as you're going to go down with it, I'm good with that.

Tue, 02/04/2014 - 13:26 | 4400594 1000924014093
1000924014093's picture

I think folks might be missing your sarcasm.

Tue, 02/04/2014 - 10:09 | 4399804 boogerbently
boogerbently's picture

Remove "regulations" and insert "obamacare", into his statements.

Tue, 02/04/2014 - 10:11 | 4399799 knukles
knukles's picture

Janet is gonna be pissing blood after this

Remember at her press conference with Obie and Ben when she was nominated, she outlined several tenants of what she'd like as the Grand Fromage?

One of them was that the FED would speak with one voice.
A direct slam at the Benji and the Howling Monkeys sowing confusion , mutiny from stern to bow

Pissing blood. And small pebbles. Goiter inflating and turning bright red.

All he'll to pay... Especially when they're past menopause.
Off to the basement, take away their executive bathroom keys

The guy must be a Conspiracy Theorist and Patriot who loves his country and the Constitution who reads Zerohedge
Femacamp his ass

Tue, 02/04/2014 - 10:58 | 4399976 slaughterer
slaughterer's picture

Evans will save the day today, echoing Rosengren's super-dovish ideas.  

Tue, 02/04/2014 - 11:06 | 4400009 booboo
booboo's picture

GDP is another worthless story pole on Planet Rainbow. Fer fucks sake, throw in a trillion a year of wet wood on the fire you get lots of smoke and pointy headed economist yell "raging fire"

Tue, 02/04/2014 - 12:27 | 4400342 Breezy47
Breezy47's picture

This guy is going to end up suicided over a 50 foot enbankment...or did he make these statements to save himself?

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