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The U.S. Economy Slows To Stall Speed
Submitted by Charles Hugh Smith from Of Two Minds
The U.S. Economy Slows To Stall Speed
This long-term weakening of the economy is the direct result of financialization and the Federal Reserve's policy of propping up impaired debt with more debt and constantly bringing demand forward with zero interest rates.
The U.S. economy is slowing to stall speed--the point when gravity overcomes the lift provided by central bank free money. This deceleration is evident in a number of indicators such as gross domestic product (GDP), which is now at 0% according to the Federal Reserve Bank of Atlanta's GDPNow model.
New orders for consumer goods has fallen off a cliff, eerily repeating the freefall of the Great Recession in 2008:
Longtime correspondent B.C. shared two more insightful charts of the economy's deceleration to stall speed. Rather than depict one or two indicators, B.C.'s charts are relational, meaning that data is added together or displayed as ratios.
The first chart shows per capita corporate profits + disposable personal income + government receipts and real final sales. As B.C. notes on the chart: "From the point when the growth rate decelerated below the 'stall speed' of 1% , the average 4- and 6-quarter growth rates for real final sales per capita thereafter were -0.36% and -0.1% respectively, i.e. recession."
I added two notes to the chart: growth rates in both series have been deteriorating since the early 1980s, when financialization began substituting leverage and debt for real growth in the real economy.
Every dip below the zero line aligns with a recession. Once the lines dip below the 1% stall speed line, a negative growth rate follows.
The second chart displays the credit market in a ratio with GDP (minus government expenditures, leaving only the private-sector economy) and real final sales ("real" meaning adjusted for inflation).
Adjusted for GDP growth, the credit market growth has yet to reach pre-Great Recession levels. This reflects debt saturation--adding debt no longer generates much expansion in the economy.
The growth rate of real final sales have been declining since the early 1980s, with each peak and each trough being lower than the previous peaks and troughs. The growth rate in the current recovery has barely edged over the stall speed of 0% and is now rolling over.
B.C. added this commentary on the two charts: The primary inference is that the real, after-tax income component of real GDP decelerated to "stall speed" and then a recessionary rate in Q3-Q4 '14.
With the increase in the US$, net exports will be a drag, even with the collapse in oil imports as a result of the shale oil boom/bubble. That leaves . . . an expansion of the fiscal deficit, all else equal, to prevent recession, or a contraction of nominal GDP with the marked deceleration of CPI and the GDP deflator.
Because we don't have net savings, the Fed will have to resume printing bank reserves for Too Big to Exist (TBTE) banks to resume buying federal bond issuances ("monetization") at some point later this year.
This long-term weakening of the economy is the direct result of financialization and the Federal Reserve's policy of propping up impaired debt with more debt and constantly bringing demand forward with zero interest rates.
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Clearly what we need is amnesty and global warming taxes.
what we need now is free money for the sheeps
Wil-E-Coyote moment.
what we need is ludicrous speed
BULLISH!!! <sigh...>
Darnit. I told them to not look down. If you don't see that you're walking on thin air, you won't fall.
what we need is more money for the zh writers. great to have them for this most interesting and unusual times. There is a curse i heard was from china, "may you live in interesting times". I wonder if diamonds have a future, bring a diamond to a jeweler, they will tell you "it is loose" and switch your diamond for a lesser one. Standard practice. So, they are stealing from all, but will they have a future? Fake ones abound, and will any in the future care? Like collectors of beany babies?
QE4EVA
This is bullish for stocks
Panic buying underway at the moment...which is not all that rare of a moment.
The eCONomy is fucked and guess what? The government this week just spent $200,000 on "Survival Kits" to be supplied to every major bank in the united states..... Everything is AWESOME!
https://www.youtube.com/watch?v=jl7s4fsooPE
Burt,
You are Gerald Celente and I claim my 5 bucks.
Old Yellerin is very quickly losing her window of opportunity to 'normalize' rates via a 25-50bps increase to the FFR.
