The Sham Boom

Tyler Durden's picture

Submitted by Bill Bonner via Acting-Man blog,

A Trifecta of Disappointment



2014 Preakness Stakes in Baltimore, Maryland. Source: Wikipedia


“De hosses run down an den dey come back / Doo dah, doo dah

Bet my money on a bob-tail nag / Oh de doo dah day”


– “Camptown Races,” Stephen Foster


A trifecta of disappointment last week...

First, the inflation number came down the track faster than expected. Then GDP lumbered across the finish line, lower than expected. And finally, at the end of last week, the poor consumer practically broke a leg in the home stretch.

As you know, dear reader, the idea behind the Fed’s ZIRP and QE policies is to stimulate demand. More demand – meaning more consumers spending more money they don’t have on more things they don’t need – is supposed to be a good thing.

Fed economists have bet trillions of dollars on it. Not their money, of course. Each year, since 2008, they’ve put money on the consumer nag. And each year, he’s failed to win, place or even show up. Then the following year, they’ve doubled down… with the chant “the consumer is back.”



Ersatz Money

The US economy is 70% consumer spending, reason the geniuses at the Fed. So anything they can do to boost consumer spending will also boost the economy. This sort of simpleminded logic is either breathtakingly naïve or mind-bogglingly stupid. Consumers need to have money to spend before they can spend it. If the economy is working properly, they earn it from honest bussing and schlepping.

But suppose the economy is in a funk? Then what are they supposed to do? No problem, say the economists. We’ll just create it. This ersatz money is supposed to stimulate the consumer to spend… whereupon, businesses will spring to life. They’ll offer him a job, boost his wages… and then he’ll have real money to spend!

But wait. If the Fed can just create money to increase demand, why bother doing it the hard way? Why do you need to earn money to create demand when you can just create it?

This point has never been clarified. Nor have the feds ever noticed that consumer demand is the result of savings, investment, work, skill… and all the other things that go into producing a real product or service.

Consumer demand is not what causes those things to happen. In the abstract, demand is unlimited. But output is not. Nor has it ever been demonstrated that central financial planning works. And as of last week we have more evidence that it doesn’t …


Production and consumption

Production and consumption indexes – via Saint Louis Federal Reserve Research – click to enlarge.


A Sham Boom

What last week’s figures tell us is there is no real recovery. Just a sham boom created by EZ money. We’ve now got two months of figures for the second quarter. They tell us the same thing the first quarter’s numbers told us. Consumers aren’t spending like it was 2007. They’re spending like it was 2009… or 2010… or 2011.

In other words, they’re spending as though they were reasonable people who have realized how the system works. The Fed creates a world where its friends and cronies can borrow at below the rate of consumer price inflation. The 1% gets richer. The other 99% struggles to keep up with the bills.

As we have been warning, consumer prices are rising faster than the Fed admits. That leaves the typical household with less money to spend than the numbers suggest. We see the effect of it on consumer spending. The Fed pinched off savings, investment and employment. Now, it gets what you’d expect: low GDP!

Six years of “stimulating” the economy by giving it more of what it least needed has produced no real recovery… just more debt. It has also produced a corrupt money system in which almost every race is fixed. The 1% wins every time. The consumer is barely able to limp around the track.



Typical consumer on the race track


99percenter duck

99 percenter duck

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RevRex's picture

I takes a special kind of moron to think America ever left the recession, most likely an Obama voter....

Dr. Engali's picture

Tell that to an Obamabot and they will tell you the economy has never been better. Like you said.... A special kind of moron.

Edit: you added to your original statement. Still, certain truths can't be denied.

alien-IQ's picture

The fact of the matter is, whichever party is in power claims the economy is doing great. And the truth is, they are both lying to make themselves look better than the other.

That's what happens when people latch on to this phony red/blue paradigm; they develop a heard mentality not unlike psychotic sports fans. They just cheer on their team, the facts be damned. Never taking the time to realize both teams are owned by the same master and the game is rigged for their amusement/distraction.

CH1's picture

And yet, everyone obeys their oppressors.

Until obedience stops, the abuse will continue... forever.

Dr. Engali's picture

Yes, yes we know. Maybe it should be Zero Hedge policy that this disclaimer must be put on every statement critical of one of the two official teams. It saves everybody the repetitive trouble of pointing that fact out.

alien-IQ's picture

Yes, yes we know...yet it never ceases does it? You can barely read five posts here without encountering that same red/blue tribe mentality. It's more tiresome than it is to remind people of how tiresome and wrong-headed it is.

Dr. Engali's picture

Don't worry when it's the red teams turn to pretend like they are running the place I'm sure that there will be plenty of ridicule for whomever the face of the party is. Hopefully it's Christie because I have a lot of fat jokes.

RevRex's picture

Only idiots believe the Socialist Semite Democrat media propaganda that "both parties are the same"



IF they were, then WHY does the media treat both parties so differently?


Some people are stuck on stupid.

SF beatnik's picture

I sense that the MSM is in on this big lie, too. General panic mode at the helm. Get people spending again, the great ship USA is taking on water, fast.

Bemused Observer's picture

They're just obedient dogs who do as they're told by their masters. Which is, Put on a good show or else.

putaipan's picture

you mean how obama can "out bush bush" and not have the mainstream call him on it? damn conservitive right wing media!

gnomon's picture

The media treats the Dems better than the Repubs because the Dems will get them there faster. 

And more importantly to the media's way of thinking, much of the base of the Repubs, (the Tea Party faction), needs to be put down like a mad dog for presuming to try to stop Statism in its tracks.  In other words, the Repub leadership, the Dems, and the MSM all look at the Tea Party movement in the exact same way.

So if and until the Republican Party is decapitated and captured by the Tea Party, there is no real difference in where we will be in twenty years, Blue team or Red Team.

Bemused Observer's picture

"IF they were, then WHY does the media treat both parties so differently?"

So that folks like you will think there ARE 2 parties. To get you to fight with the other as if by getting rid of the other sides "bum" you will make everything better. To give you a semblance of "choice"...

Take your pick...

Bemused Observer's picture

Oh God, yes...

Thank you. I thought I was alone here.

madcows's picture

Yes, but I have to say that the Democratic voter is a special kind of stupid.  And, the republican voter is desperately hoping/voting for the "Moral" side.  Republicans preach family, morals, etc...  Democrats preach handouts, gay marriage and Those "EVIL" republicans.

In reality, responsible americans have nothing to vote for.  We should all just stand up and run ourselves as independents.  Everyone else is a crook.  Let's face it, only the egotistical new age wannabe dictators are the ones running for oriface.  All the decent hardworking folks are content to support themselves and not dictate to others.  It's the jackasses with the fucking dictator-complex.

alien-IQ's picture

"Yes, but I have to say that the Democratic voter is a special kind of stupid."


And there it is again....

TrustbutVerify's picture

Label me how you wish then tell me how much the debt total went up while you were writing your comment?  And what percenatge of what you own was made in the USA? 

RevRex's picture

"voting independent" ensures the Democrats stay in power.


The tick and leech voters will never vote Independent, because even they are smart enough to know that both parties are NOT the same.....that can't be said to the idiot repeaters of Socialist Semite Democrat media propaganda who constantly post their stupidity here.

Tulpa's picture

"We should all just stand up and run ourselves as independents."

They've taken care of that possibility with restrictive ballot-access laws.

RevRex's picture



The fact of the matter is that when a Republican is in power the Socialist Semite Democrat Media lies though it's teeth to tell us that the economy is doing poorly, and just the opposite when a Socialist democrat is in power.


It matters not what the Pesident says, what matters is the coverage the lying Semite media gives it.



Wake up and smell the coffee, people!

RevRex's picture

Notice how cowardly idiots down arrow, yet refute nothing!

alien-IQ's picture

They pressed a button that basically means "I don't agree with you" That WAS their comment.

It's not as if they sucker punched you and ran away. And perhaps they didn't engage in conversation because they felt that your comment conveyed the tone of the type of person that they would rather avoid speaking to if possible. I'm sure you've experienced that in real life haven't you?

TeethVillage88s's picture

Sequester the Liars from ever working in their industry again.

Quarantine the Frauds, Crooks, and Racketeers into Exile.

Take Reparations from those that go into quarantine when we know who they took money from and how they did it. Prevent them from working in any Business related to the USA again. Prohibit them from Politics and Financial Deals. Prohibit them from making money on books. And take away their citizenship.

TeethVillage88s's picture

Yes, the Feds & the whole of Congress knew they were screwing the citizens with Amnesty, H1B1 VISAs, Free Trade, ZIRP & QE.

TeethVillage88s's picture

OK Mea Culpa;

USA Now knows the Hacienda System in one respect.

Immigrants that threw off the yoke of the Hacienado, still did not share in the property, wealth, and fair wages after their Revolution. There was no land reform. And later on Dirty Wars and Austerity held down the Middle Class as it was emerging.

