About That “Recovery Summer”: Its Deja Vu All Over Again

Baseball great Yogi Berra had a saying “It’s déjà vu all over again”. Every year around this time, we are reminded of those words.  As we have once again, happened upon that magical time of year I call, recovery summer déjà vu. It’s the time of year when Wall Street and Washington apologists trot out their dog and pony narrative, in an attempt to spin the actual data, proving we have finally embarked on the summer that will launch sustainable economic growth.

And this year is no exception, as those same people appear to be downright giddy about the prospect that we finally have something to feel optimistic about.  For instance, they are euphoric about the most recent jobs report, some suggesting that there is absolutely nothing to find fault with.  Of course, they fail to mention anemic wage growth, the lower quality and part-time jobs created; or the discouraged workers who have left the work force.

Yes, they will admit that they were stunned when GDP contracted in the first quarter, but that was a mere weather-related incident.  It was the blizzard of Q1 2014 that left GDP buried under 2.9 percent of negative growth.  In truth, a more accurate reason for the economic slump was the move in the 10 year note from 2.48 percent on October 23rd, to 3.03 percent on December 31st of 2013.  And the move over 3 percent was the peak of the cyclical advance from the low of 1.63 percent on May 2nd. The doubling of interest rates, although still to a historically low level, was enough to send this debt-laden asset-bubble driven economy into the freezer. But why allow facts get in the way of a good weather story.  So once again we hear cheers for another summer recovery.

The truth is, since 2010 every second half recovery has disappointed and this one will be no exception.  The first quarter of 2014 gave us 2.9 percent negative growth.  I am in agreement with most economists that the 2nd quarter will come in somewhere around 3 percent, resulting in an economic flat line for the first half of 2014.  This puts enormous pressure on the second half of year to bring us out of stagnation that has led to the most anemic recovery since WW II.  Let’s review:

  • GDP shrank in both 2008 and 2009,
  • growth returned in 2010 by 2.5 percent,
  • in 2011 GDP fell back to 1.8 percent,
  • GDP then went up slightly in 2012 to 2.8 percent,
  • then down again in 2013 to 1.9 percent.

The inability to obtain growth above 3% in each year since the economy collapsed during 2008-2009 underscores this tremendous economic failure to bounce back after the Great Recession.

united-states-gdp-growth

So why do they think this year will be different?  After all, if you subscribe to the Keynesian fairytale of money printing and deficit spending, it was easy to see why they were excited back in the summer of 2010.  The economic spigots were over flowing with a treasure trove of demand stimulus and monetary elixirs.

In the summer of 2010 optimism was in the air… Time magazine’s 2009 man of the year Ben Bernanke was poised to save the day, ready to do whatever it took to get this economy growing again.  Today, despite lack luster growth, the Fed is retreating.  Essentially conceding—at least for now–printing money didn’t solve the problem; QE is set to wind down in just 90 days.

But for a Keynesian it gets worse.  Instead of an Obama phone, we have the roll-out of the job-killing Obama-care plan this year and next. In addition, profligate tax-payer subsidized loans that funded the likes of Solyndra, have been supplanted by a capital goods strike.   “Shovel ready” has been replaced with anemic real income growth and record debt levels.

Putting the Keynesian fantasy aside, the truth is there isn’t much ahead that will stimulate real growth.  The middle class, which was already saturated in debt, has not been the beneficiaries of the Federal Reserve’s money printing.  Instead, those dollars have been funneled into the creation of new asset bubbles and have led to an increase in food and energy prices—like it always has in the past.  Stagnant wages are being stretched further to pay for the necessities of living.  We still don’t have the regulation and tax reform that catapulted the Reagan revolution. Companies that have cash flow would rather make stock purchases to increase their Earnings per Share than invest in property, people, plant and equipment.  And, unless the economy is headed back into a severe recession, the economic boost from a lower cost of money will be absent.

The truth is there is not much at all on the economic horizon to warrant optimism. Yes, the cheerleaders are hoping if they yell loud enough, a recovery-summer will finally manifest.  Unfortunately, until free-market forces are finally allowed to deleverage the system, it will be a disappointing second half recovery–all over again.

By Michael Pento at Pento Portfolio Strategies

The Federal Reserve and Bubbles

Many market pundits argue that the Federal Reserve is too dumb or too inept to identify asset bubbles.

By focusing on the Fed’s mental acuity (or lack thereof), these pundits are overlooking a key factor: the Fed wants asset bubbles.

Why?

Asset bubbles, at least according to the Fed’s models, will paper over the steady decline in quality of life that began in the US roughly 50 years ago.