If the Fed doesn't take some sort of action they won't be able to claim they were in the process of normalizing rates when something else (unrelated to the Fed) happened to kill the recovery. I can hear it now, "it wasn't us, we had nothing to do with this."
Reform the banking system.
We should all be able to borrow from the Fed at .25%!
End the cartel's grip on free money.
Yeah, but then the banksters would not be able to charge the sheeple 30% interest on credit cards ...
The sheeple pay their credit cards? News to me.
If you defaulted on you credit card debt all you need to do is wait a year and you'll get thousands of dollars in new credit to do it all over again.
The banks don't care about people paying back their debt. Because of mark to fantasy they get to write what was charged plus the full amount of interest in the profit column and then write off the complete loss in the next column.
nothing will change except your preception...
buckle up, the ride is gonna get interesting.
think vietnam evacuation.
no, not helipopter ben...
VISA will not be doing business in Iceland.
Don't carry balances on credit cards. 30% interest problem fixed. That was easy...
No thanks.
I'd prefer ending free money and letting the market price the cost of borrowing, not central bankers.
Who is the co-pilot? Timmy Jeethner? The Bernank? Linda Green?
Quick, someone take a selfie on the way down!
Linda Green. Haha! I wonder how many know about Linda Green.
This is a slow motion train wreck that will be catastrophic. Global trade is collapsing, aint no money printing going to stop this bad boy.
Correct. The train is starting downhill now and it will gain momentum, early summer it will by cruising.
So QE4 lift off in June
nope. too soon. jackson hole end of aug.
the world hopes so. I am betting no.
Very interesting post. This kind of analysis is where ZH is at its best.
Yes, I see the similarity, unfortunately there is one big difference now. There is no market dumbass.
Lies all Lies,, the TV just said the economy is running on all four cylinders.
( Insert strong smell of bull shit )
But the engine is a V8
The engine is a V12 dual turbo, but right now, the whole car is being driven by a pair of hamsters running on a single wheel.
I still think it's not time for The Econopocalypse yet, however. And I might be wrong. But there's still too many out there calling a top. The bottom doesn't fall out until folks like Celente and Schiff throw their hands up in utter disgust and proclaim the markets "seemingly bulletproof."
Pure truth. It's a V12 though.
SO 90% of the economy can't afford to buy anything and 10% of the economy has already bought everything they could possibly need and no longer know what to do with the mega buck windfall Bernanke and Yellen have bestowed on them.
Great analysis, so much for the "job creators"....
the guillotines grow hungrier by the day...
and when the guillotines finally feed, oh, such sweet sweet music will they make...
Pretty much. Did a little math on a previous thread.
By my calculations a single individual with no dependents and no state income tax needs to make $37,000 a year/ $17.79 an hour to afford a "middle class" lifestyle.
Gross $37,000
- $7,500+ in payroll taxes (per ADP calculator)
= $29,425 net
- $12,000/$1,000 a month housing (yes some areas it is more, some less)
- $3,600/$300 a month utilities optimistically (electric/gas/water/phone/internet)
- $5,200/$100 a week food (variable, but modest most places, includes meals out)
- $4,800/$400 a month transportation (car payment/insurance/gas/maintenance/tolls)
- $1,200/$100 a month clothing (modest priced replacements)
- $2,400/$200 a month health insurance, very optimistically
= $225 left for "savings" or entertainment
Of course you could live with roommates, live on beans and rice, ride your bike to work, etc.
60% of US workers earn less than that. Many of those workers are supporting families.
