02/02/10 Baltimore, Maryland – What a marvelous recovery! But there are so many unresolved mysteries! GDP growth over 5%…but, mysteriously, no jobs…and no rally in the housing market.
And now, to compound the mystery, Mr. Obama has come forward with a $3.8 trillion budget.
The markets like it. Stocks rose 118 points on the Dow yesterday. Gold went up $21. Investors see more hot money on its way…a Vesuvius of it…
The amount of the budget itself is staggering. That’s a lot of money. But even more staggering is the glaring omission: the Obama administration is planning to spend $1.6 trillion it doesn’t have. And that’s on top of the $1.35 trillion it didn’t have, but nevertheless spent, last year. Where is all this money coming from? Another mystery…
Let’s see…put those two deficits together and you’ve got a budget hole as big as the Milky Way… Nearly $3 trillion, or more than 20% of GDP.
Another thing that is mysterious about this galaxy of debt is that it comes just as the economy is supposed to be recovering. If you thought the economy were recovering, why would you risk such a huge, record-shattering deficit?
Nothing quite adds up. The GDP is expanding at a healthy pace – according to the numbers handed out by the feds. But people have few jobs and little income.
“Wage and benefit growth hits historic low,” reports The Wall Street Journal.
Employers aren’t employing. Workers aren’t working. And houses are no longer throwing off cash. That leaves more and more people with empty pockets.
Apparently, not even the feds themselves believe the economy is really out of the ditch. We are already rolling along on the recovery road – supposedly. Still, the feds send out the most expensive tow truck in history!
And now The Financial Times draws the obvious conclusion:
“US Deflation No Longer Seen as a Risk.”
You wanna bet?
The world’s number one economy is running huge deficits. But the world’s number two economy is running even bigger ones. Not much bigger…but slightly bigger.
In Japan, deficits are a bit larger than tax receipts. In America, they are a bit smaller. In both cases they are enormous…and growing.
For all its colossal deficits, Japan has not bought its way out of depression…or out of deflation either. Au contraire, the more it spends fighting deflation the further prices fall.
How could this be? Another mystery. How could government be so inept as to shoot itself in the foot whenever it pulls a trigger? How could it be so near-sighted as to aim for one thing and hit the thing it was meant to protect? How could it be so lame-brained as to do exactly the wrong thing at exactly the wrong time?
We can’t answer those questions…at least, not this minute.
So, let’s turn to the evidence. There it is in yesterday’s news report from Bloomberg:
“Consumer prices in Japan in record fall.”
And there you have another mystery, don’t you? Japan inflates the money supply with its zero rates over more than a decade…and its Godzilla budget deficits. And what happens? Its economy sinks and its consumer prices go down!
And so here comes the US of A following the Japanese lead…in the sincerest form of flattery…
Will it not get the same results?
We don’t know. But we wouldn’t be surprised.
We have a lot more to say about this…
…about how the economic theories behind these moves are corrupt, linear and superficial (if not downright stupid)…
…and about how the real driving force behind these deficits is politics, not economics. Economists are just useful idiots. The politicians are using them to grab more money and power for themselves and their friends…
…but let’s go directly to the denouement of this mystery story. Here’s what is really going on:
First, the GDP growth story is one part statistical noise, one part counterfeit, and one part damned lie. We’re in a depression. It will take years to resolve itself.
That’s why unemployment remains high…and why there will be no recovery in housing prices. They may go up. They may go down. They won’t ever get back to the bubble highs of 2006 – not in real terms. Not in our lifetimes.
Second, the mystery of the $1.8 trillion deficit – it too is a mixture of mendacity, audacity, and intellectual laxity. In short, the feds are spending so much money for one reason only: because they think they can get away with it.
Can they?
Of course not…not really. Here’s what is going to happen…
The reality of the non-recovery is going to catch up with this market. Stocks were down in January. Most likely, they’ll sink for the rest of the year too.
The economy will slide as the de-leveraging process continues. It won’t be straight down. But by fits and starts, the mistakes will be corrected…
…but that brings us back to this $3.8 trillion government budget. Its purpose, in large part, is to prevent the corrections from occurring. The feds will try to turn the US into Zombieland, just like the Japanese feds did. You’ll see massive federal spending taking up some of the slack from the private sector – but essentially wasting money on useless projects. And you’ll see major zombie corporations – GM…AIG…etc – propped up with taxpayer’s money.
Speaking of AIG, special agent Neil Barofsky is on the case. He’s ‘probing’ 25 cases of possible fraud involving TARP funds. The AIG bailout is one of them. The original price tag for saving Goldman’s speculative positions with AIG was $85 billion. The whole tab later came to $182 billion.
The flatfoot Barofsky wants to know where the money went. To tell you the truth, we’re curious too – although we doubt there will be any surprises.
But back on our beat…how the mysteries get resolved…
…we know why the economy is winding down…and we know why the feds are running such huge deficits…
…but big deficits aren’t pushing up prices in Tokyo; they’re having the opposite effect. They’re pushing them down. Does that mean US deficits will get the same results – the economy and prices lower instead of higher?
We don’t know…but our guess is that ‘yes’ is the right answer.
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Today the DJIA rose another 111! Boom times are here again.
Lower prices for essentials too? Hmmmmmmm. I have my doubts. Make that extreme doubts. For example, oil despite lower demand keeps going up.
