Phony U.S. Recovery Accelerating

If you repeat a lie often enough, people will believe it, and you will even come to believe it yourself.  The propagandist’s credo appears to have deep roots at the Wall Street Journal, which has been shilling hopes of better economic times since The Great Recession supposedly ended in 2009. The newspaper’s editors extolled and glorified that wishful lie with a hat-trick of turbocharged headlines on page two of Friday’s edition. The first of the three celebratory articles, Americans Get Richer, And Pare Their Debt, reported that the net worth of U.S. households rose by about $1.6 trillion, to $84.9 trillion, in the first quarter of 2015.

This is hardly a Horatio Alger tale about how hard work, diligence and persistence in the face of adversity made some Americans richer. Rather, it is implicitly the story of how the nation’s wealthiest households simply sat back and savored the good life as their homes and stock portfolios magically grew in value. They have the Fed to thank– not only for 3% mortgages that have force-fed real estate valuations, but for the near-zero-percent financing of more than $1 trillion of corporate buybacks in 2014 alone. In case you didn’t know, this perpetual-motion machine, one of the modern miracles of high finance, has replaced fuddy-duddy capital investment as the preferred means of driving earnings growth.

Trampled at Bergdorf’s?

Completing the Journal’s ostentatious “Hip-hip-hooray!” for the economy were two separate articles that were linked typographically, one beneath the other, by ellipses, presumably to further the impression of pent-up demand about to explode: “Shoppers Splurge in Spring Spree…And Robust Hiring Should Fuel Their Fire”. Will we be reading three months from now about shoppers getting trampled at WalMart, Kohl’s, Target…Bergdorfs?

You’d have to be older than 50 to recall a time when capital investment rather than consumption was the most important metric of economic strength. Somewhere along the way, the news media, and most economists, also stopped paying attention to the fundamental fact that growth drives consumption, not the other way around. These days, even Nobel Prize-winners seem oblivious to the truism that when real wages are stagnant, as they have been for nearly 30 years, any increase in consumption can come only through more borrowing.

Bottom line, we are implicitly borrowing against the inflated value of our homes and stock portfolios — not just to put our kids through college, but to pay for groceries, health insurance and other necessities of life that used to be much more affordable.

  • mava June 17, 2015, 11:09 am

    Went last night to buy some Ginger. Turns out our local 99 Ranch Market is now BK. No more Ginger for old mava. Thanks, Bernanke, you f**k, for all your help! I suppose I should be happy that AIG is still on a drag.

  • Bam_Man June 17, 2015, 10:30 am

    John,

    There will always be an underground economy, and its size will grow in proportion to the guvvamint’s ever increasing efforts to monitor and tax everything under the sun. Eliminating cash (and then imposing negative interest rates on your electronic “money”) just means more barter, payment-in-kind and “alternative currencies” will be used. Just another nail in the coffin of Central Bank issued funny money.

  • John Jay June 16, 2015, 3:52 pm

    The “Underground Economy” is keeping this Nation going.
    From gardeners to lawyers.
    You can work half the hours, and make what your “Take Home Pay” would be at a “On the Books” job.
    That’s how bad Payroll Deductions have become.
    “On the Books”, you have to work until May or June for some level of Government.
    “Off the Books”, it’s all yours.

    Only the Illicit Drug Trade that the Government profits from is stopping them from outlawing cash, and forcing all transactions from being routed through IRS computers.
    They must be sorely tempted to legalize drugs and end cash totally.
    That plan is very likely being discussed by all the Players in this world.

    Total Control, how very tempting.
    As bad as things are, very sadly, what we have now is too good to last!
    These ARE the Good Old Days!
    Just wait and see!

  • Buster June 16, 2015, 1:28 pm

    Hi Rick & gang.
    Just had to drop by with this link, as it shows how far we the Sheople are down the road to Awakesville.
    The fact that it’s on MSN is almost as inspiring as the mass of comments that (rightfully) see through the psychopaths that have been & are still running things for so very long.

    http://www.msn.com/en-gb/news/editorpicks/perhaps-the-worlds-conspiracy-theorists-have-been-right-all-along/ar-BBlbsu2

    Maybe I hear the sound of the gnashing of teeth of disillusionment.

    Tick tock.

  • mava June 16, 2015, 10:57 am

    And don’t forget going into debt to pay for a lease on that new Volkswagen , ha-ha. As if there was something wrong with practically new truck that’s just 3 years old?

    Most people can’t really explain why they are leasing. I tried to listen, and I can’t find a coherent explanation. What we can see, is everyone is doing their best to get in debt.

    I think this means they can “feel” they must get in debt, because they subconsciously know what is about to happen. Of course, if they knew consciously, they wouldn’t just acquire debt that is useless to the situation ahead, meaning that they would convert debt to assets, like junk silver, not liabilities like Volkswagen.

    &&&&&

    Leases are popular because it allows people to drive more car than they could afford to own. Conceptually, it is just rent-to-own furniture with two more zeros tacked on.
    RA

  • Wayne June 16, 2015, 12:28 am

    Here are some statistical facts to show just how phony the recovery is: Approximately half of all American workers make $25,000 a year or less. Half of all American workers now earn $505 or less per week. Since the year 2000, we have lost 10% of our middle class jobs. In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs. Meanwhile, our population has gotten significantly larger.

    Can you have a first world country and a developed nation without a middle class and wages fast approaching developing nation status?

  • Wayne June 14, 2015, 7:47 pm

    “stock portfolios magically grew in value.”

    Can everyone cash out at once?!?!

    Whoops! Looks the fictional wealth can disappear really quick and really fast.

    P.S. Rick you published an imaginary ES chart of what you think the blow off top would look like, and I have to say I totally agree with you, I see your time in the game has given you an intuitive and implicit sense of what the end would look like. First a correction so violent and deep that a skyrocketing short squeeze wouldn’t allow many to jump aboard a new path to record highs, of course followed by an even nastier crash that would destroy both bears and bulls alike!