This fact is staring everyone in the face, though few people can see past the smoke and mirrors erected by our government to identify and understand it. . Back in the 1950s, the average American family had one working parent and was able to get by just fine. Today, most families have two working parents, sometimes working more than two jobs and they’re still not able to afford a prosperous life.

A 2012 study by NYU Professor Edward Wolff found that the median net worth of American households was at a 43-YEAR LOW. The average American in the 21st century was in worse shape than his 1970s counterpart.

This process began to accelerate in the late 1990s. Looking at real media household income, one can see clearly that things have generally been downhill for nearly 20 years now.

Real Household Income

It is not coincidence that the Fed began blowing serial bubbles starting in the late 1990s. The Fed is aware on some level that quality of life in the U.S. has fallen. The Fed’s answer, rather than focus on solutions to the problems of job growth, income growth, etc. has been (and is) to blow bubbles to paper over this decline.

This is why we’ve had bubble after bubble after bubble in the last 15 years. The Fed doesn’t have a clue how to create jobs or boost incomes. Why would it? Most of the Fed’s Presidents are academics with no real world business experience.

Instead, the Fed believes in the “wealth effect” or the theory that when housing prices or stock prices increase, people feel wealthier and so go out and spend more money. This theory is baloney. People spend based on their incomes, NOT the value of their homes or portfolios.

Assets only convert into cash once the owner sells the asset. Anyone who goes out and spends more money because their home went up in value will only end up with credit card debt or home equity debt, which combined with their mortgage, puts an even greater strain on their financial resources.

The Fed wants asset bubbles because they hide the rot within the US economy. If the Fed didn’t raise stock or housing prices, people might actually start to wonder… “hey, why is my life getting more and more difficult despite the fact that I’m working all the time?”

The Fed wants bubbles. So we’re doomed to keep experiencing them and the subsequent crashes.

Originally published by Phoenix Capital Research

The Never Ending Recession — Should I Trust the Government?

We know the BEA has deflated GDP by only 32 percent since 2000. We know the BLS reports the CPI has only risen by 37 percent since 2000. Should I trust the government or trust the facts and my own eyes? Americans know what it cost for food, energy, shelter, healthcare, transportation and entertainment in 2000, but they unquestioningly accept the falsified inflation figures produced by the government. The chart below is a fairly comprehensive list of items most people might need to live in this world. A critical thinking individual might wonder how the government can proclaim inflation of 32 percent to 37 percent over the last fourteen years, when the true cost of living has grown by 50 percent to 100 percent for most daily living expenses. The huge increases in:

  • property taxes,
  • sales taxes,
  • government fees,
  • and income taxes

aren’t even factored in the chart. It seems gold has smelled out the currency debasement.

Living Expense

You should not trust government statistics – any government statistic. They have systematically under-reported inflation. The reality that we remain stuck in a fourteen year recession is borne out by:

  • the continued decline in vehicle miles driven (at 1995 levels) due to declining commercial activity,
  • the millions of shuttered small businesses,
  • and the proliferation of Space Available signs in strip malls and office parks across the land.

The fact there are only 8 million more people employed today than were employed in 2000, despite the working age population growing by 35 million, might be a clue that we remain in recession. If that isn’t enough proof for you, than maybe a glimpse at real median household income, retail sales and housing will put the final nail in the coffin.

The government and their media mouthpieces expect the masses to believe they have advanced their standard of living, with median household income growing from $40,800 to $52,500 since 2000. But, even using the badly flawed CPI to adjust these figures into real terms reveals real median household income to be 7.3 percent below the level of 2000. Using a true inflation figure would cause a CNBC talking head to have an epileptic seizure.

household-income-monthly-median-since-2000

The picture is even bleaker when broken down into the age of households, with younger households suffering devastating real declines in household income since 2000. I guess all those retail clerk, cashier, waitress, waiter, food prep, and housekeeper jobs created over the last few years aren’t cutting the mustard. Maybe that explains the 30 million increase (175% increase) in food stamp recipients since 2000, encompassing 19 percent of all households in the U.S. The increase credit card, auto and student loan debt over the fourteen year period 2000 to 2014 is likely an attempt by households to maintain their standard of living via debt.

household-median-income-by-age-bracket-2012-table

When you get your head around this unprecedented decline in household income over the last fourteen years, along with the 50 percent to 100 percent rise in costs to live in the real world, as opposed to the theoretical world of the Federal Reserve and BLS, you will understand the long term decline in retail sales reflected in the following chart. When you adjust monthly retail sales for gasoline (an additional tax), inflation (understated), and population growth, you understand why retailers are closing thousands of stores and hurdling towards inevitable bankruptcy. Retail sales are 6.9 percent below the June 2005 peak and 4 percent below levels reached in 2000. And this is with millions of retail square feet added over this time frame. We know the dramatic surge from the 2009 lows was not prompted by an increase in household income. So how did the 11 percent proliferation of spending happen?