So, sorry for my Amnesty Remark. I know reform in Central American, South America, and the Caribbean has been a long time coming and mostly not. It is hard to tell immigrants to fix their own country, but those here that never saw big job opportunities through the 1980s, 90s, 00s, just see our dreams slipping away.

zerocash's picture


JustObserving's picture

What is not a sham about the US economy? Every economic statistic has been a lie for decades now.  Inflation has been understated by at least 4% and many claim that unemployment is more than 20% (John Williams of Shadowstats for one).

Lying is the new normal.

sondernauch's picture

Where is the 1% dividing line today?

gobsmack's picture

Usually $380-400k a year in terms of income.  I keep falling in and out of that, just enough to get ass reamed by the IRS.  In terms of net worth it was $7-8 million last I checked and I'll certainly never see that this side of Powerball.

It's the .01 per cent whose incomes have skyrocketed, not the 1% or even the .1%.

Tsar Pointless's picture

During the Bush II presidency, Republican Bushitters believed we were "winning" the GWOT.

During the Obama presidency, Democrat Obamapologists believe we are in an economic recovery.

Bottom line: Bushitters and Obamapologists are two peas in the same pod. Willing to drink the Kool-Aid and to buy the party line to the detriment of our nation.

kchrisc's picture

"Printing" is theft.


"Is a guillotine revenge or justice?"

CH1's picture

"Printing" is theft. "Is a guillotine revenge or justice?"

Why not just stop playing their game and let them die on their own?

Use PMs, use Bitcoin, barter, whatever. Just stop doing what they want you to do.

If that's too hard, any talk of guillotines is just wanking.

RafterManFMJ's picture

I sho hope Uncle Wen keeps sendin' da loans; dat pie face yellow honkey eber stop dem checks we finish!

O Larwdy! Please be lettin' Uncle Wen keep dat green be flowin'!

An' pleese keep dat UN payin' dat water bill!

Gawd be blessin' da esheptional Amurikans!

PS Kill Whitey.


auntiesocial's picture

the way the main stream lie machine explains it- we had a one day recession in 2008 and ever since we have been in a recovery...

TeethVillage88s's picture

Just like at the End of 1945, suddenly there were no more Nazis no one could find them any more.

And then like 1951 Germany Declared Denazification was over. The Americans said it was counter productive.

CH1's picture

there were no more Nazis no one could find them any more.

I found them!

They're here on ZeroHedge!

redvetttes's picture

I demand 50% off, with a 20 $ rebate code and it better have free shipping,

or fuckum Im not buying it !!!

Apocalicious's picture

Let's see, wealthy get long inflation sensitive assets (i.e. variable income) on fixed leverage (fixed cost structure). YAY, INFLATION!


Everyone else, fixed income (i.e. salary or pension) and inflation sensitive cost structure (food, clothes, housing, energy, and healthcare). BOO, INFLATION!


Let's get more inflation. That'll fix it! 

Save_America1st's picture

4th of July coming up...I see fireworks stands all around town.  My friend asked me yesterday if I had bought a bunch of fireworks yet, and the answer was, "no.".  I don't tend to buy fireworks ever anyways.  So then he says well there should be some good sales because nobody is buying any.  He said he drives by several of them in town every day and they are always empty...nobody buying.  So I drove around the main drag yesterday in my area of town to see if things looked similar...and they did.  Stand after stand had no people at them. 

Maybe it was just the wrong time of day...maybe everyone in town is waiting until Thursday to see if things will end up on sale.  I don't know.  But I know for sure that there are many out there who don't have very much in the way of extra expendable income to waste on things like fireworks anymore these days. 

This could be an extra depressing Independence Day for the 'ol U.S. of A.  I'll probably just fire off several rounds of 12 gauge shotties into my lake after it gets dark out on July 4th.  I'll be imagining a certain Marxist traitor in my sites. ;-)


madcows's picture

I have no desire to spend money to celebrate my proletariat status in the USSA! 

America died 100 years ago.

goldpercent's picture

Or was is 150 years ago when the U.S. got its empire on?

Or worse, was it 227 years ago when some Americans accepted the constitution?

If the U.S. constitution was so awesome, why is the Bill of Rights a set of amendments?

Seems like the ideas in those first 10 amendments should have been baked in from go.

Or, maybe everything is just fine and I should just shut up, become a lawyer/politician and start pumping out new and improved laws, regulations and amendments, so as to reform and rehabilitate poor strung out America.  That will probably fix things.  Fix em real good.


