Friday, February 19, 2016

The Real Economy Beyond Our Financial Institutions

The Financial Sector Has Grown Too Large
The real economy exists somewhere far from Wall Street and can be seen in parts of America where most of us live. The fact is the real economy is neither vibrant or healthy and current trends should give us pause.  Issues like a 36% drop in farm income in 2015 should be a red flag signaling severe problems on the horizon even if you don't make a living farming. Farm income is not contained in a closed loop but spills into other parts of the economy. Because of this, we should expect double-digit declines in agricultural equipment sales over the next 12 months.

My point is our future has a way of being tied to reality and certain economic laws as well as laws of nature that hope and delusion cannot defy. While these bonds can be ignored for a time the force they have over us at some point will suddenly pull us crashing to the ground. Our economy continues to be propped up by a combination of unhealthy policies which include massive government spending on top of the artificially low-interest rates and easy money. This has allowed the mega rich and politically connected to thrive while a huge majority of Americans wither on the vine. The price of stocks and action on Wall Street should not be confused with what is happening in homes across America. We should never underestimate just how far untethered computer-driven trading can distance itself from the true economy. We must consider the possibility we may simply be in another phase of the "Wash, Rinse, Repeat" cycle that flushes money away from the common man and into the hands of the 1% that eats our lunch.

Like a record replayed over and over, each month we wait in anticipation for announcements from the Fed. It is so very odd that even the delayed release of minutes from the last meeting sparks a market move as they are inspected for any hint of increased dovishness or the indication of a more hawkish tone in future policy. Only in a world where the financial sector is given rule over the real economy and over events happening in the shops and stores throughout the land should this be the force driving the markets. The truth is most Americans only get to smell the feast and have no seat at the table when the Wall Street elite dine. We get little more than the promise that our pension or 401 will be solvent when we need the money, that is if we are lucky enough to have either. Sadly, the average American is lucky if they are allowed even a few scraps that fall from the table, again highlighting why bankers have been reviled throughout history. It is ironic this massive sector of our economy produces nothing but holds such power.

Empty Storefronts, A Common Sight!
The Fed notes released on February 17th showed there was concern that the recent drop in stock prices could dampen consumer spending, which had been expected to power the economy through any global weakness. Only a small minority of Federal Reserve officials were willing to look past the stock market weakness that emerged after the U.S. central bank raised interest rates for the first time in almost a decade. These members argued that it could be the result of bringing equity valuations more in line with historical norms. In effect the Fed is saying propping up valuations rivals may even be more important than the health of the economy and what is best for it in the long run.

Promises have been made, and expectations have been raised that the economy will power through, but are they realistic? After eight long years of near or zero interest rates, massive government deficits, and watching tons of money and stimulus being poured into the economy we remain mired in slow growth. In a prior article, I asked, what is so good? What is so much better? I then went on to note the weight of carrying a large number of unemployed and people who have dropped out of the workforce will wear down society through attrition. Often these people have little in the way of savings, this means the burden of caring for them will be transferred to society. If too many people shift into this category the fabric that holds us together as a nation and as a people will be shred to ruin. Matters have been made worse by new mandates and regulations flowing out of Washington and the lack of needed reform.

Today small business is having its clock cleaned by big businesses backed by Wall Street money, coupled with the cost of complying with new government regulations. Today we see a landscape of empty and under-leased buildings that once housed thriving businesses that provided Americans with good paying jobs. This makes it difficult to think things are getting better. When looking at new job formation details show the growth in low paying part-time jobs and many people have left the job market, many to retire early because their skills are no longer needed. To shed even move light on our flawed recovery we only need to take a closer look at auto sales, 31% of those buying cars are taking out sub-prime loans and these loans are being stretched out far longer than ever before. Student debt continues to grow at an alarming pace and will affect the disposable income of many of our youth for years to come.

In an effort to stay  rooted in reality we should ponder the possibility that we are being played or duped. This includes not just how strong the economy really is, but as to the links and bonds we have with the economy through both financial institutions and the government. The real economy that lives beyond our financial institutions may be in a death struggle. Those in power tend to warp and skew both numbers and future projections in a self-serving way. A combination of low-interest rates, government spending, and easy money coupled with massive stock buybacks have given many people a false impression all is well, but looking at the numbers and beyond it becomes clear something is dreadfully wrong.

6 comments:

  1. Wait until they try to spring negative interest rates on main street! It is coming along with talk of doing away with paper money.

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    1. Thanks for the comment, all this is getting very interesting. The reality is all across the world $100 bills fill the mattresses of working people. When I was in Russia a young Russian confirmed this was a favorite method for people to protect their wealth.

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  2. I hear you, however the question for me is what can actually be done? We all bitch about how it is and what the problems are but at the core of it all America's problems are systemic.(and globally too) Politically, economically, media, socially, environmentally everything seems stuck, broken. in gridlock and yet tied together. Me? I have no answers. The depth and complexity of it all boggles my mind. Does everything need to fall apart to be able to rebuild anew? Are there parts that function that should be kept or if they remain in place will they just reform to create the same problems all over again? Will the system fall apart? Will it be a long slow process or a sudden collapse? It is fascinating to have so many questions without answers and then see how it all will play out. And at the same time be in the thick of it, so to speak.

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    1. When we look at inflation in Germany during the time of "Weimar Inflation" many people are both shocked and surprised at the speed it took hold. In our day of instant communication it seems to me events could take place much faster.

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  3. The administration is looting the treasury without any resistance from the "opposition party". Obama just donated $1.8B to fight Zika, a disease that has little if any serious problems (microcephaly isn't caused by Zika). No one says a word and whish . . .$1.8B disappears! Hundreds of billions disappeared in the unnamed wars over . ."there". It's the corruption that pervades government from top to bottom. I'm at the bottom and even this level is corrupt! It's not bad judgement, it's corruption. They're robbing us blind and we do nothing.

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  4. The answer to our dilemma is to pursue spiritual joy and not focus in on the world which is passing.... see ouridinchrist.blogspot.com for a wakeup

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