How will the recent correction affect the Fed’s dark money policies?
The consensus explanation for the correction was that inflation was rising and that would precipitate faster rate increases. The Feb. 2 unemployment report gave the impression that higher worker wages could lead to a higher inflationary trend.
I don’t buy this at all. I believe these fears of inflation are overblown.
As my colleague Jim Rickards has explained, the Feb. 2 report revealed that total weekly wages were actually declining and that labor force participation was unchanged. And the year-over-year gain in wages only seemed impressive compared with the extremely weak wage growth of recent years.
After accounting for existing inflation, Jim argued, the real gain was only 0.9%. That’s weak relative to the 3% or even 4% real wage gains typically associated with economic expansions since the end of World War II.
In short, Jim concludes, “the story about the “hot” economy with inflation right around the corner does not hold water.”
I agree.
Meanwhile, the latest report on U.S Gross Domestic Product (GDP) for the fourth quarter of 2017 was nothing to write home about. At 2.6% annual growth, it was 0.3% lower than expectations. That’s not the sign of an overheating economy. But those in the financial media considered it positive because it showed 2.80% growth in real personal consumption.
But if you look beneath the surface, what you’d see is that consumers aren’t actually doing well across three core areas that “govern the ability of individuals to spend.”
While the Fed would have you believe that real GDP rose by $421 billion over the past four quarters, the truth behind the numbers paint a very different picture. As analyst Michael Lebowitz notes, “If we adjust consumption to more normal levels of spending and credit usage, the increase in GDP is a mere 0.71%, hardly robust.”
First, there’s income and wages. On that score, fourth quarter real disposable income only “grew at a 1.80% year over year rate.” The report found that “80% of workers continue to see flat to declining growth in their wages.”
And last month the U.S savings rate fell to near its lowest recorded levels in the past 70 years. The only time it hovered so low was just before the recent financial crisis.
Second, there’s credit card debt. Over the last four quarters it has increased by about 6% annually. That’s three times faster than its rate during the years following the financial crisis, and double the increase of income. What this means for those on Main Street is that they are keeping up with expenses by sinking into greater debt.
What this also means is that the Fed’s massive injections of dark money since the financial crisis have not helped real people in the real economy. They’ve simply inflated a massive stock market bubble.
Unfortunately, that reality is not going to stop them from perpetuating dark money policies. Despite the Fed’s “tough love” language, they don’t want markets diving. They are all too aware that media hyped, government constructed “growth” isn’t real.
Before the stock market woes, there was widespread speculation the Fed would raise rates four times in 2018.
Of course, once the correction happened, some at the Fed sprang to action to assure markets that the Fed was sticking to its game plan.
- Source, Nomi Prins, Read the Full Article Here