TeethVillage88s's picture

I wrote this in response to an article, but the conclusions are the same. I make some different points, but basically the Federal Reserves and all the Bankers must have known all along that nothing they were doing was going to create jobs except for federal funding (Fiscal Policy) directed to save Local Teachers and Emergency Services personnel.

The BIS remain part of the problem | Bill Mitchell – billy blog

Thanks. Very appropriate article. Still difficult for me as seems to require focus. Terminology: GFD=Global Financial Collapse, BIS=Bank of International Settlements

One quote which might have triggered you to send this article to me:

"...Moreover, the policy changes that were being promoted by the mainstream economists, including those at the BIS which can be summarized as labor and financial market deregulation and passive fiscal policy (bias towards surpluses) over the last 3 decades, were principle causes of the crisis.
But the BIS, like many of the mainstream, are now trying to reposition themselves to regain the credibility they lost in the crisis. Now they seem to be lecturing the world about economic wisdom, when their track record demonstrates anything but..."

Bill Mitchell sounds like he has been around government workers or gained a lot of similar experience around similar people.

I don't think I ever saw a Financial Business Cycle Graph. Interesting.

Still looking at Bill Mitchel's article.

Fiscal Policy: Since 2008 and even 2002 when GWB pumped dollars into Global War.

-Monetary Policy failed
-Fiscal Policy Failed
-But a tailored program of Fiscal Spending on Infrastructure, Development, National Stock Piles, National Water & Electric power Utilities, Highways & Bridges, National Agriculture for Emergency Commodities in "Shocks", would have been interesting and educational if Labor Force was paid at Government Wage Levels averaging $15-20-25 Dollars an hour using capitalist models on Government Teams headed by an Industry Expert.

Three Kinds of Prices for goods & Services
A) Retail
B) Wholesale (Best ones)
C) Federal Government Inflated Prices (Worst)

The reason that Fiscal policy has failed is that Infrastructure projects were not chosen nor were projects that would serve our future or help alleviate economic shocks. What was chosen was government subsidies, & Interest Group projects known collectively as corruption or the lowest common denominator. Basically it was a give away. Under Continuing Resolutions all agencies were Plussed up with more federal funds across the board.

Monetary policy does not lead to job creation. Monetary policy benefits a financial cartel only under the guise of support for our banking system. It is a Ruse.

Conclude that Keynesian policy or Fiscal or Monetary policy will not work in our "Buy Democracy" system. As long as money is in politics this country will continue to look like the Roman Empire, Declining Roman Empire.

Banking Power:

Understand that Financial Power & the power of a Bank is not something that should be "Trusted" easily. It is a Nuclear Weapon as in Derivatives or it is the full equal to a whole government. Any article on Economics has to admit the gaming and power exercised by Financial Managers in Banking.

Trust But Verify. Transparency is Crucial to National Security. Banking is National Security. A corporation as big as ENRON can damage the US Banking System 6 ways to Sunday. There can be no Economic Modeling in the presence of non-standard financial products, non-standard accounting, corrupted financial ratings, and shadow banking. "Epic Fail".

Industry Capacity Chart from FRED proving that FISCAL Policy has more Room to operate:

We don't need much right now in manufacturing with cheap goods from China coming in as Bill Mitchell is saying. At least not till we crash, apply tariffs to imported goods and End Free Trade. I say we need government teams to work on National Government Capacity and Stock Piles for future shocks in agriculture, mining, electricity, water, and would even state we should have a National Federal Oil Refinery with shipping port and receiving port to offset gasoline price shocks, Federal Funds should pay for Coal Scrubbers also. We have Highways, Pipelines, Waterways & Railroad and all could be looked at for state and capacity of Infrastructure. My vision is a special temporary employment program by the federal government. It has to be a labor force hired under a special program or wage grade program to limit benefits, career status, pay increases, and keep most wages topped out at average of $20 an hour. Also no pension benefits.

Typically road work, infrastructure work can be located in the rural areas. So government temporary housing/leasing must be worked out. There might be security people around housing and work sites (probably). Employees would be fired for problems with drinking, fighting, drug use. Probably just make sure everyone wants a job, maybe has a family commitment, and know they will be fired if there are police calls and fighting. A standard system has to be set up for temporary housing unless local hotel rates are reasonable. Crew vehicles could be leased to get employees and staff from housing to work sites. Travel Vouchers would reimburse expenses mostly for supervisors who control expenses. Cost Benefits Analysis would have to be conducted for each project with the engineer to see expected cost of services like cranes, fill dirt, concrete, rebar, heavy equipment, specialist work.

