Headlines flashed warning signs. Commentaries downplayed them. A Wall Street Journal editorial headlined “As Contractions Go….”
US Q IV GDP shrank, “but not to worry. The report is better than it sounds, the stock market is rocking, and (the Fed will) keep both feet pressed firmly on the monetary accelerator.”
The Financial Times headlined “US outlook still clear despite shower,” saying:
Predicting recession “based on (-0.1% GDP decline) “is a bit like expecting rain because somebody threw a bucket of water out the window.”
The wildcard is “if Congress decides to dump water out the window every month, via across-the-board ‘sequester’ cuts” expected soon.
According to Bloomberg, “R-Word For US Economy in 2013 is Rebound Not Recession.”
According to JP Morgan Chase, Bank of America, and Morgan Stanley economists, America’s economy “will bounce back in (Q I) after plunging defense spending and dwindling inventory growth” hurt Q IV.
Not according to economist John Williams. Recovery is illusory, he says. It’s fake. Phony government numbers conceal weakness. Growth hasn’t occurred since 2006/2007.
Earlier Williams said:
“Indeed, the ‘recovery’ is an illusion that has been created as a direct result of methodological changes in government inflation reporting of recent decades.”
They “resulted in an artificial lowering of official rates of inflation. The faux growth problem is in the use of understated inflation estimates in deflating a number of economic series.”
“Major economic series that have no underlying pricing base – such as housing starts, payroll employment and consumer confidence – correspondingly do not require inflation adjustment to put them on a consistent theoretical basis with the concept of real (inflation-adjusted) GDP.”
“Those series confirm a history of business activity in recent years that shows a plunge in the economy from 2006/2007 into late-2008/mid-2009, followed by a period of protracted, low-level stagnation, or bottom-bouncing, instead of ‘recovery.’ ”
Williams expects double-dip recession in 2013. It likely began in 2012 Q II or III, he believes.
Last August, market analyst Marc Faber rated odds for global recession at 100%. Little or nothing ahead looks promising. Corporate profits will disappoint.
The Fed can do so much and no more. Money printing has limits. It’s not magic. On January 31, Faber repeated earlier warnings.
“When you print money,” he said, it “doesn’t flow evenly into an economy. It flows to some people or to sectors first, and in this case, it flowed into equities, and until about five months ago into bonds.”
“I believe that markets will punish central banks at some state through an accident.”
Stocks could hit bubble levels and pop. Rising interest rates could collapse bonds.
“For the first time in four years, since the lows in March 2009, I love this market because the higher it goes, the more likely we will have a nice crash, a big time crash.”
He thinks weak global growth and disappointing corporate profits will trigger trouble.
Fed governors are cautious. On January 3, FOMC minutes said:
“With regard to the possible costs and risks of purchases, a number of participants expressed the concern that additional purchases could complicate the Committee’s efforts to eventually withdraw monetary policy accommodation, for example, by potentially causing inflation expectations to rise or by impairing the future implementation of monetary policy.”
“Participants also discussed the implications of continued asset purchases for the size of the Federal Reserve’s balance sheet. Depending on the path for the balance sheet and interest rates, the Federal Reserve’s net income and its remittances to the Treasury could be significantly affected during the period of policy normalization.”
“Participants noted that the Committee would need to continue to assess whether large purchases were having adverse effects on market functioning and financial stability.” ”
“They expressed a range of views on the appropriate pace of purchases, both now and as the outlook evolved. It was agreed that both the efficacy and the costs would need to be carefully monitored and taken into account in determining the size, pace, and composition of asset purchases.”
Governors are conflicted. They have reason to worry. They’re questioning excessive longterm money printing benefits. Artificial schemes don’t work. They cause more harm than good.
Eventually they end. What can’t go on forever won’t. They’ll have to decide when. Economic and market consequences will follow.
Newly released Q IV GDP data showed growth contracted 0.1%. Sequestered deficit cutting suggests further declines. Consumer confidence is low for good reason. Europe, China, Japan, and other major world economies show weakness.
Is America on track for double dip trouble? In Q IV, government and business inventory spending declined. Auto sales alone drove consumer spending gains. Deep discounts, near zero interest rates, and Hurricane Sandy affected purchases stimulated sales.
