Earlier this week, the WSJ put out an article titled "Powell Says Solid Economy Supports Further Fed Rate Increases", in which it rambles on about how supposedly great the economy is. But how great is it really?
We are now 10 years post the largest financial crisis in American/world history, and the Fed has just hiked the Fed Funds rate to between 1.75% and 2%. Using historical measures, the current Fed Funds rate is still at crisis levels, or where Greenspan had lowered the rate to following the 2000 collapse. So, after 8 years of ZIRP, and multiple rounds of QE, how is the state of the economy? Well, to start out with, a new record of 95,919,000 Americans are now out of the workforce. Again, some will say that is mainly due to baby boomers retiring, but if one is to look at a chart of workers aged 55 or older who are still working, it quickly dispels that narrative.
Americans are also in record debt, currently $13.2 Trillion, but the economists say it is nothing to worry about. Meanwhile Americans saving rate is near record lows, with a survey in September of 2016 stating that 69% of Americans have less than a $1000 in savings. In January of 2017, CBS had a article that said a $500 surprise expense would put people into debt. Or more recently, just last month, a Federal Reserve survey found that four in ten Americans can't cover an emergency expense of $400!!! What does that tell us about the true state of the economy?
Now for some even more disturbing facts about how great the economy is. 43% of American families can't afford basics like rent and food, and that is with 42 Millions Americans currently using Food Stamps (aka SNAP program). And with the second housing bubble in 20 years, thanks to the flawed logic of keynesian central bankers, Americans are paying record amounts in rent. And those who can afford to buy a home or can qualify, are now seeing the highest housing prices since the crisis, despite Fed Chair Powell telling us in March that "The Fed doesn't see housing prices as being too high." A recent Bloomberg article said that Americans are devoting the largest amount of their income to their mortgages, the highest since the crisis. But again, no one dares to call it a bubble or a problem, they assure us that everything is different this time. No journalist dares to question the current state of the economy, or dare to question central bank heads or leaders, they are too busy kissing ass or having barbecues with them. In a stunning article in today's WSJ, Americans are entering their retirements in the worst financial shape than any other prior generation. "In total, more than 40% of households headed by people aged 55 through 70 lack sufficient resources to maintain their living standard in retirement, a Wall Street Journal analysis concluded. That is around 15 million American households."
Meanwhile forgetting about the average Americans, because honestly who gives a shit about them, the rich Americans are even richer now. Not only are there a record amount of billionaires now, the wealth of millionaires has surged to a record $70 Trillion. The only thing that 8 years of ZIRP and multiple rounds of QE, plus a coordinated effort by other central banks around the world has done, is helped out the rich, not to the poor, and not the middle class. Ben Bernanke said during an interview after the dropping the Fed Funds to zero and launching QE, was that the Fed was focused on main street, and not wall street when it came to their policies of trying to "fix" the economy that they destroyed. When he was President at the Dallas Federal Reserve, Richard Fisher said that QE was a massive gift to the rich, intended to boost their wealth.
So back to the recent WSJ article at hand, Powell is saying the solid economy warrants further rate hikes. The truth of the matter is, the economy is far from solid. The only reason the Fed is hiking rates, at a snails pace, is to try and slow the largest stock market bubble in American history. A stock market bubble so large, multiple Fed governors, chairmen/women, and past Fed officials have warned about on at least 20 different occasions. But is not only the stock market, it is far widespread to many asset classes, homes, art, cars, etc.. The WSJ article quoted Powell as saying:
"Mr. Powell said he saw few risks of bubbles but flagged how the prior two U.S. economic expansions ended after the eruption of financial imbalances, in the technology sector and the housing market, respectively, rather than overheating from excessive inflation."
“We have often seen confidence become overconfidence and lead to excessive borrowing and risk-taking, leaving the financial system more vulnerable"
Powell says that he saw few risks of bubbles, but has warned at least twice this year about asset valuations being higher than historical norms. No mention that the reckless policies of the Fed has led to that artificial overconfidence, because as we have seen, the stock market is the Fed's baby, and anytime it has even the smallest drop, the Fed is there to jawbone it higher. Because as Yellen admitted, the Fed Depends on the stock market to gauge monetary policy.
Yup, after looking at a chart above of the SPX, I agree with Powell, I don't see a bubble.....
Then we have Fed talking heads warning about how the Fed tightening will lead to recession. This is partially true, but recession will happen because of the extremely loose monetary policies of the last 10 years. Recession will happen because the Fed waited too long to raise rates from zero, and their joke of .25 bps hikes at each meeting will only make the crash that much worse, because as we are seeing, their joke of .25bps hikes at each meeting has only made risk assets climb even higher.
The economy is not strong, the stock market is. And as they love to say, the stock market is not the economy.....until it crashes and they are "forced" to do bailouts.