Let's Be Honest: The Economy Is NOT Doing Well

[Muda69]

https://mises.org/mises-wire/lets-be-honest-economy-not-doing-well

 

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The American economy is not all right. But to see why, you need to look beyond the dramatic numbers we keep seeing in the headlines and establishment talking points.

Take, for instance, the latest jobs report. For the third month in a row, the American economy added significantly more jobs than most economists had been expecting—a total of 303,000 for March. On its face, that’s a good number.

But as Ryan McMaken laid out over the weekend, things don’t look as strong when you dig into the data. For instance, virtually all the jobs added are part-time jobs. Full-time jobs have actually been disappearing since December of last year. In fact, as McMaken highlighted, “The year-over-year measure of full-time jobs has fallen into recession territory.”

Also, most of these new part-time jobs are going to immigrants, many of whom are in the country illegally. There has been zero job creation for native-born Americans since mid-2018. While immigrants are not harming the economy by working, the scale of new foreign-born workers has papered over the employment struggles of the native-born population.

Further, government jobs accounted for almost a quarter of those added—way above the standard ten to twelve percent. Just like with government spending and economic growth, government hiring boosts the official jobs number while draining the actual, value-producing economy.

Some economists, like Daniel Lacalle, argue that the US economy is already experiencing a private-sector recession but that government spending and hiring are propping up the official data enough to hide it.

A recession is inevitable, thanks to the last decade of interest rate manipulation by the Federal Reserve—and especially to its dramatic actions during the pandemic. The recession-like conditions in full-time jobs is further evidence that Lacalle is right.

But jobs numbers are only part of the story. The stock market has been fluctuating a lot recently, not because of changing consumer needs or the adoption of some new technology, but based on what Federal Reserve officials are saying about what the central bank will do this year.

At the same time, prices are still high. And they continue to rise at a rate that frustrates even some of President Joe Biden’s biggest economic cheerleaders. Our dollars are worth about 20 percent less than they were four years ago, with no prospect of that trend reversing. That hurts.

But instead of addressing this economic pain, much less their role in creating it, members of the political class are still pretending everything is great. They’re even gearing up to make things worse by, for example, sending even more of our money to the Ukrainian government. All to prolong a war it’s losing, not because of a lack of money, but because of a lack of soldiers.

And at home, President Biden is scrambling to put the brakes on energy production and to transfer money from the working class to his base of college graduates, all before he’s up for reelection in November.

Predictably and appropriately, the establishment’s head-in-the-sand economic strategy is coinciding with a notable decrease in support for the Democrats—the establishment’s preferred party these days. President Biden is behind in the polls in six of the seven swing states and is losing support from working-class and nonwhite voters.

The political establishment and its preferred candidates deserve to lose support, not only for failing to acknowledge America’s economic problems but for causing them in the first place.

Agreed.  All of this printing of money in the face of COVID and just continued unabated.  And the results are becoming clear:  a huge recession is starting.    But gold.  And seeds. Your ability to service may depend on it.

 

[Muda69]

Why the US Debt Is Unsustainable and Is Destroying the Middle Class:  https://mises.org/mises-wire/why-us-debt-unsustainable-and-destroying-middle-class

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In a recent tweet, a talented financial analyst and investor stated: “The “debt is unsustainable” narrative has been around for 40 years plus. What’s astonishing to me is how the people who push this narrative never ask themselves, “Why has it been sustainable for so long?”.

There is a widespread idea that the fiscal imbalances of a world reserve currency issuer would end in an Argentina-style bankruptcy. However, the manifestation of unsustainability did not even appear as drastic in Argentina itself. Hey, Argentina continues to exist, doesn’t it?

Excessive public debt is unsustainable when it becomes a burden on productive growth and leads the economy to constantly rising taxes, weaker productivity growth, and weaker real wage growth. However, the level of unsustainable accumulation of debt may continue to rise because the state itself imposes public debt on banks’ balance sheets and the state forces the financial sector to take all its debt as the “lowest risk asset.” However, law and regulation have merely imposed and forced this construct. Rising debt bloats the government’s size in the economy and erodes its growth and productivity potential.