Retail-Sales-ex-gas-adjusted-for-population-and-inflation

The up swell in retail spending began to accelerate in late 2010. Considering credit card debt outstanding is at exactly where it was in October 2010, it seems consumers playing with their own money turned off the spigot of speculation. It has been non-revolving debt that has skyrocketed from $1.63 trillion in February 2010 to $2.26 trillion today. This unprecedented 39 percent rise in four years has been engineered by the government, using your tax dollars and the tax dollars of future generations. The Federal government has complete control of the student loan market and with their 85 percent ownership of Ally Financial, the largest auto financing company, a dominant position in the auto loan market. The peddling of $400 billion of subprime student loan debt and $200 billion of subprime auto loan debt has created the illusion of a retail recovery. The student loan debt has been utilized by University of Phoenix MBA wannabes  to buy iGadgets, the latest PS3 version of Grand Theft Auto and the latest glazed donut breakfast sandwich on the market. It’s nothing but another debt financed bubble that will end in tears for the American taxpayer, as hundreds of billions will be written off.

The fake retail recovery pales in comparison to the wolves of Wall Street produced housing recovery sham. They deserve an Academy Award for best fantasy production. The Federal Reserve fed Wall Street hedge fund purchase of millions of foreclosed homes across the nation has produced home price increases of 10 percent to 30 percent in cities across the country. Withholding foreclosures from the market and creating artificial demand with free money provided by the Federal Reserve has temporarily added $4 trillion of housing net worth and reduced the number of underwater mortgages on the books of the Too Big To Trust Wall Street banks. The percentage of investor purchases and cash purchases is at all-time highs, while the percentage of first time buyers is at all-time lows. Anyone with an ounce of common sense can look at the long-term chart of mortgage applications and realize we are still in a recession. Applications are 35 percent below levels at the depths of the 2008/2009 recession. Applications are 65 percent below levels at the housing market peak in 2005. They are even 35 percent below 2000 levels. There is no real housing recovery, despite the propaganda peddled by the NAR, CNBC, and Wall Street. It’s a fraud.

MBAMar122014

It is the pinnacle of arrogance and hubris that a few Ivy League educated economists sitting in the Marriner Eccles Building in the swamps of Washington D.C., who have never worked a day in their lives at a real job, think they can create wealth and pull the levers of money creation to control the American and global financial systems. All they have done is perfect the art of bubble finance. Their policies have induced unwarranted hope and speculation on a grand scale. Greenspan and Bernanke have provoked multiple bouts of extreme speculation in stocks and housing over the last 15 years, with the subsequent inevitable collapses. Fed encouraged gambling does not create wealth it just redistributes it from the middle class to the elites. The Fed has again produced an epic bubble in stock and bond valuations which will result in another collapse. Normalcy bias keeps the majority from seeing the cliff straight ahead. Federal Reserve monetary policies have distorted financial markets, created extreme imbalances, encouraged excessive risk taking, and ruined the lives of working class people. Take a long hard look at the chart below and answer one question. Was QE designed to benefit Main Street or Wall Street?

sp-500-vs-federal-reserve-balance-sheet1

The average American has experienced a fourteen year recession caused by the monetary policies of the Federal Reserve. Our leaders could have learned the lesson of two Fed induced collapses in the space of eight years and voluntarily abandoned the policies of reckless credit expansion, instead embracing policies encouraging saving, capital investment and balanced budgets. They have chosen the same cure as the disease, which will lead to crisis, catastrophe and collapse. 