For 2015 the US poverty guideline for a single person is $11,770. Eligibility for most social entitlement programs cuts off at 150% of poverty, so $17,655 annual income. From the same Social Security report looks like roughly 35% of workers earn less than $17,655 and qualify for benefits.
and that does not consider unanticipated events - car repair / traffic ticket / fake snow storm that stops the subway from operating so less income form lost wages /
i think this disposable income is getting much shakier - must be building credit cards balances at some point - people arent spending - retail is very bad form what i hear -
Yep, the consumer is tapped out. Just look at where the traffic is when you go grocery shopping. Dollar stores and discount grocery stores are busy, full service grocery stores are empty unless they serve a niche market like Whole Foods or Trader Joes. Next look at product on the shelves and you will see the sheeple are buying the lowest cost alternatives (ie store or generic brand versus name brand). Same is true at the department stores and malls. Only buying is in deeply discounted sections. Lasly, check out some Thrift Stores and you won't believe how busy they are. Consumers are literally saving every penny they can on retail essentials. The best example I have seen was a nicely dressed pretty middle age woman wheeling out a cart totally full of after xmas wrapping paper and stuff that she got for 1/2 off at the 99cent store! And what did she drive away in? A near new 4 door Mercedes!
Ditto.. pretty much. Buying old gold coin (and that is pretty useless for the economy). {Short Feeder cattle}
Just keep stackin' and keep God first.
bullish
Markets are up. What's the problem?
Because we don't have net savings, the Fed will have to resume printing bank reserves for Too Big to Exist (TBTE) banks to resume buying federal bond issuances ("monetization") at some point later this year.
the Fed "will have to" resume printing The silent takeover of the economy, comrade!Central Planning, for the win.
finally showing in econ data. this, to me, is the last turn. agreed that Feds will have all hands on debt and jump in every market. that may push off the eventual correction another year or two.
Fi-nan-cial-i-za-tion ... Se-cur-i-ta-za-tion ... Mo-ne-ti-za-tion
Sounds like the makings of a Louis Farrakhan rap
all the more interesting because consumer spending is strong, thanks to obama care
Clearly the last rounds of QE were not large enough to reach escape velocity. Bring on QE 5000.
The battery plant I do contract work at hasn't seen things this slow since 08. I talk to the truck drivers all the time, they'll tell what's really going on out there, not some asshat on cnbc. Truck drivers are the real economists you want to talk to. It's getting worse, not better.
Everytime the Fed prints air dollars, dollars representing purchasing power, they have stolen a piece of everyone else's dollars and handed it to the banksters
This week a friend told me a house was for sale on his street. I started thinking it might be fun to live nearby. Looked up his neighborhood. Shocked to see it was a cluster F of foreclosures. Checked my last neighborhood. The same. I havent seen this foreclosure mapping since the housing collapse. Last bubble, there were for-sale signs everywhere. This time, not. Michigan is a depressed state, but there isnt a sign on the streets. Was this the new federal mortgage programs coming to roost? Stealth auctions? Foreclosure prices were down since the last round. Might as well wait to buy property. Suspect it will be getting a whole lot cheaper
I hate what is going on. Obamacare put the nail in the coffin. Made employees liabilities. Whenever the public stops buying, gov creates a new program to sucker them into more debt, and when they hit the wall, gov takes the farm including all prior payments, and resells it to a new pack of serfs.
When you dont want something you dont want it even if you can borrow the money for free.
Most Boomers are still highly materialistic, have some credit, and will gladly borrow and buy all kinds of stupid chinese shit at brick-n-mortar stores. The retail slowdown is happening because their kids consider that kind of gaudy, and anyway they are largely too broke and too busy trying to afford housing, food, student loans, healthcare, etc. When they do buy something, it's relucantly, online, and after lots of research and price hunting. That is basically the future of the US consumer spending and sooner or later it's going to have to impact corporate income.
A stall is a well know aviation term, now the question is what is the actual weigh and balance of the airplne (economy). If it is tail heavy, it's going to be a JFK junior, although even that can be survived if the airplane is rolled inverted first, so make sure your seat belt is on or you'll hit the roof and pray that the wings stay on in the pullout [and lets hope that the pilot knows this and doesn't have a cast on his right foot].
........and you have enough height!