Many diabetic and obese people continue to eat too much unhealthy food, thinking nothing has happened so far. That does not mean their eating habits are sustainable.

Those who ignore the accumulation of public debt tend to do so under the idea that nothing has happened yet. This is a reckless way of looking at the economy, a sort of “we have not killed ourselves yet; let us accelerate” mentality.

An ever-weaker private sector, weak real wages, declining productivity growth, and the currency’s diminishing purchasing power all indicate the unsustainability of debt levels. It becomes increasingly difficult for families and small businesses to make ends meet and pay for essential goods and services, while those who already have access to debt and the public sector smile in contentment. Why? Because the accumulation of public debt is printing money artificially.

When money is created in the private sector through the financial system, there is a process of wealth creation and productive money creation. The financial system creates money for projects that yield a genuine economic return. Some fail, others soar. That is the process of productive economic growth and progress. Only when the central bank manipulates interest rates, disguises the cost of risk, and increases the money supply to monetize unproductive deficit spending can it distort this process.

When the central bank wants to disguise the worsening solvency of fiscally imprudent governments, it does so by tampering with interest rates—making fiscally irresponsible governments’ borrowing cheaper—and artificially increasing the amount of currency in the system, monetizing public debt—a destructive process of money creation as opposed to the saving-investment function of banking.

When the fiscal position is unsustainable, the only way for the state to force the acceptance of its debt—newly created currency—is through coercion and repression.

A state’s debt is only an asset when the private sector values its solvency and uses it as a reserve. When the state imposes its insolvency on the economy, its bankruptcy manifests in the destruction of the purchasing power of the currency through inflation and the weakening of real wage purchasing capacity.

The state basically conducts a process of slow default on the economy through rising taxes and weakening the purchasing power of the currency, which leads to weaker growth and erosion of the middle class, the captive hostages of the currency issuer.

Of course, as the currency issuer, the state never acknowledges its imbalances and always blames inflation and weak growth on the private sector, exporters, other nations, and markets. Independent institutions must impose fiscal prudence to prevent a state from destroying the real economy. The state, through the monopoly of currency issuance and the imposition of law and regulation, will always pass on its imbalances to consumers and businesses, thinking it is for their own good.

The government deficit is not creating savings for the private economy. Savings in the real economy accept public debt as an asset when they perceive the currency issuer’s solvency to be reliable. When the government imposes it and disregards the functioning of the productive economy, positioning itself as the source of wealth, it undermines the very foundation it purports to protect: the standard of living for the average citizen.

Governments do not create reserves; their debt becomes a reserve only when the productive private sector economy within their political boundaries thrives and the public finances remain under control. The state does show its insolvency, like any issuer, in the price of the I.O.U. it distributes, i.e., in the purchasing power of the currency. Public debt is artificial currency creation because the state does not create anything; it only administers the money it collects from the same productive private sector it is choking via taxes and inflation.

The United States debt started to become unsustainable when the Federal Reserve stopped defending the currency and paying attention to monetary aggregates to implement policies designed to disguise the rising cost of indebtedness from unbridled deficit spending.

Artificial currency creation is never neutral. It disproportionately benefits the first recipient of new currency, the government, and massively hurts the last recipients, real wages and deposit savings. It is a massive transfer of wealth from the productive economy and savers to the bureaucratic administration.

More units of public debt mean weaker productive growth, higher taxes, and more inflation in the future. All three are manifestations of a slow burn default.

So, if the state can impose its fiscal imbalances on us, how do we know if the debt it issues is unsustainable? First, because of the units of GDP created, adding new units of public debt diminishes rapidly. Second, the erosion of the currency’s purchasing power persists and accelerates. Third, because productive investment and capital expenditure decline, employment may remain acceptable in the headlines, but real wages, productivity, and the ability of workers to make ends meet deteriorate rapidly.

Today’s narrative tries to tell us that nothing has happened when a lot has. The destruction of the middle class and the deterioration of the small and medium enterprise fabric in favor of a rising bureaucratic administration that consumes higher taxes but still generates more debt and deficits It does end badly. And all empires end the same way, with the assumption that nothing will happen. The currency’s acceptance as a reserve does come to an end. The persistent erosion of purchasing power and declining confidence in the legally imposed “lowest risk asset” are some of the red flags some are willing to ignore, maybe because they live off other people’s taxes or because they benefit from the destruction of the currency through asset inflation. Either way, it is profoundly anti-social and destructive, even if it is a slow detonation.

The fact that there are informed and intelligent investors who willingly ignore the red flags of weakening the middle class, declining purchasing power of the currency and deteriorating solvency and productivity shows why it is so dangerous to allow governments to maintain fiscal imprudence. The reason why government money creation is so dangerous is because the government is always happy to increase its power over citizens and blame them for the problems its policies create, presenting itself as the solution.

Can debt continue to rise? Of course. The gradual process of impoverishment and serfdom is relatively comfortable when the state can impose the use of the currency and force its debt into your pension by law and regulation. To think that it will last forever, and nothing will happen is not just reckless “accelerate, we have not crashed yet” mentality. It is ignoring the reality of money. Independent money, gold, and similar, solve this.

This is the future the boomers are leaving for our children and grandchildren.  A future of serfdom and debt to the state.

 

Edited April 22 by Muda69

[temptation]

But, but, but look at all of the jobs that have been created under this administration...

[Muda69]

20 hours ago, temptation said:

But, but, but look at all of the jobs that have been created under this administration...

You mean all the part time jobs?

[temptation]

6 hours ago, Muda69 said:

You mean all the part time jobs?

No, I mean the inflated numbers that are being presented of which many are simply jobs that were lost during the pandemic.

 

Edited April 23 by temptation

[Robert]

On 4/22/2024 at 9:49 AM, Muda69 said:

Why the US Debt Is Unsustainable and Is Destroying the Middle Class:  https://mises.org/mises-wire/why-us-debt-unsustainable-and-destroying-middle-class

This is the future the boomers are leaving for our children and grandchildren.  A future of serfdom and debt to the state.

 

Rich guys have done this, not the boomers.  I think I'll need to take an economics course at a conservative Christian university and at a public school and see how they differ.

 

Edited Thursday at 02:34 PM by Robert

[Muda69]

30 minutes ago, Robert said:

Rich guys have done this, not the boomers.  

The Boomers are the ones voting these big-government, uncontrolled-spending, politicians into office.  

32 minutes ago, Robert said:

 I think I'll need to take an economics course at a conservative Christian university and at a public school and see how they differ.

 

I hear Hillsdale College in Michigan has an Economics department. 

 

[swordfish]

Doesn't everybody remember when they (the Biden administration and the Fed) said higher prices were temporary?  

Econ 101 - the only way for prices to come back down is called DEFLATION.  That is NOT going to happen.  The inflation rate may be back at the 3% level now, but THAT IS STILL INFLATION - WAKE UP - Prices are not coming DOWN, they're just going UP SLOWER.

They're still going to call this a win when inflation settles at about 2.5 - 3% sustained, down from the 9 - 10% that built up from 2021 all the way through 2022, but these high prices are here to stay.  Inflation is still inflation.....I was alive in the late 70's and early 80's when my father was starting his business, prices never went down then and they won't now.

"Inflation is proving to be stickier than usual" says Yellen.....Who knows very well, inflation doesn't ever leave for any length of time.  

https://thehill.com/business/4529787-yellen-regrets-saying-inflation-transitory/

Treasury Secretary Janet Yellen said she regrets describing inflation in 2021 as “transitory,” the term several Federal Reserve and Biden administration officials used to describe the pandemic-induced price surges they initially thought would be temporary.

“I regret saying it was transitory. It has come down. But I think transitory means a few weeks or months to most people,” Yellen said during an interview with FOX Business Network’s Edward Lawrence on Monday.

Treasury spokesman Christopher Hayden said in an email to The Hill that this was not the first time Yellen expressed regret for calling inflation “transitory,” which she previously said during an interview with WBUR in January.

Headline inflation fell to 3.2 percent year-over-year in February from its 9.1 percent peak in June 2022, a significant improvement but still higher than the Fed’s mandate to keep price increases to 2 percent annually.

Fed Chair Jerome Powell, who was also dinged for initially calling inflation transitory, and the central bank have hiked interest rates from near-zero in March 2022 to a range of 5.25 percent to 5.5 percent to try to curb inflation by cooling demand. 

While many economists feared the rate hikes could push the economy into a recession a year ago, it now looks like the U.S. economy could be coming in for a rare “soft landing,” the term for slowing down the economy just enough to bring down high prices without triggering a recession.

The runway for the soft landing may be a bit bumpy as inflation is proving to be stickier than usual, but Yellen, a former Fed chair, was optimistic about the overall downward trend in price pressures.

“I wouldn’t expect this to be a smooth path month to month, but the trend is clearly favorable,” Yellen said.

 

[Muda69]

1 hour ago, swordfish said:

Doesn't everybody remember when they (the Biden administration and the Fed) said higher prices were temporary?  

Econ 101 - the only way for prices to come back down is called DEFLATION.  That is NOT going to happen.  The inflation rate may be back at the 3% level now, but THAT IS STILL INFLATION - WAKE UP - Prices are not coming DOWN, they're just going UP SLOWER.

They're still going to call this a win when inflation settles at about 2.5 - 3% sustained, down from the 9 - 10% that built up from 2021 all the way through 2022, but these high prices are here to stay.  Inflation is still inflation.....I was alive in the late 70's and early 80's when my father was starting his business, prices never went down then and they won't now.

 

 

What did they expect the result of pumping trillions of new printed dollars into the economy would be?  Econ 101, it tends to make the value of all currency less, reducing spending power and raising prices.

Also:  https://reason.com/2024/03/21/emergency-spending-is-out-of-control/

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Emergencies are, by definition, unexpected and urgent situations requiring immediate action—except in Congress, where the term is increasingly used to justify spending decisions that should be part of the normal budget process.

Congress has authorized more than $12 trillion in emergency spending over the past three decades, according to a report released in January by the Cato Institute. About half of that total was spent in direct response to the Great Recession and the COVID-19 pandemic, but much of the other half was used for purposes that strain the definition of emergency.

Because emergency spending bypasses some of the scrutiny applied to the normal budgetary process, it has become a convenient way for lawmakers and presidents to hike spending—and add to the national debt. In 2023 alone, Congress and President Joe Biden proposed using emergency spending for many obviously nonemergency situations—including the items listed below.

• $600 million to replace existing airplanes, intended to be operational through 2030 to begin with, used for weather forecasting
• $500 million to cover higher-than-expected fuel costs for military vehicles
• $347 million for prison construction and related costs
• $278 million to accelerate ongoing construction of a new research center at the Oak Ridge National Laboratory
• $100 million for grants to local law enforcement to protect the 2024 presidential nominating conventions

"We must not let fiscally irresponsible legislators hoodwink their colleagues and the public into accepting spending increases by slapping the 'emergency' label on them and calling it a day." —Romina Boccia, director of budget and entitlement policy, Cato Institute

 

[Robert]

37 minutes ago, Muda69 said:

What did they expect the result of pumping trillions of new printed dollars into the economy would be?  Econ 101, it tends to make the value of all currency less, reducing spending power and raising prices.

Also:  https://reason.com/2024/03/21/emergency-spending-is-out-of-control/

 

So, what is the answer? Argentina?

Edited Thursday at 05:49 PM by Robert

[Muda69]

25 minutes ago, Robert said:

So, what is the answer? Argentina?

Massive cuts in federal spending, in every agency/department/bureau/etc.  across the board.  I recently read that of every dollar the federal government spends, something like 32 cents of it is borrowed money.    So a 32% cut in federal spending sounds about right.  

 

[swordfish]

ONE WORD - (Two words) Term Limits

[Muda69]

3 minutes ago, swordfish said:

ONE WORD - (Two words) Term Limits

That would also help.