Saturday, May 23, 2015

Economic Limbo May Be Nearing An End

Are We Approaching The End?
One definition of limbo is an uncertain period of awaiting a decision or resolution; an intermediate state or condition. When it comes to the economy things can only remain in suspension for so long, sooner or later change does occur. For what seems to be forever and a day we have been trapped in a sort of "economic limbo". We seem to be balanced and walking a tightrope with deflation one one side and inflation on the other. In this strange world even as economic numbers continue to come in below expectations the stock market continues to move ever higher and remain at historic highs.

Across the world central banks have cranked up the printing presses and allowed governments to sidestep addressing structural problems within their economies that would make them more competitive, this will massively thwart growth going forward.  A period of great or even good economic growth is not even in the cards. Yet we find concerns over budget deficits have been placed on the back burner as people have been told we can simply grow our way out of our current problems. A solid look at the numbers will show the flaw in this thinking which is based on the most optimistic of forecast and projections.

Each day investors busy themselves with trying to better their fortune or at least hold on to and protecting their wealth and what it will buy. The great promise of future growth that appeared around election time last year when economic growth was hailed as 5% has proven no more than a finely crafted illusion. In hindsight it was brought about by a massive surge in government spending. This did not help the economy reach escape velocity and we fell quickly back to earth. Recent numbers show an abrupt slowing in growth, this has even turned attention and created questions as to just how well the GDP number reflect growth. Now some economist think it should be modified in a way as to boost or even out numbers from the first quarter of the year which tends to be the slowest.

Central banks and those in power are trapped between inflating assets and creating bubbles and the ugly alternative of watching the world's financial system collapse in rubble. Now we find that America's last GDP numbers may when revised show negative growth after they factor in the recently announced surprisingly large trade deficit. Year after year America imports around five hundred billion dollars more from other countries than they export. This means we have a giant trade deficit, when we add this to our enormous government deficit it is easy to see that we are living far beyond our means. The Fed has been both complicit and superbly entrepreneurial when it comes to the Ponzi schemes or pseudo-economics hocus-pocus that has allowed the current situation to develop. 
As I see it we are creating a large number of people who are incapable of holding a job and others who have simply dropped out of the work force. Many of these unemployed people have become in brutal honesty nothing more than wards of the state. This will wear down society through attrition as those who work are forced to provide for their care. Often these people have little in the way of savings, meaning the burden of caring for them has been 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. The seeds of a class war have been sown and threatens to divide us is about to grow much larger as the middle class continues to erode. Until now the answer has been for government to lift and cradle those on the bottom, but in the future it will become far more difficult.

Today across America is a landscape of empty and under-leased buildings that once housed thriving businesses that provided Americans with good paying jobs I'm forced to ask, How are things getting better? I'm troubled when looking at new job formation that reveals a slew of low paying part-time jobs and people leaving the job market. A close inspection of auto sales shows the troubling fact that over 30% of those buying cars are taking out sub-prime loans. Student debt continues to grow at an alarming pace and defaults are rising on these loans, this will corral disposable income for years to come. And finally looking out at police forces across the nation I see them gearing up for urban warfare and leaving their mission to "serve and protect" behind.

I must say that I'm far from convinced that all is well ahead. It is only logical to understand the Fed  must at some point begin to ponder a real exit strategy and end the massive and corrosive stimulus that the economy has come to expect. We seem to have been lulled into believing the central banks will never allow the economy to fail, but the reality is that despite the trillions and trillions of dollars,euros, yens, pounds, and others currencies that have been printed things are not getting better. All this money has merely distorted the ability of the markets to define true and real "market values." You might say we are held in limbo until the reality sinks in that in many ways things are getting worse.

In the past central banks acted as a backstop for the financial market, today it appears they are the economy. Oddly, this is occurring at the same time many people have become disenchanted with Washington which has become viewed as dysfunctional and even worse corrupt. It has been pointed out the bull market in stocks is getting long in the tooth when measured by historic standards. Over the years the markets have exceeded the expectations of many investors while the economy has languished. This may be a sign the state of limbo our economy has been in is about to end.

1 comment:

  1. People are forming into two camps: 1) Those either ignoring all the signs or hoping against all logic for the best, or 2) those who see a long period of waxing harmony and trust, which grew far beyond sanity, rolling over to see the large, muddy-middle consensus fragment into mutually antagonistic, devoutly held belief structures.

    I've enjoyed the relative peace of the muddy middle, even as I could see the collectivism-driven injustices visited upon innocent individuals fill a massive reservoir of resentment. The Caucasian male compelled by his employer to attend a thinly-veiled harangue aimed at humiliating him for crimes he did not commit (against racial minorities, women or people on the fringes of behavior) has learned to resent people he'd otherwise have simply ignored.
    Unfortunately, that reservoir of resentment will boil into rage when the implicit benefits of "going along and getting along" evaporate in economic tribulations. At the same time, only collective trust forms the dam holding back that reservoir of rage, and that dam of trust is historically larger than any in centuries, and weakening rapidly.

    Look for people to cease tolerating otherwise endless guilt-by-association and trumped-up demands for "reparations," be they racial/sex set-asides, highly progressive taxation or any other transfers of wealth/comfort/prestige that emanate from collectivist notions of "fairness."

    The battle lines are already there, drawn, if you look for them. The Narrative of "getting along" is dissolving in favor of a new Narrative, one that rationalizes a position of "No More will I kowtow to your guilt trips dumped on me." Empathy driven by coercion was always vulnerable to resentment, and now that being seen as weak is deemed a "benefit" in many circumstances, the strong are about to stop playing along.