Tuesday, October 15, 2013

Myth Of An Economic Recovery

The economic recovery that the media and talking heads have been bantering around does not exist and is just a myth. A manipulated stock market distorted by recent economic policy hides and mask the real truth, in many ways it is ground zero in the war to convince us all is well. The American people and Main Street will tell you they are far from convinced that it is smooth sailing ahead. Huge weakness in the economy has been shown by numbers that barely get by even after record amounts of stimulus. Fact is if QE or the massive government deficit spending that props up our economy is removed it will fold like a cheap umbrella.

Recent changes in how the GDP is figured , which boosted growth thus reducing the debt to growth ratio, and attempts to spin poor numbers regarding employment have been met with skepticism. Auto and new home sales have recovered a bit from the levels hit during the crises mainly as a result of QE and massive government deficits coupled with low interest rates that make both mush less expensive to finance, but we are still in an economic morass. Poor job creation and stagnate wages have left millions in a protracted state of financial weakness. We are not in recovery we are dead n the water.

The American government has been running one and a half trillion dollar deficits the last several years. This represents a staggering $4,500 per person and $15,300 per family in America each year, these huge deficits add up very fast! Sadly, this is what is propelling the economy forward, and it is not sustainable. Massively compounding the problem is the realization that many people such as infants, children, the disabled, and the unemployed could not repay their share of this debt if their life depended on it, this transfers the burden to the remainder of society.

Those in power have cast a bum rap upon austerity as they continue to steer us towards what they hope is a controllable inflation ramp. It seems the goal is to move inflation up enough that it is still acceptable but at the same time give people the illusion of economic growth. This would support pension funds and others in the stock markets thus fostering the golden "wealth effect" that encourages people to borrow money and go out and spend. If  these funds fall in value it will bring into question the whole economic system and a collapse that will bring down the pension system.

The head of the International Monetary Fund, Christine Lagarde, has warned that the latest chink in our economic armor, a US default, could tip the world into recession. In a US television interview she said a default would result in "massive disruption the world over". She went on to say "If there is that degree of disruption, that lack of certainty, that lack of trust in the US signature, it would mean massive disruption the world over and we would be at risk of tipping yet again into recession." Her message, spend now and after things get better worry about the debt.

President Obama said, "It wouldn't be wise, as some suggest, to just kick the debt ceiling can down the road for a couple of months, and flirt with a first-ever intentional default right in the middle of the holiday shopping season."   The political gridlock concerning government spending that has shutdown the US government will shave 0.25% off economic growth each week it continues is the estimate of US Treasury Secretary Jack Lew. Growth is already expected to be sluggish this quarter. The US Treasury has been using what it calls extraordinary measures to keep paying the bills, but those measures hit a wall on October 17.

Every week the Treasury has to refinance 100 billion dollars of debt in the form of US government bonds known as treasuries. The US also has to pay interest on its huge debt burden. An inability to pay that interest, or pay back debt if required, would put the US into default. On Saturday, Jamie Dimon, head of  JP Morgan said the possible repercussions did not bear thinking about. "You don't want to know (what would happen)," he said. "It would ripple through the world economy in a way that you couldn't possibly understand."

There you have it, the big concern, keeping Americans spending. The policy based on it all being about confidence rather then reform continues. The economic recovery you hear about in the media is a myth generated by and directed by those in power. All the characters above have a vested interest in toting the recovery line, this should make us leery of anything they say. Whenever I see the likable Christine Lagarde I cannot help but think about her appearance with Jon Stewart on the Daily Show where the current head of the IMF admitted to lying to people during the 2008 financial crisis, it seems we can't handle the truth. This makes it clear that we should question the credibility of  everything these people say.

Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged. The below post lays out some of the thought presented by economist Allen Meltzer,


  1. Having an income protection is a wise thing to do if ever another shutdown becomes inevitable.

  2. I'm a new reader who found your blog via Viable Opposition. I like how you try to find the truth rather than following a political dogma. However, the post on Meltzer was weak.

    There is much more happening here than "uncertainty" over taxes and regulation. Demand continues to be weak, so it's hard for large number of businesses put together a believable business expansion plan.

    This is like a very long hangover after a very long debauche. Almost everyone is chastened, and there isn't the appetite to spend. I think this will be the norm for quite a while, and it should be. The US economy has been dependent on artificial booms for maybe 20 years now. In the meantime, a lot of real production has been offshored. I don't know of any realistic plan to bring production back here. Do you? So the issue is how to change gears to a slower pace and a lower standard of living. Of course this isn't a winning campaign slogan so you don't see it talked about much. And it has to be managed (quietly) in a way to avoid deflation since that would needlessly add to the pain.

    I agree that Obama makes the situation worse with fears of rampant new regulations and health insurance burdens. Yet Romney wasn't a better alternative overall. I wish for a fiscally sensible candidate but is there one on the horizon in either of our polarized parties? Not much chance of it.

    1. Well said ModeratePoli, please do not take my agreement with Meltzer that this economic experiment and the lack of good policies will end badly as full endorsement of his views. The article I wrote was to point out that many well thought of Fed watchers and noted economist are troubled by the direction being taken. I feel Meltzer was trying to be nice and not overly harsh in his criticism.

      The economic future does indeed look bleak if we do not alter our course and that is what we are writing about here. Much of it is about choices and how we get from here to there. Long-term responsible planning will be required but to squeeze that from those we have sent to Washington seems unlikely. I hope you will keep reading as I try to point out inconsistent behavior and throw out alternatives to consider.
      Thanks, Bruce

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  4. "question the credibility of everything these people say". That's the problem in a nut shell; too many gullible, low information people taking what the media, politicians and the Fed say for fact and truth. Most people, indeed, can't handle the truth and wouldn't be able to act on or know what to do with it if they ‘were’ aware of it.

    A debt reset (default) will happen. It's inevitable. Trying to 'fix' the demand-less, financial, economic and bloated, currency trap monetary morass the world is experiencing, at this point, would be like trying to herd a dozen cats back into the barn.

    Useful information that should [needs] to be disseminated at this point should be what to do to lessen the impact of a debt reset and monetary system overhaul. What would some of the possible forms of reset look like, what do some of the historical events look like and would they apply today? How do inflation, deflation and recession affect people’s lives as they’ve gotten used to livening them? What happens to passive assets like stocks and bonds, hard assets like land, small businesses, precious commodities and collectables? How does an ex- global reserve currency affect people’s lives and business?