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises

The Never Ending Recession–What’s In Your GDP

“The Gross Domestic Product (GDP) is one of the broader measures of economic activity and is the most widely followed business indicator reported by the U.S. government. Upward growth biases built into GDP modeling since the early 1980s, however, have rendered this important series nearly worthless as an indicator of economic activity. The popularly followed number in each release is the seasonally adjusted, annualized quarterly growth rate of real (inflation-adjusted) GDP, where the current-dollar number is deflated by the BEA’s estimates of appropriate price changes. It is important to keep in mind that the lower the inflation rate used in the deflation process, the higher will be the resulting inflation-adjusted GDP growth.”John Williams – Shadowstats

GDP is the economic statistic bankers, politicians and media pundits use to convince the masses the economy is growing and their lives are improving. Therefore, it is the statistic most likely to be manipulated, twisted and engineered in order to portray the storyline required by the elite. Two consecutive quarters of negative GDP growth usually marks a recession. Those in power do not like to report recessions, so data “massaging” has been required over the last few decades to generate the required result. Prior to 1991 the government reported the broader GNP, which includes the GDP plus the balance of international flows of interest and dividend payments. Once we became a debtor nation, with massive interest payments to foreigners, reporting GNP became inconvenient. It is not reported because it is approximately $900 billion lower than GDP. The creativity of our leaders knows no bounds. In July of 2013 the government decided they had found a more “accurate” method for measuring GDP and simply retroactively increased GDP by $500 billion – essentially out of thin air. It’s amazing how every “more accurate” accounting adjustment improves the reported data. Economic growth didn’t change, but GDP was boosted by 3 percent. However, this upward adjustment pales in comparison to the decades long under-reporting of inflation baked into the GDP calculation.

GDP is adjusted for inflation. The higher inflation factored into the calculation, the lower reported GDP. The inflation deflator used by the BEA in their GDP calculation is even lower than the already bastardized CPI. According to the BEA, there has only been 32 percent inflation since the year 2000. They have only found 1.4 percent inflation in the last year and only 7.1 percent in the last five years. You’d have to be a zombie from the Walking Deador an Ivy League economist to believe those lies. Anyone living in the real world knows their cost of living has risen at a far greater 70 rate. According to the government, and unquestioningly reported by the compliant co-conspirators in the the corporate media, GDP has grown from $10 trillion in 2000 to $17 trillion today. That  percent growth over the last fourteen years is dramatically overstated, as revealed in the graph below. Using a true rate of inflation exposes the fraud being committed by those in power. The country has been in a never ending recession since 2000.

sgs-gdp

Your normalcy bias is telling you this is impossible. Your government tells you we have only experienced a recession from the third quarter of 2008 through the third quarter of 2009. So despite experiencing two stock market crashes, the greatest housing crash in history, and a worldwide financial system implosion the authorities insist  we’ve had a growing economy 93 percent of the time over the last fourteen years. That mental anguish you are feeling is the dissonance of wanting to believe your government, but knowing they are lying. It is a known fact the government, in conspiracy with Greenspan, Congress and academia, have systematically reduced the reported CPI based on:

  • hedonistic quality adjustments,
  • geometric weighting alterations,
  • substitution modifications,
  • and the creation of incomprehensible owner’s equivalent rent calculations.

Since the 1700s consumer inflation had been estimated by measuring price changes in a fixed-weight basket of goods, effectively measuring the cost of maintaining a constant standard of living. This began to change in the early 1980s with the Greenspan Commission to “save” Social Security and came to a head with the Boskin Commission in 1995.

Simply stated, the Greenspan/Boskin Commissions’ task was to reduce future Social Security payments to senior citizens by reducing the CPI and thereby reducing cost of living adjustments to social security recipients. The tactic provided an “easy way out” for politicians. Politicians would lose votes if they ever had to directly address the unsustainability of Social Security. As a result, they allowed academics to work their magic by understating the CPI and stealing $700 billion from retirees in the ten years ending in 2006. With 10,000 baby boomers per day turning 65 for the next eighteen years, understating CPI will rob them of trillions in payments. This is a cowardly dishonest method of extending the life of Social Security.

If CPI was calculated exactly as it was computed prior to 1983, it would have averaged between 5 percent and 10 percent over the last fourteen years. Even computing it based on the 1990 calculation prior to the Boskin Commission adjustments, would have produced annual inflation of 4 percent to 7 percent. A glance at an inflation chart from 1872 through today reveals the complete and utter failure of the Federal Reserve in achieving their stated mandate of price stability. They have managed to reduce the purchasing power of your dollar by 95 percent over the last 100 years. You may also notice the net deflation from 1872 until 1913, when the American economy was growing rapidly. It is almost as if the Federal Reserve’s true mandate has been to create:

  • inflation,
  • finance wars,
  • perpetuate the proliferation of debt,
  • artificially create booms and busts,
  • enrich their Wall Street owners,
  • and impoverish the masses. Happy Birthday Federal Reserve!

inflation-1872-present-alt-cpi

When you connect the dots you realize the under-reporting of inflation benefits not only the government but corporations as well. If the government was reporting the true rate of inflation, corporations would be forced to pay their workers higher wages, reducing profits, reducing corporate bonuses, and reducing profits.  Reporting a true rate of inflation would force long-term interest rates higher. These higher rates, along with higher COLA increases to government entitlements, would blow a hole in the deficit and force politicians to address our unsustainable economic system.