Do we have a Recession now that we had Negative -2.9 GDP Last Quarter.

Recession, Depression, Restructuring, with Risky Markets & no safe haven for personal savings. No none of that accurately describes an Economy with "Official GDP Stability accompanied by Job Losses & Wage Deflation". No Recession if official GDP numbers say otherwise by counting absurd economic activity. Automation & Robotic continue to increase productivity requiring a new threshold for GDP to prove "Growth"

A new Term for US Economic Condition. A long term Decline? Demand Crisis in Labor. Employers Market? Massive Layoffs & Social Payments. Lack of Capital Expenditures, Capital Formation/Creation.

A Capital preference for equities, bonds, derivatives OVER a preference to brick & mortar businesses and use of Labor. Social & Political Economic Crisis.

Normal capitalism sees people as assets. Like the Illegal Immigration today. Undocumented Workers are really low wage assets. Capitalism, Socialism, Communism all like workers. But capitalism & communism rely on low wage labor to increase profits or to modernize without capital to invest. Perhaps in Socialism & Social Programs people get recognition as humans with needs and "Salary Needs". Only Capitalism & Socialism can recognize people as the source of government legitimacy. Unfortunately our government is a marriage of capitalism, socialism, and fascism since the addition of Wealthy Interest Groups(Elites & Cartels)

Economics tries to understand the system without the passion of politics. We see a factor added for damage or pilferage.

Bottom Line:

State of Corruption explains better our Recession. All systems are corrupt or can be corrupted since they are 1) Complicated 2) Becoming more complicated yearly 3) We don't use Standardization to be a "Force Multiplier" in Transparency & Regulation & Enforcement 4) We refuse to acknowledge the damage of gift giving & money in politics 5) We don't acknowledge that the Fed does not provide jobs but serves the banking community 6) We don't acknowledge that bankers have taken over the government 7) We don't acknowledge that corporations & MIC success is largely due to government contracts, subsidies, tax abatements, financial guarantees, and favorable legislation 8) We falsely believe that big corporations care for us and provide the best service at the best prices even though they write off huge administrative costs and pay huge executive compensation 9) We falsely believe that the high costs of "Privatization" are better than the security of Public Utilities, Responsible Government Officials, and cheap government overhead & Labor (when properly managed) 10) USA has FORGOTTEN HOW TO DO: Federal Budgets, Federal Stimulus, Create Job & Labor Environments, Federal Investigations, and Federal Auditing due to corruption and control from powerful people at the Top 11) We FAIL to Demand standard financial products, standard accounting, financial ratings that have "Integrity", and an End to Shadow Banking and Shell Corporations 11) Zero Interest Rate or Low Interest Rates in the USA maybe a direct attack on small banks (the total number of banks in the USA has long been in decline) Savings Deposits get loaned out by banks and this create local economies and local profits - End ZERO Interest Rates Policy Now 12) The fact that we went from a nation of savers to debtors indicates a bad government model or at least corruption of leadership 13) You always have to keep an eye on bankers or capitalist as they want to pump up bubbles and make fees off the climb & decline, bubbles are not desirable, it is like advertising to get people to gamble with their life savings 14) USA has room for a few Conservative Principals like the US Constitution & Bipartisan Support of Business Principals, the fact that US Congress doesn't jointly speak on conservative principals proves that both parties and both houses are "Gaming the System".

Bill Mitchell's conclusion is something about balance sheet recession and the need for increasing non-government debt. Well USA has $60 Trillion in debt plenty of it to go around already. Household debt might as well be called exponential when viewed in a graph. At this point I say everyone learn to be conservative with their households and pensions... and go after local government to get them looking at conservative principals.

quikwit's picture

"This sort of simpleminded logic is either breathtakingly naïve or mind-bogglingly stupid."

Or specious evil.

Goldilocks's picture

The Crew Cuts - Sh Boom Sh Boom (2:19)

Blazing Saddles- Work Song (4:54)

TheSecondLaw's picture

Well there it is then - we all stop working; the central banks print cash and give every person 21 and older a million bucks - like the staring float in Monopoly - and there ya go, Bob. 

Bemused Observer's picture

It's not enough to create demand, those consumers must also have the means to act on that demand.

I can tell you that I have 'demand' for plenty of things. But without the means to buy them it goes no further than that.

Who the hell are they to even try to create demand? That's not their function, their function is to control the monetary system. Creating demand and jobs is part of the general economic fix, and THAT is the job of our elected officials.

But our politicians DON'T do their jobs, so now we have a Fed that is trying to do something they have no business mucking about with.