In recent months talking heads, disappointed with the lack of economic recovery, have turned their attention to wages. If only wages could grow, they say, there would be more demand for goods and services: without wage growth, economies will continue to stagnate. Unfortunately for these wishful-thinkers the disciplines of the markets cannot be bypassed.
For close to 300 years, inflation in the US remained very subdued. Small spurts occurred around major wars (Revolutionary, Civil, WW1, etc), but after each, inflation quickly trended back down to its long-term baseline. If you lived during this stretch of time, your money had roughly the same purchasing power your great-grandfather's did. That is, until the "Nixon shock" in 1971, when the dollar's remaining ties to gold were severed. Then inflation exploded. And the inflationary moon-shot has continued since, up to present day. So, we've become used to a system in which our money loses purchasing power over the years. For anyone aged 50 or younger, it's pretty much all we've ever known. But it doesn't have to be this way.
Were this extreme policy to be implemented it would be a further and deliberate debasement of fiat currencies. Alan Greenspan’s warning of “fiat money in extremis” becomes more real by the day. Were this silly proposal ever to become policy, it would significantly increase the risk of inflation and stagflation. In a worst case scenario, it will lead to currency collapse and hyperinflation.
Earlier this month, Retail Sales missed expectations for the 3rd month in a row, essentially flat on the month. As Doug Short rhetorically asks 'how much insight into the US economy does the nominal retail sales report offer?' With the release of the CPI data, we can judge this in 'real' terms (adjusted for inflation and against the backdrop of our growing population)... and the picture is anything but healthy.
Attending costly games is on the margins of the household budget. When the credit card gets maxed out, attending is no longer an option. We're not suggesting professional sports isn't the greatest thing since sliced bread: we're simply asking if attending pro sports games has become unaffordable to the average American.
The current bubbles in financial assets -- in equities and bonds of all grades and quality -- raging in every major market across the globe are no accident. They are a deliberate creation. The intentional results of policy. Therefore, when they burst, we shouldn't regard the resulting damage as some freak act of nature or other such outcome outside of our control. To reiterate, the carnage will be the very predictable result of some terribly shortsighted decision-making and defective logic.
You may be familiar with the story of how the US government confiscated gold bullion and then made owning it illegal back in 1933. Actually this event is more accurately termed a nationalization. Americans were forced under harsh penalties to sell their gold at an artificially low “official price.” Many have speculated that the US government could once again turn to gold confiscation/nationalization if it became desperate enough. But would the US government really turn to a 1933-style grab again? We would argue that they wouldn’t, but that doesn’t mean the threat to your gold has diminished. Quite the opposite.
While weather may affect the economy, the recent contraction has little to do with winter’s bitter cold; the US economy is far too diverse and complex. Instead, we are witnessing the ongoing effects of failed monetary and fiscal policies. As the Wickersham Commission noted years ago, “These laws [of economics] cannot be destroyed by governments, but often in the course of human history governments have been destroyed by them.”
David Rosenberg, in one of his recent missives, wrote: "...based on the current trend in the LEI and the level of the diffusion index, history suggests that the next recession is at least four years away." While anything is certainly possible, it is highly unlikely that the current economic environment is supportive of another four years of a "struggle along" economy. Given the artificial supports during recent years, the extreme extension in assets prices, record levels of margin debt and the chase for yield in "junk credits," it is highly possible that the next recessionary decline could be much larger than the historical average.
The Status Quo is desperate to mask the declining fortunes of those who earn income from work, and the Misery Index 2.0 strips away the phony facade of bogus unemployment and inflation numbers.
Events, food purchased away from home and live entertainment are increasingly unaffordable to the bottom 90%.
Nowhere is the "financialization" of the US economy more evident than in this chart showing the relative net worth ratio of quntile to the next quintile right below it. Quote Census: "The distribution of net worth became more spread out between 2000 and 2011. The ratio of median net worth of the highest quintile to the second quintile increased from 39.8 to 86.8 between 2000 and 2011, and the ratio of the highest quintile to the third quintile increased from 7.7 to 9.2. The ratio of the highest quintile to the fourth quintile was 3.0 in 2000 and showed no statistically significant change over this period."
The Federal Reserve's communications and policies are a form of crazy-making double bind. No wonder the economy and everyone participating in it are beset by various manifestations of mental and physical illness. On the one hand, the Fed insists the economy is expanding and all is well. If this is true, then the Fed should allow interest rates to normalize, i.e. be unleashed from the Fed's financial prison and allowed to rise to whatever the market of borrowers and lenders sets as fair in the current climate. But the Fed also insists that it cannot allow rates to rise. The ultimate Fed crazy-making double-bind is this: you can't live without us, your financial Overlords who keep you safe from recession and the volatility of creative destruction, but you can't be free or prosperous with us in control.
Any day, week, month, year now... Japan's adjusted trade balance missed expectations by the most since October 2013 (back over a JPY1 trillion deficit) as the QQE-ing, j-curve-any-minute-now nation awaits the arrival of the competitive pickup for the 40th month in a row. Exports beat expectations (which we are sure will be the headline crowed about by all) but imports surged by 2.3% (against expectations of a 1.5% drop). It appears you single-handedly devalue yourself to prosperity in an interconnected world after all - whocouldanode? As we said before, "Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery."