The world’s worst horse race

A trifecta of disappointment last week…

First, the inflation number came down the track faster than expected.

Then, the GDP lumbered across the finish line, lower than expected.

And finally, at the end of last week, the poor consumer practically broke a leg in the home stretch.

As you know, dear reader, the whole idea behind the Fed’s ZIRP and quantitative easing (QE) policies is to stimulate demand. More demand – meaning more consumers spending more money they don’t have on more things they don’t need – is supposed to be a good thing.

Fed economists have made trillions of dollars’ worth of bets on it. Not their money, of course. But each year, since 2009, they’ve put money on the consumer nag. And each year, he’s failed to win, place or even show up. Then, the following year, they’ve doubled down with the chant “the consumer is back”.

The economy is 70% consumer spending, reason the geniuses at the Fed. So anything we can do to boost consumer spending will also boost the economy.

This sort of simpleminded logic is either breathtakingly naive or mindboggling stupid. Consumers need to have money to spend before they can spend it. Where are they going to get it? If the economy is working properly, they earn it from honest bussing and schlepping. But suppose the economy is in a funk? Then, what are they supposed to do?


Bill Bonner on markets, economics & the madness of crowds

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No problem, say the economists. We’ll just print it. This ersatz money is supposed to stimulate the consumer to spend, whereupon businesses will spring to life. They’ll offer him a job, boost his wages, and then he’ll have real money to spend!

But wait. If the Fed can just print money to increase demand, why bother with doing it the hard way? Why do you need to earn money to create demand when you can just print it?

This point has never been clarified. Nor have the feds ever noticed that consumer demand is the result of savings, investment, work, skill and all the other things that go into producing a real product or service. Consumer demand is not what causes those things to happen. In the abstract, demand is unlimited. But output is not.

Nor has it ever been demonstrated that the central financial planning works at all. And as of last week, we have more evidence that it doesn’t.

What last week’s figures tell us is that there is no real recovery. Just a sham boom created by EZ money.

We’ve now got two months of figures for the second quarter. They tell us the same thing the first quarter’s numbers told us. Consumers aren’t spending like it was 2007. They’re spending like it was 2009 or 2010 or 2011, etc. In other words, they’re spending as if they were reasonable people who have realised how the system works.

The Fed gives out below-inflation credit to its friends and cronies. The 1% gets richer. And the other 99% struggles to keep up with the bills. As we keep saying, consumer prices are rising faster than the feds admit. That leaves the typical household with less money to spend than the numbers suggest. And we see the effect of it in consumer spending.

The Fed pinched off savings, investment, and employment. Now, it gets what you’d expect – low GDP figures!

In short, six years of ‘stimulating’ the economy by giving it more of what it least needed has produced no real recovery, and more debt.

It has also produced an economy in which the grease of a corrupt money system in which almost every race is fixed. The 1% wins every time, while the consumer barely is able to limp around the track.

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