ITS ALL AN ILLUSION
PLUMMETING PRODUCTIVITY EXPOSES THE MYTH!
THE RECOVERY IS AN ILLUSION
The truth the media refuses to admit is that the post financial crisis economic recovery is a statistical illusion!
We buy it because our traditional "measures" like the stock and bond markets are suggesting this is the case. In actuality they are telling us the absolute opposite. The games that have been played to keep asset prices elevated have fooled us. Maybe we just wanted to be fooled? But as you will see in a moment there are 10's of millions of Americans who are not fooled as they face the realities of daily life. This is most evident in the political movements that have supported such unlikely Presidential candidates such as Bernie Sanders and Donald Trump.
CHANGING THE RULES TO MAKE THINGS APPEAR TO WORK!
THE ILLUSION OF GROWTH
What we need to fully grasp is that the chief trend around us is an ongoing permanent worldwide economic slowing and when properly analysed with valid statistics is in fact a contraction.
The absence of this “growth,” is defined by the employment and productivity statistics which I will also discuss in a moment.
The charts I am showing here, as I talk are in fact much worse than they appear - as bad as they are!
As is usually the case with troubled, over extended and corrupted societies, governing officials have begun to resort to magic to prop up failing economic policies.
This is why the Federal Reserve, once an obscure institution deep in the background of normal life, has become front and center, holding the rest of us literally spellbound with its incantations against the intractable ravages of debt deflation.
The rackets and swindles unleashed in our futile quest to keep up appearances have disabled the financial operating system that the ruling regime depends on. It’s all an illusion sustained by accounting fraud to conceal promises that won’t be kept.
All the mighty efforts of central bank authorities to borrow “wealth” from the future in the form of “money” — to “paper over” the absence of growth — will not conceal the impossibility of paying that borrowed money back. The future’s revenge for these empty promises will be the disclosure that the supposed wealth is not really there — especially as represented in currencies, stock shares, bonds, and other ephemeral “instruments” designed to be storage vehicles for wealth.
Global debt is over $200T. At even a 2% annual yield that is a bleed of $4T on the global economy. The global economy is reputed to be approximately $72T with a growth rate below 2%. That is $1.4T in growth annually to pay the $4T. Seeing the problem?
However this is yet only another symptom. Lets work ourselves towards the cause.'
SOME BASIC STATISTICS
The percentage of Americans who say they are in the middle or upper-middle class has fallen 10 percentage points, from a 61% average between 2000 and 2008 to 51% today.
Ten percent of 250 million adults in the U.S. is 25 million people whose economic lives have crashed.
What the media is missing is that these 25 million people are invisible in the widely reported 4.9% official U.S. unemployment rate.
Let's say someone has a good middle-class job that pays $65,000 a year. That job goes away in a changing, disrupted world, and his new full-time job pays $14 per hour -- or about $28,000 per year. That devastated American remains counted as "full-time employed" because he still has full-time work -- although with drastically reduced pay and benefits. He has fallen out of the middle class and is invisible in current reporting.
More disastrous is the emotional toll on the person -- the sudden loss of household income can cause a crash of self-esteem and dignity, leading to an environment of desperation that we haven't seen since the Great Depression.
Millions of Americans, even if they themselves are gainfully employed in good jobs, are just one degree away from someone who is experiencing either unemployment, underemployment or falling wages. We know them all.
UNDERSTANDING THE GDP ILLUSION
The GDP number that is continuously touted to represent economic growth is absurd. It is a distorted formula that no longer makes sense.
Let me try and explain.
GDP Formula (end of 2014)
Nominal GDP was $18.4T at the end of Q2 2016. This compared to $15.5T five years previously at the end of Q2 2011. This is a $2.9T increase while entitlements or government transfer payments now total over $2.5T.
The "G" has become very large and is dominated by "Transfer Payments". These "Transfer Payments" are then added to the "C" as entitlement and welfare recipients spend for consumption. Its called double accounting or "double dipping". But who cares if it gives the impression that GDP has 1% growth
FURTHER RESEARCH YOU SHOULD CONSIDER READING:
Failed Transmission - Evidence on the Futility of Activist Fed Policy John P. Hussman, Ph.D.
The Matrix Exposed - Zero Hedge - TRADE AGREEMENTS A MAJOR CATALYST
PRODUCTIVITY EXPOSES THE MYTH
In a healthy capitalist environment we have this flow:
Savings > Productive Assets > Productivity > Rising Standard of Living
Unfortunately as I have written about previously, this is not what is presently occurring.
The key here is actually productivity. We actually have savings when we consider corporate profits being at record levels. It is about how this profit is being used.
Productivity has been steadily falling in most developed economies for some time now
When you understand that the GDP Growth Potential is the addition of the change in productivity plus the change in the labor force you begin to see the compounding problem facing the developed economies.
... and it is getting worse at an accelerating rate.
Though the previous charts were all longer term views on productivity we have witnessed an acceleration with the last three quarters all falling. The 3rd quarterly decline - the first instance since 1979...And the last 3 quarters are the biggest plunge in productivity since 1993 (thanks to a doubling of unit labor costs from expectations of +2.1% to +4.3%).
We are now seeing the results of the failed use by corporations to effectively increase productivity by the use of their profits and the dramatic increase in their debt loads. It has become a game of financial engineering versus productive use of capital.
