04/27/11 Baltimore, Maryland – Another milestone on the road to Hell!
Here’s the report from The Fiscal Times:
For the first time since the Great Depression, households are receiving more income from the government than they are paying the government in taxes. The combination of more cash from various programs, called transfer payments, and lower taxes has been a double-barreled boost to consumers’ buying power, while also blowing a hole in the deficit. The 1930s offer a cautionary tale: The only other time government income support exceeded taxes paid was from 1931 to 1936. That trend reversed in 1936, after a recovery was underway, and the economy fell back into a second leg of recession during 1937 and 1938.
Yes, dear reader…now we will give you a quote:
“Those who count on the feds for their daily bread will soon go hungry.”
Who said that?
We did!
Yesterday, we saw that the feds’ QE2 program was a failure. Just like QE1. And TALF. And TARP. Worldwide, the authorities committed about $20 trillion to fight the correction. And what has it bought? It bailed out Wall Street. It made more millionaires. It drove up stock prices – to a new post-crisis record yesterday. But it didn’t really lead to a genuine recovery or a real increase the nation’s wealth.
And we’ve got news for the “post crisis” folks. This crisis is still going on. Now, we discover that not only is there no real recovery…the phony recovery is so distorting the political/economic picture that no real recovery is even possible.
Seventy-nine percent of household income growth since 2007 has come from government transfer payments. People earn less real money. They have less real money to spend. Their major assets – their houses – are going down in value.
And now they depend on the feds for more than half their income growth. Who’s going to vote for less government spending now?
In all of history, there are very few examples where centralized economic planning has produced even plausibly positive results. They can mess up an economy; there’s plenty of evidence of that. All their meddling, controlling, twisting – from Diocletian to Robespierre to Lenin to Nixon – every market regulation is a curse…every financial lifeline has a hangman’s noose on the end of it.
The only counter examples we can think of are those on the Pharaonic model…where wise Pharaoh stored up grain during the fat years and released it to the people when times got tough.
How often did that happen? The only example we have is from the Old Testament. Is it fact? Or fiction?
A wise government today could imitate Pharaoh. But none has. Instead of storing up grain for the lean years, governments run budget deficits year in and year out…through good times and bad times. Then, when the pickins are slim, they run even bigger deficits to “stimulate” a recovery.
This pattern has been in place…almost universally and with few exceptions…since the new money system was put in place in 1971. You remember that fateful day? When Richard Nixon interrupted Bonanza to tell the world he was doing two impossibly stupid things at once – imposing wage/price controls…and taking gold out of the international monetary system.
We are still suffering the consequences…still lumbering, stumbling, clumsily padding our way to the final act.
And now look at Pharaoh. The masses depend on him. And he’s handing out bread. But wait…it’s phony, ersatz grain. No kidding. Yes, the feds print up money…as if it were real. They give it to the banking system, claiming that it “stimulates” the economy. Then, the banks give it back to the feds…so they can distribute it to the masses. Of course, anyone could see right through it. Everyone knows it is fraudulent.
And so, the price of gold goes up…
The insider hustlers game the system. Did you read that account of the Wall Street wives who started a company just to borrow money from the feds? Everyone in the press is bad-mouthing poor Christie and Susan. The two wives put up $15 million. They borrowed $220 million from the government giveaway program, TALF. They used the money to gamble on debt…just like the government wanted. And what if their speculations went bad? No problem, the feds took all the risk!
Well, more power to Christie and Susan. The feds wanted people to spend…to speculate…to invest. Well, Christie and Susan rose to the challenge. Besides, they’re pretty.
Honestly, if Ben Bernanke looked like Julia Roberts, maybe we would have no problem with US central bank policy. We’d go happily to Hell…along with everyone else. That’s how shallow we are! But he doesn’t look like Julia Roberts. Not even close.. So, we harp, carp, and kvetch….
And what we’re complaining about today is the way the middle classes have been bamboozled by the feds, suborned by phony money…and ruined by a rigged economy.
Haven’t they benefited from all those government payments? Yes, like a man benefits from a hanging! Keep reading…
Double Whammy from Flimmy Flammy
The combination of high food prices…and a high cost of gasoline…is hitting the middle classes hard. Whence cometh these high prices? Why, from the feds of course. Why would the feds want to hurt the middle classes? Don’t ask silly questions, dear reader. Here’s the AP report:
With gas prices now standing at about $3.90 a gallon, energy costs have now passed 6 percent of spending – a level that …is a “tipping point” for consumers.
Of the six US recessions since 1970, all but the “9-11 year 2001 recession” have been linked to – [if] not triggered by – energy prices that crossed the 6 percent of personal consumption expenditures, he said. (During the shallow 2001 recession, energy prices had risen to about 5 percent of spending, which is higher than the long-term 4 percent share.)
What may make matters worse this time around, is there has been a steep increase in food prices that occurred as well. In other recent recessions food costs were benign, at between 7.5 percent and 7.8 percent of spending.
This year food prices have climbed 6.5 percent since the beginning of early January, according to Consumer Growth Partners.
Meanwhile, the poor middles classes watch as their most important asset gets marked down. Bloomberg is on the case:
April 26 (Bloomberg) – Residential real-estate prices dropped in the 12 months to February by the most in more than a year, putting the market on the verge of eclipsing the nadir reached during the US recession.
The S&P/Case-Shiller index of property values in 20 cities fell 3.3 percent from February 2010, the biggest year-over-year decline since November 2009, the group said today in New York. At 139.27, the gauge was just shy of the six-year low of 139.26 in April 2009, two months before the economic slump ended.
Values will probably keep falling as foreclosures swell the supply of unsold homes…
Regards,
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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It’s funny you should mention the story of Joseph in Egypt. I remembered it exactly as you did, however, I re-read it about two years ago and I was shocked. Here it is Genesis 47 right out of the King James.
