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 that propping up valuations 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 more 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.