The Never Ending Recession — Currency Debasement

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”Napoleon Bonaparte

inflation-purchasing-power-of-dollar-since-1871-log-scale

“A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men … [W]e have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world—no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men.”- Woodrow Wilson

When you consider the implications of allowing a small group of powerful, wealthy, unaccountable men to control the currency of our nation over the last one hundred years, you understand why our public education system sucks. You understand why the government created Common Core curriculum teaches children that 3 x 4 = 13 — as long as you feel good about your answer.

George Carlin was right. The owners of this country (bankers, billionaires, corporate titans, politicians) want more for themselves and less for everyone else. They want an educational system that creates ignorant, obedient, vacuous, obese dullards who question nothing, consume mass quantities of corporate processed fast food, gaze at iGadgets, are easily susceptible to media propaganda and compliant to government regulations and directives. They don’t want highly educated, critical thinking, civil minded, well informed, questioning citizens understanding how badly they have been screwed over the last century. We’re sorry to say, the elites are winning in a landslide.

The government controlled public education system has flourished beyond all expectations of the elites. We’ve become a nation of techno-narcissistic, math challenged, reality TV distracted, welfare entitled, materialistic, gluttonous, indebted consumers of Chinese produced crap. There are more Americans who know the name of Kanye West and Kim Kardashian’s bastard child (North West) than know the name of our Secretary of State (John Kerry). Americans can generate a text or tweet with blinding speed but couldn’t give you change from a dollar bill if their life depended upon it. They are whizzes at buying crap on Amazon or Ebay with a credit card, but have never balanced their checkbook or figured out the concept of deferred gratification and saving for the future. While the ignorant masses are worked into a frenzy by the media propaganda machine over gay marriage, diversity, abortion, climate change, and never ending wars on poverty, drugs and terror, the elite use their complete capture of the financial, regulatory, political, judicial and economic systems to pillage the remaining national wealth they haven’t already extracted.

The financial illiteracy of the uneducated lower classes and the willful ignorance of the supposedly highly educated classes has never been more evident than when examining the concept of Federal Reserve created currency debasement – also known as inflation. The insidious central banker created monetary inflation is the cause of all the ills in our warped, deformed, rigged financialized economic system. The outright manipulation and falsity of government reported economic data is designed to obscure the truth and keep the populace unaware of the deception being executed by the owners of this country. They have utilized deceit, falsification, propaganda and outright lies to mislead the public about the true picture of the disastrous financial condition in this country. Since most people are already trapped in the mental state of normalcy bias, it is easy for those in control to reinforce that normalcy bias by manipulating economic data to appear normal and using their media mouthpieces to perpetuate the false storyline of recovery and a return to normalcy.

This is how feckless politicians and government apparatchiks are able to add $2.8 billion per day to the national debt; a central bank owned by Too Big To Trust Wall Street banks has been able to create $3.3 trillion out of thin air and pump it into the veins of its owners; and government controlled agencies report a declining unemployment rate, no inflation and a growing economy, without creating an iota of dissent or skepticism from the public. Americans want to be lied to because it allows them to continue living lives of delusion, where spending more than you make, consuming rather than saving, and believing stock market speculation and home price appreciation will make them rich are viable life strategies. Even though 90 percent of the population owns virtually no stocks, they are convinced record stock market highs are somehow beneficial to their lives. They actually believe Bernanke/Yellen when they bloviate about the dangers of deflation. Who would want to pay less for gasoline, food, rent, or tuition?

Unless you are beholden to the oligarchs, that sense of stress, discomfort, feeling that all in not well, and disturbing everyday visual observations is part of the cognitive dissonance engulfing the nation. Anyone who opens their eyes and honestly assesses their own financial condition, along with the obvious deterioration of our suburban sprawl retail paradise infrastructure, is confronted with information that is inconsistent with what they hear from their bought off politician leaders, highly compensated Ivy League trained economists, and millionaire talking heads in the corporate legacy media. Most people resolve this inconsistency by ignoring the facts, rejecting the obvious and refusing to use their common sense. To acknowledge the truth would require confronting your own part in this Ponzi debt charade disguised as an economic system. It is easier to believe a big lie than think critically and face up to decades of irrational behavior and reckless conduct.

Submitted by Jim Quinn via The Burning Platform blog