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I Have Some Bad News About the Economy


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2022 Oct 15, 5:36am   8,010 views  131 comments

by Patrick   ➕follow (60)   💰tip   ignore  

https://www.hennessysview.com/p/i-have-some-bad-news-about-the-economy?publication_id=572577&post_id=78488561&isFreemail=true


Accounts are widely out of balance

How bad, you might be asking yourself, will the economy get? We’re about to find out.




The orange line is US wealth. The blue line is US GDP. The gap is the amount of wealth American households and non-profits must surrender. You see, these two lines must move in lockstep. They do over time. When they get out of sync, something will put them back into sync.

The gap is debt.

Accounts must be settled. It’s called “a reckoning.” And the reckoning is here knocking on the door.

To put this gap into historical perspective, here’s an extended view of the same data with Dr. Hunt’s markups.




From 1951 to about 1997—the year the Monica Lewinsky story broke and Howe and Strauss published The Fourth Turning—the two lines moved in lockstep. Then Alan Greenspan decided to tinker, to grow wealth without growing GDP and without kicking off inflation. ...

What that gap represents is one of two things:

Money stolen from other people (other economies).

Money stolen from future generations of Americans.

How We Borrow from the Future
A few years ago, in the 1990s, we heard a lot of stories parents going to jail for identify theft perpetrated against their own children. About 1990, the government required babies to have a Social Security Number before they left the hospital. (I remember because it happened between our second and third children.)

Some shiftless parents soon realized they could apply for credit using their kids’ SSNs. They could default, and the creditor could do nothing. You can’t collect from a six-week-old infant.

This, of course, constituted credit fraud, so the parents who did this (and there were many) went to jail. (Not sure what happened to their kids who were left with no parents and lousy FICO score, but that’s not the point.)

The point is, all of us have been doing what those parents do only legally. The government allows us to run up our kids’ and grand kids’ debt as long as we do it with the government’s approved identity-theft programs.

So we did.

If you look at that chart, about 1/3 of our household and non-profit wealth is stolen from other generations or other countries. And we have to pay it back. Now. Or soon. ...

How We Borrow from the World
Some months ago, I wrote a series of posts about the US dollar (USD) as the world’s reserve currency and the petrodollar. (Here and here.) To summarize, almost all international debt is settled with USD regardless of the two local currencies involved. Britain settles its debts with Costa Rica in USD, etc. This includes the oil markets. Saudi Arabia, in turn, buys US treasuries (national debt) as a store of value for its copious oil profits. This allows the US run up massive debt knowing there’s always a market for our bonds.

Until there’s not.

Have you notice that Saudi Arbia is drifting out of the US orbit?

I wrote it about in those earlier posts, but the most certain sign of the Kingdom’s pending divorce with from Uncle Sam happened this week. Saudi Arabia disclosed that Joe Biden tried to strong-arm the Saudis into delaying OPEC+ oil production cuts until after the November elections. In diplomatic worlds, this was a slap in the face insult to the US and, particularly, to the Biden regime.

Rumors say Biden threatened to cut military sales to the Saudis if the OPEC+ cuts were announced before the elections. Not only did OPEC+ announce the cuts on its timetable, the Kingdom told the world about Biden’s threat (without disclosing the exact terms or names). Among “partners,” such public humiliation is a sign of pending breakup.

In return, the State Department and Joe Biden announced they would reevaluate the US’s strategic arrangements with Saudi Arabia after the election. That should be interesting.

What it means is that the US might not have as eager a buyer for debt as we’ve grown accustomed to. And that means the price of US treasuries will decline. Less demand means lower prices. When the price of bond goes down, the interest goes up. ...

I’m not saying the Saudis are about to stop taking our checks—I’m saying the for the first time since the Nixon administration, they’re acting like they might. Which means the are going to demand a bigger discount—the difference between the face value of the bond and sale price. That discount is the interest, and the bigger the discount, the less cash we have to spend tomorrow.

That’s one way to close that gap. You reduce the amount of cash you get in return for a future promise to pay. The amount you owe stays the same, but the amount you get now gets smaller.

How Our Kids Get Their Money Back
Remember the two ways we built that gap between wealth and GDP? That’s the first way. The holder of US treasuries want to cash their bonds, and they don’t want to buy new ones.

The gap begins to shrink, and that shrinking is mostly in household wealth.

The second way is intergenerational theft. So how do our kids and grandkids force their accounts settled?

Have you heard about the labor participation rate? Have you heard about the labor shortage?

An odd thing about the jobs numbers in recent months. While the number of “new jobs,” also known as “new hires,” has been strong, the number of people working has been going down, down, down. Why is that? ...

The kids aren’t taking our post-dated checks, either. They’re simply not participating in the US economy—at least, not in the official US economy. They siphoning of that excess household wealth NOW, in the present. They are not working in ways that grows the blue line (GDP). They’re shrinking the gap by lowering the orange line (wealth).

Wonder where inflation is coming from? We’re spending the excess household wealth without increasing the products and services available to buy with it. Inflation is how future generations close that gap. They spend your excess wealth without producing. And it’s happening right before our eyes. ...

In truth, we will only lose our ill-gotten gains.

While, we didn’t personally rob from the kids and foreigners, we were participants in a rigged game—a game that’s getting unrigged in a hurry. We enjoyed the spoils of the petrodollar and zero interest rates.

This account-settling process is called a reckoning, which sound harsh because it is.

https://www.epsilontheory.com/hollow-men-hollow-markets-hollow-world-2/

Comments 1 - 40 of 131       Last »     Search these comments

1   GNL   2022 Oct 15, 7:25am  

How will this effect me?
2   NuttBoxer   2022 Oct 15, 10:11am  

Economic collapse affects everyone who stores all their wealth in the collapsed asset.
3   Patrick   2022 Oct 15, 10:11am  

General economic decline as all that fake "wealth" evaporates in a flurry of inflation. At least I think that's what it's saying.
4   AD   2022 Oct 15, 10:23am  

Its due to stock market and effect of very low interest rates. The top 10% benefit from the stock market as far as a large bulk of their wealth and savings.

Need to go back and revisit Reagan's supply side economics. Need also to leverage productivity gains, economies of scale advantages, etc.

And I say that because I heard Janet Yellen's news conference yesterday and she even said that she does not see in the near and intermediate term a drop in price per unit, or adequate increases in production or output .

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5   AD   2022 Oct 19, 1:20pm  

Patrick says


To put this gap into historical perspective, here’s an extended view of the same data with Dr. Hunt’s markups.


The wealth gap between rich and poor started during the free trade bonanza of the Clinton Administration.

Also, this is when "growth stocks" like Microsoft started to take off. Look at how GE boomed in 2000 and then crashed.

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6   Hugh_Mongous   2022 Oct 19, 11:00pm  

Wealth, shmealth.... my house's estimate went up from $800K to $2,300K and down to $1700K over the last 10 years. Didn't affect me in any way, shape or form. Am I reacher than I was in 2012? Poorer than I was in 2021? Doesn't feel any different.
7   AD   2022 Oct 19, 11:09pm  

Patrick says

fake "wealth" evaporates


That is why I preserve wealth by trying to be self sufficient. I try to do my own maintenance at home and on my car, for example.

I try to eat healthy but cheap such as oatmeal, chicken legs, apples, almonds, walnuts, etc. And I stick with generic brands like Walmart Great Value. I don't have cable and only use free streaming like Tubi, Pluto TV, Roku, and FreeVee.

But I agree the 20 to 35 year old generation seem to be a lot less ambitious and driven by the corporate rat race and keeping-up-with-the-Joneses. White male America (20 to 35 years) seem to be irrelevant.

And I wonder if corporate America like Google and Apple hiring in full-Woke mode is causing this effect. Are they hiring substandard to meet Woke quotas (even by exploiting H1 B visas) and this is adversely effecting new product development and profits ?

..
8   clambo   2022 Oct 20, 7:34am  

I believe that the problem is the ever growing underclass of ghetto people plus illegal foreigners and their academically underachieving (dimwit) children.
The more dumb losers we allow in, the bigger the problem will be; all of them will require social services sucking up money which you will pay in taxes (or interest on the debt).

For example, I don't consume much social services from the government; I'm healthy (except hip), don't get arrested, don't go to the emergency room, don't get into the legal system, don't have bastard children with a welfare queen. I'm not on food stamps, nor use HUD to pay 90% of my rent, although I know people who do.

