How Federal Funny Money Corrupted Our Economy

19.10.2016 • Investing

From Bill Bonner – Bill Bonner’s Diary (United States) –

BALTIMORE – “It’s over!”

Raúl Ilargi Meijer, a regular contributor to David Stockman’s Contra Corner newsletter, explains that the “entire model our societies have been based on for at least as long as we ourselves have lived is over!”

Meijer again:

That’s why there’s Trump…

There is no growth. There hasn’t been any real growth for years. All there is left are empty, hollow, sunshiny S&P 500 stock market numbers propped up with ultra-cheap debt and buybacks, and employment figures that hide untold millions hiding from the labor force. And most of all, there’s debt, public as well as private, that has served to keep an illusion of growth alive and now increasingly no longer can.

These false growth numbers have one purpose only: for the public to keep the incumbent powers that be in their plush seats. But they could always ever only pull the curtain of [The Wizard of] Oz over people’s eyes for so long, and it’s no longer so long.

That’s what the ascent of Trump means, and Brexit, Le Pen, and all the others. It’s over. What has driven us for all our lives has lost both its direction and its energy.

Shipping Decline

None of this will come as a surprise for Diary regulars… We know nothing makes people poorer faster than too much “money.”

The feds provided the economy with an almost unlimited quantity of credit-based funny money. The money was phony. But it bought real resources. And then, with no need to think carefully about how the capital was put to use, the resources were wasted.

Corporate defaults are running at their fastest pace since 2009. Nine out of 10 households have lost income. And tax receipts for the last quarter fell from the same quarter in 2015.

Adjusted for inflation, real growth in the U.S. economy – as measured by actual tax collections rather than the feds’ squirrelly statistics – is falling.

The world economy, too, is slowing. Lambert Strether of the blog Corrente Wire explains:

I started following shipping… partly because it’s fun but more because shipping is about stuff, and tracking stuff seemed like a far more attractive way of getting a handle on “the economy” than economics statistics, let alone whatever books the Wall Streeters were talking on any given day.

So, what I noticed was decline, and not downward blips followed by rebounds, but decline for months and then a year. Decline in rail, even when you back out coal and grain, and decline in demand for freight cars. Decline in trucking, and decline in the demand for trucks. Air freight wobbly. No Christmas bounce at the Pacific ports.

And now we have the Hanjin [shipping company] debacle – all that capital tied up in stranded ships, though granted only $12 billion or so – and the universal admission that somehow “we” invested w-a-a-a-a-a-y too much money in big ships and boats, implying (I suppose) that we need to ship a lot less stuff than we thought, at least across the oceans.

Get-Rich System

As we reported last week, China’s exports are falling at a 10% annual rate, in U.S. dollar terms.

If you’re not exporting stuff, you don’t need ships to send it anywhere.

But as the global economy sinks, debt rises, financed by central banks. Bloomberg:

The world’s biggest central banks are bulking up their balance sheets this year at the fastest pace since 2011’s European debt crisis to boost lackluster economic recoveries with asset purchases that are supporting stock and bond prices.

Let’s see… How does this work again?

The world has too much debt and too much capacity. Growth slows. Defaults increase.

So what do central banks do?

They facilitate governments adding to their debts… and they finance more capacity.

The feds used fake money to give the economy fake credit… which was used to buy real resources… which were squandered. Now we have an abundance of claims (debt) against declining future output.

How was that ever supposed to work?

An economy is a moral system, after all. It is not a get-rich system. You get what you deserve, not what you want or what you expect.

Over the long run, the economy punishes waste, error, foolishness, impetuousness, laziness, arrogance, and indiscipline.

Americans now are being punished. Gently, so far.

The lash will sting much more later.

-Read more at bonnerandpartners.com (English)-

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