Why is that?
I’ll tell you why. Scarcity driven by increasing costs to extract it in a free market system. The things we need to live better and to stay healthy, are harder to come by because they cost more to attain. Then the government steps in and tries to fill that gap too in an attempt to replace productive wages.
But by now even to the penultimate most jaded optimist it has become obvious we have not the jobs to pay for that ever increasing price tag.
So if non-essentials should go down then let them go down. What other real choices do we have here? Either starve or have more and better ‘things’. The world’s consumers will choose the latter because they simply have no other realistic choice but to pay for them at the cost of everything else. This is the crossroads we face. Guns or butter. What will we choose? We know what the government will choose and have been choosing and therein lies another root to the present problem. Too many guns and not enough butter being made to pay for those guns. A dog chasing its tail as it were and obtaining nothing else but vertigo.
The basic economic fundamental of the importance of getting priorities in balance has not changed even today.
RH
Still down 400 in two weeks.
AAPL down 19 in two weeks-in case Harry baby is watching.
Hey rick i have my doubts about oil prices being a free market system. When oil was 160 dollars a pop a few years back they said that it was because of demand, but really the banks were just looking for places to park their essentially free money because housing was tanking and they were done cutting people loans, so hence they put it in oil. Now demand really is down and oil is nowhere near where it should be, but its the same old story again, banks have tons of free money from the fed and they need to park it somewhere, and since consumers are down for the count, what better place than commidities?
Trent….
I agree. But what I meant here is that due to monetization oil prices will continue to climb due to continued debasement of the dollar through the printing press. Of course this is hardly the free market at work there. Also, it still costs ‘x’ amount to extract that oil regardless of what economically is going on around it.
Oil had that spike back then due to exuberant speculation forces at work. But they couldn’t hold up because free market forces (demand) wouldn’t support them. But yes again I agree with you that oil is less free market driven than most commodities due to cartel price fixing. But even cartels cannot increase demand as it were.
Bottomline: productive demand increases for the long run when free market forces are allowed to operate without interference from artficial governmental devices and other manipulative schemes. The banks can play speculative games with oil and other commodities all they want. They will have their short term pyrrhic victories but don’t confuse those with long term trends driven by irrefutable free market forces – principally that which consists of real demand. There is nothing that can replace the free market for the long term. It is the only way that works without ultimately killing the host.
RH
Been adding AAPL as you should too. This is hysterical to watch you clowns get suckered into a sour doomsday scenario…again. Every single economic indicator is not only pointing toward growth, but strong growth.
These are times to celebrate, not to whine like a bunch of old has beens. Which is exactly who our dear author has shown himself to be!
You people are ridiculously simple minded and naive.
Yeah! Back up the truck and get rich. As GM goes, so goes the nation… err… sorry…. now it’s, As Apple goes, so goes the nation!
Glad I got Apple at 15. What a bargain it was in the 90s.
Just think… a GM could get you to work for many years, but with a Mac you can TELECOMMUTE to work in fruity style! Apple is the new GM…. if you still have a job, of course. If not, then you have a beautiful paperweight, but at least you don’t need collision insurance on your iPad. (or maybe you do).
You people just won’t get rich in equities because you keep missing the bottom. Time to get rich!
Or maybe you won’t get rich in equities b/c the markets are rigged for short-sellers and you will never outsmart the cons at Gubbament Sachs who use high-speed computers/internet connection to front run, place and cancel orders to find our your bid/sell prices, and then take advantage of you. No, over time no one can do well in those circumstances. The market is a mechanism to separate you from your money.
So alas, I did not hold on to my Apple to its current high. I got some splits and got out at 45 if I recall. Then I took my funds and got an education and bought precious metals. I also could sleep well over the past decade.
Good luck with those equities.
How do you like dem apples?
hey harry lets do alittle morning mind exercise: 1970 high school graduate working in a steel mill making 50K+ and getting a fine health plan, 2009 high school graduate making 8 dollars an hour at walmart with hardly any health plan! Now that’s what i call progress, not to mention when inflation is factored in (and i mean real inflation http://www.shadowstats.com) its more like 5 dollars an hour. So yes go buy an ipod that some poor guy in china sold to Steve Jobs for 15 bucks and you can give him his disgusting profit margin and a stock that is still over valued, i remember when apple was on the verge of bankruptcy and bill gates was looking to buy, the pendulum will swing back
The markets are rigged for everybody, though China is about to change that.
In the long run, that is.
Bill,
entire noise of recovery, “economists” show & tell, media celebrations of about to happen overheating growth… all these are desperate steps supported by Gov. to prevent and spread panic on the street
I don’t believe most economists are just idiots, perhaps there is not enough courage?
lol. Harry is on the nerves. Cheer up Harry. Remember Dow 20000 by the end of the year, right. Wish you well until then.
Never in my life have I been more confused by other’s regarding the economy of America. Everyone appears on TV shouts about the end of the depression, however, reading the other’s than all the American economists, Benanke and the rest are stupid fools doing a clowns job. Can it really be true or are we just as stupid as the rest, just seeing it from the other side and trying to create more confusion than having answers. What will happen in this new era cannot be as dark and “sinfull” as what I read above. May be if you guys are correct, the only 2 options will be – Gold as a replacement for Fiat currencies and war to get everyone back to the reality of making a living.