The government gave so much free money away recently that the USA debt is now over 30,000 Billion. Just paying the interest on this debt will consume much of our tax dollars, while more spending is necessary to take care of the spawn of the illegals and losers.

The only solution I see is keep buying stocks; they generally keep up with and exceed inflation.

Houses are an illiquid asset; it's hard to sell them quickly, it's an expensive transaction, and hard to get your capital out a little bit at a time unless you get a reverse mortgage.
9   AmericanKulak   2022 Oct 20, 7:36am  

Our problem is spending run wild. Corporations are flush with cash. Politicians (inc. the old GOP) threw cheap money at everything and ramped up the printing press.

Now it's the hangover.

Capital Gains needs to go up. Tariffs need to go up. Fracking and domestic oil needs to run wild. Nuclear plants need to be started. Domestic Mfg. needs to roar back.
10   NDrLoR   2022 Oct 20, 9:14am  

clambo says

I believe that the problem is the ever growing underclass of ghetto people
I see them every day in the library. Young, able bodied young people lolling around doing nothing so long as the library is open. I know they get assistance because they're alive and have to be getting sustenance from somewhere. There is a deranged young man, dressed only in dirty shorts who roams around this part of town, flailing his arms and darting into traffic--I almost hit him a couple of nights ago a block from my house. The police will stop him, talk to him briefly, then they're gone because Heaven forbid you can't do anything to get him to safety.
11   AD   2024 Jan 7, 6:45pm  

Audacy (a major radio and podcast company) and Guanella Pass Brewing filed for bankruptcy this week.

Somewhat of a tell tale as far as the economy.
12   AmericanKulak   2024 Jan 7, 8:21pm  

NDrLoR says


, then they're gone because Heaven forbid you can't do anything to get him to safety.

Lanterman-Petris-Short Act blue skied around the country. 72-hour holds maximum, half-way houses unaffordable except to government medicaid recipients instead of free state insitutions for all.
13   SunnyvaleCA   2024 Jan 7, 9:00pm  

GDP has a time basis ... it's productive output "per year." It doesn't matter what the time basis is other than that it has a basis. "Net worth," on the other hand, has no time dimension. So I'm not sure they are required to move in lock-step. A mere change in behavior — not a fraud against future generations or money stolen from others at present — can separate the two from moving together. For example, if I spend a year creating a timeless piece of art, I have $100k of GDP in one given year, but then I have $100k of increased "net worth" for every year after as I hold onto the non-depreciating asset I created. So doesn't an increased gap between the two just show that the people who tend to store surplus GDP are now storing more GDP and storing it longer-term?

To take a local example, the great separation seems to have happened in the 1990s. In the Silicon Valley, this is approximately the time when the housing market achieved price lift-off, making millionaires out of many long-time residents living on modest salaries. Or perhaps sky-high real estate is just an example of "money stolen from future generations"?
14   AmericanKulak   2024 Jan 7, 9:12pm  

"Jobs are okay, though". They're actually tepid. Millions of border crossers being superior to these numbers and then some.

15   AmericanKulak   2024 Jan 7, 9:13pm  

clambo says

I believe that the problem is the ever growing underclass of ghetto people plus illegal foreigners and their academically underachieving (dimwit) children.
The more dumb losers we allow in, the bigger the problem will be; all of them will require social services sucking up money which you will pay in taxes (or interest on the debt).

Dirty Secret: Most of the migrants rioting and complaining are doing so because they want to get the welfare their cousins do in the USA, and are wondering where their food stamps and free housing is.
16   AD   2024 Jan 7, 11:42pm  

Money supply M2 is M1 money supply (cash on hand and in checking accounts, etc) plus money in CD's less than $100,000, as well as savings and money market accounts. M2 money supply is decreasing due primarily to quantitative tightening and higher interest rates. A decrease in M2 means the inflation rate is dropping.