This has led us to the point where in fact the central bankers are no being forced to prop up the financial markets because any draw down would be devastating. We effectively created a giant Ponzi scheme either intentionally through greed, or unwittingly due to lack of regulatory vigilance and governing neglect.
As I said initially, if the world and US specifically has actually been experiencing an economic recovery for the last seven years, why would 14% to 15% of all Americans be dependent on food stamps to survive? When the economy is actually growing and employment is really below 5%, the percentage of Americans on food stamps is below 8%. If the government economic data was truthful, there would not be 43.5 million people living in 21.4 households (17% of all households) dependent on food stamps.
More than 100 million Americans are now dependent on some form of federal welfare (not including Social Security or Medicare). If the economy came out of recession in the second half of 2009, why would 6 million more Americans need to go on welfare over the next two years?
My Macro Analytics guest Michael Snyder writes in a paper From An Industrial Economy To A Paper Economy - The Stunning Decline Of Manufacturing In America:
"In order to have a sustainable economy, you have got to have people creating and producing things of value. A debt-based paper economy may seem to work for a while, but eventually the whole thing inevitably comes crashing down when faith in the paper is lost.
The total number of government employees in the United States exceeds the total number of manufacturing employees by almost 10 million…
Government employees in the United States outnumber manufacturing employees by 9,932,000, according to data released today by the Bureau of Labor Statistics.
Federal, state and local government employed 22,213,000 people in August, while the manufacturing sector employed 12,281,000.
The BLS has published seasonally-adjusted month-by-month employment data for both government and manufacturing going back to 1939. For half a century—from January 1939 through July 1989—manufacturing employment always exceeded government employment in the United States, according to these numbers.
You might be thinking that government jobs are “good jobs”, but the truth is that they don’t produce wealth.
Government employees are really good at pushing paper around and telling other people what to do, but in most instances they don’t actually make anything.
Back in 1960, 24 percent of all American workers worked in manufacturing. Today, that number has shriveled all the way down to just 8 percent. CNN is calling it “the Great Shift”…
In 1960, about one in four American workers had a job in manufacturing. Today fewer than one in 10 are employed in the sector, according to government data.
Call it the Great Shift. Workers transitioned from the fields to the factories. Now they are moving from factories to service counters and health care centers. The fastest growing jobs in America now are nurses, personal care aides, cooks, waiters, retail salespersons and operations managers.
No wonder the middle class is shrinking so rapidly. There aren’t too many cooks, waiters or retail salespersons that can ANY LONGER support a middle class family.
Since the turn of the century, we have lost more than 50,000 manufacturing facilities. Meanwhile, tens of thousands of gleaming new factories have been erected in places like China, India, Mexico etc.
- Consuming More than We Produce versus Producing More than We Consume,
- We are Getting Less for More versus Getting More for Less,
- We have Skewed Innovation - Targeted Primarily at Cost Savings versus New Industries,
- We have a Lack of Corporate Risk Taking - Professional Managers versus Visionaries Franchises versus Small Business
- Chains versus "Ma & Pa" Small Business,
- The Steve Jobs (Genius) versus Warren Buffett (VaR)
There are three serious metrics that need to be turned around or we'll lose the whole US middle class.
- According to the U.S. Bureau of Labor Statistics, the percentage of the total U.S. adult population that has a full-time job has been hovering around 48% since 2010 -- this is the lowest full-time employment level since 1983.
- The number of publicly listed companies trading on U.S. exchanges has been cut almost in half in the past 20 years -- from about 7,300 to 3,700. Because firms can't grow organically -- that is, build more business from new and existing customers -- they give up and pay high prices to acquire their competitors, thus drastically shrinking the number of U.S. public companies. This seriously contributes to the massive loss of U.S. middle-class jobs.
- New business startups are at historical lows. Americans have stopped starting businesses. And the businesses that do start are growing at historically slow rates.
Free enterprise is in free fall -- but it is fixable. Small business can save America and restore the middle class.
Gallup finds that small businesses -- startups plus "shootups," those that grow big -- are the engine of new economic energy. According to the U.S. Small Business Administration, 65% of all new jobs are created by small businesses, not large ones.
Here's the crisis: The deaths of small businesses recently outnumbered the births of small businesses. The U.S. Census Bureau reports that the total number of business startups and business closures per year crossed for the first time in 2008. In the nearly 30 years before that, the U.S. consistently averaged a surplus of almost 120,000 more business births than deaths each year. But from 2008 to 2011, an average of 420,000 businesses were born annually, while an average of 450,000 per year were dying.
Bob Bryan via Business Insider explains the primary problem:
“Both the formation of firms and establishments, have dropped off precipitously since the financial crisis and remained low.
This is important because new businesses typically hire faster and produce higher levels of productivity than firms that have been around for a while. Thus the decline in business formation can explain some of the labor market’s post-recession problems, and is at least part of the reason for the steep drop in productivity.”
THE ANSWER TO OUR QUESTION
So, what are the central bankers so afraid of?
I surmise they see that the global economic system is going to collapse under its own weight and there is nothing they can do about it except to try desperately to "kick the can down the road" by continuing with policies grounded in "extend and pretend"! Our political leaders have failed us which is quite clear if you have had the stomach to follow the 2016 US Presidential race.