” 14And Joseph gathered up all the money that was found in the land of Egypt, and in the land of Canaan, for the corn which they bought: and Joseph brought the money into Pharaoh’s house.
15And when money failed in the land of Egypt, and in the land of Canaan, all the Egyptians came unto Joseph, and said, Give us bread: for why should we die in thy presence? for the money faileth.
16And Joseph said, Give your cattle; and I will give you for your cattle, if money fail.
17And they brought their cattle unto Joseph: and Joseph gave them bread in exchange for horses, and for the flocks, and for the cattle of the herds, and for the asses: and he fed them with bread for all their cattle for that year.
18When that year was ended, they came unto him the second year, and said unto him, We will not hide it from my lord, how that our money is spent; my lord also hath our herds of cattle; there is not ought left in the sight of my lord, but our bodies, and our lands:
19Wherefore shall we die before thine eyes, both we and our land? buy us and our land for bread, and we and our land will be servants unto Pharaoh: and give us seed, that we may live, and not die, that the land be not desolate.
20And Joseph bought all the land of Egypt for Pharaoh; for the Egyptians sold every man his field, because the famine prevailed over them: so the land became Pharaoh’s.
21And as for the people, he removed them to cities from one end of the borders of Egypt even to the other end thereof.
22Only the land of the priests bought he not; for the priests had a portion assigned them of Pharaoh, and did eat their portion which Pharaoh gave them: wherefore they sold not their lands.
23Then Joseph said unto the people, Behold, I have bought you this day and your land for Pharaoh: lo, here is seed for you, and ye shall sow the land.
24And it shall come to pass in the increase, that ye shall give the fifth part unto Pharaoh, and four parts shall be your own, for seed of the field, and for your food, and for them of your households, and for food for your little ones.
25And they said, Thou hast saved our lives: let us find grace in the sight of my lord, and we will be Pharaoh’s servants.
26And Joseph made it a law over the land of Egypt unto this day, that Pharaoh should have the fifth part, except the land of the priests only, which became not Pharaoh’s. ”
Is it just me? Or did Joseph corner the grain market, cause a contraction in the money supply, cause a depression and then use said crisis to institute taxes and vastly increase the power and holdings of the pharaoh.
I believe the point you were making still stands Mr. Bonner. I just share that for our mutual edification.
“Those who count on the feds for their daily bread will soon go hungry.”
As you sow so shall you reap.
“What may make matters worse this time around, is there has been a steep increase in food prices that occurred as well. In other recent recessions food costs were benign, at between 7.5 percent and 7.8 percent of spending”
But we all know that the rise of food and fuel prices are not counted as inflation.
Whew, I was worried about the steep rise in the price of food and fuel for a second there…
I thought that money was “invented” about 600 years after Exodus.
What ever happend to hedonic measurement adjustments? Works like this: Sure, your box of Sugar Baby cereal now contains only 78% of what it once did by volume, and while the price has increased 14%, the actual impact on inflation has been negative. Why? Because all of the fat corpulent slobs out there need to lose weight anyway and the resulting savings in healthcare expenses will vastly exceed the marginal increase in the cost of Sugar Baby ceral. Or something like that. Statistically, close enough for government work, right?
If you’re not being tongue-in-cheek, Redux, your understanding is a mite naive. Scholars who accept the historicity of the Biblical story almost universally accept a date occurring since 2000 BC (most often in the 16-1800 range), placing it at a time when the middle east in general – and the Nile delta in particular – was a veritable hotbed of economic activity and a center of broad cultural and economic exchange. While, assuming one accepts the posited range, this would pre-date known coinage in the modern sense, it wouldn’t preclude the existence of it. (I suspect our estimates of the ‘barbarians’ who predate us often fail to properly gauge their accumulated knowledge and overestimates the relative value of our own.) Even if proper coinage hadn’t yet emerged, is it remotely believable that the desire for a medium of exchange and value storage went unsated so long?
Speaking semantically, the Hebrew word translated as money is “הכסף” which is consistently rendered silver in the KJV, which wouldn’t necessarily require coinage per se to be applicable – it would only require that the הכסף be recognized as a commodity readily exchangeable for another…. in the instant case for food. If money is simply a commodity (although a peculiar one in an age of universal fiat currency), then whatever is described in the Biblical story offered is money by definition without regard to it’s actual physical characteristics.
It is also worth noting that the reference to Joseph is by no means the earliest Biblical reference to the concept of ‘money’ – Abraham’s wealth was reckoned in cattle…. and in silver and gold. While it would be difficult to spend cattle, the relative value for that time is clear – cattle were labor-extending beasts of burden and a ready supply of foodstuffs. While silver and gold had ornamental value, it wouldn’t seem fitting to use them as a reckoner of wealth without some understanding of the profound nature of the rare metals as a recognized and liquid store of value.
All Ya All. Buy a house already and help stimulate the economy so my stocks will go up.
And if you already have a mortgage then for god’s sake (and mine) pay it on time.
There would have been no financial crisis if everyone had simply paid their mortgages as they agreed to.
It was dead beats that directly caused the trouble, not banks.
I’m very confused. I listened to Ben Bernanke and understood him to say that rates would not be raised any time soon. This sounds inflationary to me.
And yet I note that both the 1-year and 3-year bond went up in price after his testimony. What gives?
I’m a believer in the the statement that it isn’t that facts that count but HOW the market reacts to facts that matter.
Could the bond market possibly be signaling deflation?
I meant 10-year and 30-year bond. Sorry for the typo.
You present an interesting angle in regards to new money and its consequences. Your blog is great. Thank you for the article Bill.