http://dailyreckoning.com/
The article is also worth quoting, so here it is:
"Since yesterday, we’ve had “getting it up” on our mind.
The “it” here is GDP
growth. And the “we” is the economy. You’re invited to use your imagination to
deal in these silly abstractions for the length of this reckoning.
As stated, we’ve tried everything. TARP... QE
I... QE II... QE III... ZIRP... NIRP... PIRP... “FoGu”... The Federal
Reserve has hosted Ph.D. trysts and ogled economic models... And what was
the harsh verdict passed down? That there’s no little blue pill to pop…
no horny goat weed to ingest… that will give the economy a strong, exciting
lift.
Here’s Ben Bernanke, blogging about his own
experience with persistent floppiness this morning at the Brookings Institution:
“Growth
in output has been slow, despite solid job creation…
“But nobody claims that monetary policy can do much about productivity growth... I agree that monetary policy is no panacea, and as Fed chairman I frequently said so. With short-term interest rates pinned near zero, monetary policy is not as powerful or as predictable as at other times.”
“But nobody claims that monetary policy can do much about productivity growth... I agree that monetary policy is no panacea, and as Fed chairman I frequently said so. With short-term interest rates pinned near zero, monetary policy is not as powerful or as predictable as at other times.”
No
kidding! At what final price, we wonder, will he and his ilk have learned that
lesson?
Bernanke, like so many other power elites, operates under the prevailing Keynesian paradigm. As an economics student of the ’60s, he was molded by it. As a professor, Fed chairman and now blogger, he has perpetuated it.
The current paradigm holds that promoting consumption instead of production is the path to prosperity. And prosperity, according to the paradigm, is measured by GDP.
Our co-founders Bill Bonner and Addison Wiggin stood in awe of these bad ideas in Empire of Debt, published in 2006:
Bernanke, like so many other power elites, operates under the prevailing Keynesian paradigm. As an economics student of the ’60s, he was molded by it. As a professor, Fed chairman and now blogger, he has perpetuated it.
The current paradigm holds that promoting consumption instead of production is the path to prosperity. And prosperity, according to the paradigm, is measured by GDP.
Our co-founders Bill Bonner and Addison Wiggin stood in awe of these bad ideas in Empire of Debt, published in 2006:
“As
the Anglo-Saxon economies lost their competitive edge in manufacturing, the
tried to make up for it by encouraging consumption. This is the biggest fraud
of all. At first, higher consumption feels good. It is like burning the
furniture to keep warm; it feels good for a moment. But the sense of well-being
is extremely short-lived.
When people borrow and spend, they feel as though they are getting richer -- especially when their houses are rising in price. The increased consumption even shows up, indirectly, in the GDP figures as growth. But you don’t really become wealthier by consuming. You become wealthier by making things you can sell to others -- at a profit. The point is obvious, but at this stage of imperial finance, it was inconvenient.”
When people borrow and spend, they feel as though they are getting richer -- especially when their houses are rising in price. The increased consumption even shows up, indirectly, in the GDP figures as growth. But you don’t really become wealthier by consuming. You become wealthier by making things you can sell to others -- at a profit. The point is obvious, but at this stage of imperial finance, it was inconvenient.”
If the current paradigm were correct -- which it’s
not -- there might’ve been reason to celebrate this morning. Namely, the
consumer spending data, out this morning. “Nearly every month for the past year,
personal incomes have been growing at a faster clip than consumer spending”
explained our colleague Dave Gonigam in this afternoon’s 5 Min. Forecast.
“Whatever money comes their way, people have
been trying to squirrel some of it away or pay down debt. But not in March.
Personal income was flat, while consumer spending grew 0.4%.” Even then, says
Dave, “the year-over-year figures still show income growing faster than
spending.” That’s probably a tough fact for Yellen and co. to swallow.
But “what really scares the Fed,” adds Jim
Rickards, “is that nominal GDP is less than real GDP. Since debt is repaid in
nominal dollars, things are much worse than they look.” Deflation’s a beech.
Alas, it will take more than deflation --
however scary it is -- to overturn mainstream economic thinking. As Jim
reckoned yesterday, reaching a paradigm shift is a slow, ponderous lurch. Bad
ideas are as resilient as, if not more resilient than, Keith Richards.
The best you can do while you wait is invest
accordingly and laugh as the parade goes by."
And I am going out on a limb here (a very structurally sound limb in my view) and predicting that the second quarter GDP will be worse than the first. What, no snow storms to point at, no port disruptions, and the dollar is weakening now but I have the gall to make such a silly prediction!? Yes I do, because these "causes" of the low GDP in the first quarter were minimal influences. An economy on the precipice of recession (if not already in one) is the real cause and it is starting to show more of its ugly face every day. I note the Atlanta Fed started its 2nd quarter GDP forecast April 30th with an "Initial Nowcast" of .9. Go ahead, ask me. How long did it take for number that to start to come down you ask? Well, I am glad you finally asked. All of one day. With less than glowing ISM manufacturing numbers it dropped to .8 on May 1.
International trade numbers are out tomorrow and may move it slightly again, but the real number to wait for will come May 14 when the retail trade and inventories numbers come in. Had it not been for a vast inventory buildup, first quarter GDP would have been negative around -2.5%. And last I checked, retail ain't retailing so much. Just a few store closings have been announced this year - like 6000! And this is just major retailers.
http://www.zerohedge.com/news/2015-05-02/major-us-retailers-are-closing-more-6000-stores
It is about to get ugly. By the way, I moved what money I had in it out of Pimco. It hired Bernanke as an advisor last week and I moved my money the same day. Mostly in cash at this point, just like the co-founder of Pimco who is no longer there, Mohamed El-Erian. I know El-Erian is no Ben Bernanke, which is why I am following his lead. We will see . . .
http://www.ocregister.com/articles/pimco-656718-erian-people.html