Exports were down. Weak global manufacturing and trade affected them. Healthcare spending slowed noticeably. US economic growth ground to a halt. Doing so suggests weakness going forward.
Artificial stimulus works only so long. Q III included record defense spending. It accounted for over a third of GDP growth. It followed two years of reduced government spending.
Q III data were released days before November elections. Good news benefited Obama.
True Q III GDP growth was misreported. It wasn’t 3%. When accurately adjusted, it was 1 – 1.5%. It’s been that way for two years. Day of reckoning signs appeared in Q IV.
Multiple quantitative easing rounds barely held economic growth above water. Money printing madness substituted for stimulative growth. Central bank intervention repeated what hasn’t before worked.
European economies are troubled. America shows weakness. Force-fed austerity doesn’t work. Decline replaces prosperity. Living standards deteriorate. Households have less to spend.
Production and consumption suffer. So does the real economy. Financial war helps speculators alone benefit. Eventually expect systemic crisis. It could take months or years to arrive.
Market manipulation delays day of reckoning time. It can’t prevent it. Q IV GDP suggests 2013 weakness. Headwinds may be stiffer than expected.
Payroll tax increases cuts $100 billion from GDP. It does so when stimulus is needed. Consumer sentiment and spending are weak.
Expect sequestered/largely discretionary $1.2 trillion cuts by end of March. Stiff 10 – 20% health insurance premium hikes impact healthcare spending.
Business spending spiked in Q IV. It did so ahead of expected tax law changes. Expect it to slow in Q I. Manufacturing is weak. Housing remains troubled. So is America’s economy. Odds favor double-dip trouble.
Five years after economic collapse, virtually zero growth was achieved. Wall Street was bailed out. Main Street was sold out. Ellen Brown does some of the best financial writing.
Last September, she said America’s economy needs “a good dose of ‘aggregate demand.’ ” It needs money put in people’s pockets.
QE for Wall Street won’t jumpstart the economy. It won’t “reduce unemployment.” It’s stuck at 23%. It’s the highest since Great Depression levels.
QE puts no “money in the pockets of consumers.” It doesn’t “reflate the money supply.”
“(S)ignificantly lower interest rates for homeowners” aren’t achieved. Other consumer purchases don’t benefit.
QE helps bankers, other speculators and investors. Ordinary people are harmed. Economic growth is taxed. It’s monetary poison. It’s harming the dollar.
Finance is a new form of warfare. Money printing madness is based on the wrong-headed notion that Fed-supplied liquidity encourages bank lending to stimulate growth.
Despite multi-trillions of dollars in free zero interest rate money, bank lending to small/medium sized businesses and households is too little to help.
No loans mean no investment, no hiring, and no money in people’s pockets. At the same time, US corporate giants hoard enormous amounts of cash. Estimates range up to $5 trillion.
Fed reports downplay what’s held. Their data include only domestic cash reserves, Treasuries, other bonds, and bank accounts.
Foreign holdings aren’t included. Global trillions aren’t invested. They’re used for salaries, huge bonuses, dividends, stock buybacks, and speculation.
At the same time, inflation-adjusted consumer disposable income declined for decades. Post-9/11, it’s been especially hard hit.
Spending growth is largely credit driven. Insufficient income retards it. Households are debt-entrapped. Eventually they’ll be unable to assume more.
Progressive Radio News Hour regular Jack Rasmus discusses America’s “epic recession.” For five years, its economy “bumped along the bottom.” Conditions ahead look worse, not better.
Fed gamesmanship puts international finance at risk. Economies haven’t been healed. They’ve been wrecked. QE is a zero sum game. It’s financial terrorism.
It sacrifices growth for Wall Street. It hangs ordinary people out to dry. It promises protracted hard times. It leaves growing millions on their own sink or swim.
Let-eat-cake economics doesn’t work. It never did. It doesn’t now. It sparks decline and revolutions, not growth and prosperity.
Stephen Lendman lives in Chicago and can be reached at [email protected]
His new book is titled “Banker Occupation: Waging Financial War on Humanity.”
Visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.