“Bill, you admit that you are often wrong… or ‘early’…” begins a sympathetic letter from a dear reader, “so what makes you any different from all the other economists on Wall Street?”

Good question. We’ll work our way around to an answer.

But first, we will remind readers that our opinion – unchanged from the bottom of the crisis in 2009 to today – has been not only that the economy was not recovering, but also that it couldn’t recover – not as long as the feds were on the case.

Today, we have more evidence…

A Massive Shift in Wealth

Six years after the “recovery” train supposedly left the station, and GDP is backing up again. That is according to the feds’ own numbers, just revised.

They tell us that the economy shrank at a 0.7% annual rate in the first quarter. Household spending growth, meanwhile, was cut in half from the last quarter of 2014.

If there were any recovery, it certainly isn’t visible in these numbers. Which shouldn’t surprise you. Instead of unloading excess and unpayable debt, the feds were adding more.

According to McKinsey, global debt grew by $57 trillion between the fourth quarter of 2007 and the fourth quarter of 2014.

Worse, cheap credit has shifted real wealth from Main Street to Wall Street.

In doing so, the feds have perverted the entire system… and stopped real growth. After all, Main Street – factories and businesses – is where wealth is created, not on Wall Street.

The rich – who own financial assets – got richer. The poor, the young, and middle class – who mostly have only their labor to offer – got poorer.

Since 2009, the U.S. stock market almost tripled shareholders’ portfolios.

But it added nothing to the net worth of the working stiffs, as illustrated by the following calculation: In 1982, a typical workingman could buy the entire S&P 500 with 15 hours of his time. Now, the poor fellow would have to work two and a half weeks to get his hands on the same assets.

Dangerously Dysfunctional

The system is corrupt… and dangerously dysfunctional. But why does no one say so?

Opinion makers such as Paul Krugman and Larry Summers misunderstand intentionally. As though the feds had not put up enough obstacles already, they want more.

“More regulation!” “More redistribution!” “More credit… more spending… more debt… more wars… more crackpot schemes of all sorts!”

They want more “management” by the same people who’ve made such a mess of it already – people such as themselves. And the elite (and almost everybody else) is 100% behind them.

They are committed to trying to protect and extend the magical economy of the last three decades. This was made possible by a huge increase in debt. This led to big increases in stocks, bonds, real estate, contemporary art… and bonuses on Wall Street.

Almost everybody wants to see the past three decades continue.

But who speaks for the next three decades? Who speaks for Main Street… for the young… and for the unknown, surprise-filled future?

Who stands with the mysterious angels, inviting a depression to clear away the mistakes of the last three decades… and cheering on creative destruction, as it whacks the cronies and starves the zombies?

We do!

This is the point we have been edging toward in a recentcontroversial Diary issue. Everyone wants more credit, more inflation, more bubbles, more subsidies, and more special privileges.

Who’s on the other side of the trade?

Almost no one.

But for the last 20 years, we’ve been building a network of researchers, analysts, economists, and (sometimes quirky) thinkers that is independent of Wall Street, government, and academia.

No cronies. No zombies. No fast talkers or midnight walkers.

Our motto: Sometimes right, sometimes wrong, and always in doubt.

Every day, we try to connect the dots. How come central banks, big business, Wall Street, government, and academia are all on the side of the policies that don’t work?

How come the old… notably fast-aging baby boomers… have gone over, too, to take the devil’s part?

A Pernicious Bias

We are not just referring to the financial and monetary policies of the last six years, but also to a deeper and more pernicious bias.

The U.S. federal government has been running almost continual budget deficits – effectively passing the cost of today’s benefits on to tomorrow’s wage earners – since the Carter administration.

The Fed has been fighting credit corrections – while being the handmaiden of credit bubbles – since the 1980s. And for the last six years, the feds have been so actively and aggressively defending the past that the future hasn’t had a chance.

It was obvious from the get-go that adding more debt, bailouts, and regulatory weight was not going to make progress any easier. Still, recovery was always “right around the corner.”

But each corner we looked around revealed no recovery at all. And now, we have just turned another corner… and the train is going nowhere!

There are fewer real breadwinner jobs today than there were 15 years ago. The average household income is lower, too. You might think Janet Yellen would throw up her hands: “Really, what we are doing isn’t working. So, we’ll stop doing it.”

Fat chance. That would be the equivalent of the U.S. military, the CIA, NSA, and all the defense contractors in Northern Virginia admitting: “These wars in the Middle East aren’t getting us anywhere. Frankly, we can’t even remember who is an enemy and who is a friend. From now on, we’ll let the local people sort out their own problems.”

Not going to happen.

Because the Fed’s easy money has corrupted the entire system…

More to come…



June 01, 2015
Geneva, Switzerland

Market Insight Header

We’re in a 1% growth economy…

That’s the message from President Reagan’s former budget adviser and Wall Street watcher David Stockman.

As he points out, real final sales – a better measure of economic growth than GDP – have grown on average by just 1% a year since the fourth quarter of 2007.

That’s lower, by far, than during any of the five recoveries since the 1950s, as you can see from the table below.

Source: David Stockman’s Contra Corner

Economists often prefer real final sales over GDP when measuring economic growth, because it does a better job of capturing domestic demand.

Real final sales measures the dollar amount of goods and services U.S. households, businesses, and government actually buy every quarter – whether they’re produced at home or abroad.

By contrast, GDP includes inventories and foreign demand for U.S. produced goods and services.

Think of real final sales as what’s bought within a country… and GDP as what’s produced within a country.

According to Stockman, the 1% average annual growth in real final sales since the end of 2007 puts the current recovery in the “sub-basement of modern economic history.

You won’t read about it in the mainstream press… But U.S. economic growth is based on ever expanding credit.

And as Bill has been warning, that credit system is now insolvent…

When it fails… which it will surely do… it could wipe out more wealth than any other crisis in history.