Back on August 1, 2010, Alan Greenspan - who is once again making the media rounds in a desperate attempt to peddle his ridiculous book about forecasting [7](in which he explains it wasn't the Fed's models that were wrong; it was reality, and all those who inhabit it, that had a glitch) and is arguably the man who created the single biggest credit expansion in the Pre-New Normal era who no longer has access to the money printer so needs to sell books, and soon enough he may devolve to pitching newsletters - issued one of his most memorable post-Lehman bloopers. To wit: "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here." We decided to investigate his claim...
First, since August 1, 2010, the stock market has risen a mind-boggling 74%, or 18.2% annualized: a return that has outperformed roughly 95% of all actively managed hedge and mutual funds, implying his successor, Ben Bernanke, is easily one of the best portfolio managers of all time. Except for Bernie Madoff of course.
[8]
So, if non-Superman Greenspan was right at least this one time (because he never was prior to this, as he refused to apologize ealier) the economy should have performed comparable right? Wrong.
Here is a simple comparison between the most recently preceding period in 2010 and currently:
Then:
- Annualized GDP was 3.9% and 2.8% in Q2 and Q3, 2010
Now:
- Annualized GDP is 1.1% and 2.5% in Q1 and Q2, 2013
* * *
Then:
- Americans on foodstamps: 41.8 million
Now:
- Americans on foodstamps: 47.6 million
* * *
Then:
- People not in labor force: 84 million
Now:
- People not in labor force: 90.6 million
* * *
But, it's not all bad news:
Then:
- Household net worth: $60.8 trillion
Now:
- Household net worth: $74.8 trillion
* * *
And there you have it: despite the 70%+ increase in the stock market, the US economy is no growing at roughly half the pace it was back then, the middle class has seen 6 million people migrate away from the labor force, and into foodstamps... but at least household net worth has increased by $14 trillion.
So much for Alan Greenspan blooper #1: perhaps it is time for a minor revision: "if the stock market continues higher it will do more to stimulate the "wealth effect" of the 1% while stealing from everyone else than any other measure we have discussed here."
Which incidentally explains the Fed's policy for the past 5 years. Only it doesn't sound quite as palatable for Sunday morning TV if the former Fed chairman were to tell the truth that all it does now is to make the super wealthy super wealthier.
Oh, and don't expect anything to change. When in another three years the S&P is 70% higher than where it is now, driven purely by the Fed's balance sheet, and there is no US middle class left to even mention, well - we have these brilliant economists who have never held any real job outside of their academic ivory towers to thank. Of course, by then it will be too late to change the inevitable outcome, so well-rehearsed in a rather angry late 18th century France, but it is too late now anyway.