^^^^^^^^^^^^^^^^^^^^^

" As you can see from the chart above, M2 money supply has dipped from a peak of $21.7 trillion in July 2022 to $20.77 trillion in November 2023. M2 is down a little over 2% on a year-over-year basis and 4.31% from its all-time high set in mid-2022. It's the first notable drop in M2 money supply since the Great Depression. "

https://www.fool.com/investing/2024/01/07/money-supply-great-depression-big-move-in-stocks/
17   zzyzzx   2024 Jan 8, 10:53am  

ad says

Its due to stock market and effect of very low interest rates.


FIXED:
Its due to the housing market and effect of very low interest rates.

I really don't think that the stock market is in as much of a bubble as the housing market.
18   AD   2024 Jan 8, 12:57pm  

zzyzzx says


really don't think that the stock market is in as much of a bubble as the housing market.


da tru tru

house price to income ratio is off the chart ... stock valuation is not ...

https://www.multpl.com/s-p-500-pe-ratio
19   AD   2024 Jan 13, 12:40am  

.

need a more productive, motivated and educated workforce...

that improves standard of living and ensures greater value in the economy as unit costs remains the same or decreases over an extended time line ...
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20   AD   2024 Jan 13, 12:58am  

.

Google laying off hundreds of workers and NBC News laying off several dozen staff as well as Twitch laying off about 35% of workforce (~ 500 workers let go).

Seems like there won't be a soft landing as far as the jobs market going into November of this year.
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21   RWSGFY   2024 Jan 13, 9:40am  

ad says


.

Google laying off hundreds of workers and NBC News laying off several dozen staff as well as Twitch laying off about 35% of workforce (~ 500 workers let go).

Seems like there won't be a soft landing as far as the jobs market going into November of this year.
.



.


To be fair they were hiring like mad and paying top dollar for almost anybody who could fog a mirror. One of my shooting buddies is a mid-level manager in one of the companies on that list and his bosses basically forced him to hire couple of people who were far from being a good fit for the team. The message was "stop searching, hire whoever you have in the pipeline FUCKING NOW". And they were offered compensation in the same ballpark as their hiring manager. Guess who's out now.
22   GNL   2024 Jan 13, 10:45am  

RWSGFY says

Guess who's out now.

Not the hiring manager, I hope.
23   ForcedTQ   2024 Jan 13, 11:22am  

They did that so they could fire those new hires and show cuts. But they had to have them hired before the hiring freeze.
24   SoTex   2024 Jan 13, 11:44am  

In larger biotechs I've worked in when layoffs come around they wipe out the new youngest employees alongside the older long time employees. This helps them say, "See! No ageism!".
25   AD   2024 Jan 25, 9:46am  

.

As of end of 2023, annual GDP up 3.3% compared to estimate of 2%: https://www.cnbc.com/2024/01/25/gdp-q4-2023-the-us-economy-grew-at-a-3point3percent-pace-in-the-fourth-quarter.html

Not sure if this is being over reported and they will adjust this down after the upcoming November election.

My concern is they will under report PCE to convince the Federal Reserve to decrease the Federal Funds rate to continue the stock market rally.

PCE is reported tomorrow: https://www.bea.gov/data/personal-consumption-expenditures-price-index

The Biden White House narrative is to claim there is a soft landing with no recession (or very mild recession if any) for 2024. Its the same style propaganda with James Carville and "its the economy stupid" back in 1992.

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26   AD   2024 Jan 27, 3:36pm  

.

https://dnyuz.com/2024/01/27/a-famed-analysts-final-forecast-is-the-fall-of-the-u-s-economy/

“The dollar is finished as the world’s reserve currency,” Mr. Bove said matter-of-factly, perched in an armchair outside his home office just north of Tampa, from which he predicted that China will overtake the U.S. economy. No other analysts will say the same because they are, as he put it, “monks praying to money,” unwilling to speak out on the mainstream financial system that employs them.

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27   HeadSet   2024 Jan 27, 6:29pm  

AD says

“The dollar is finished as the world’s reserve currency,”

I have been hearing that since the 1990s.
28   DemocratsAreTotallyFucked   2024 Jan 27, 8:43pm  

AD says

“The dollar is finished as the world’s reserve currency,” Mr. Bove said matter-of-factly, perched in an armchair outside his home office just north of Tampa, from which he predicted that China will overtake the U.S. economy. No other analysts will say the same because they are, as he put it, “monks praying to money,” unwilling to speak out on the mainstream financial system that employs them.


China is fucked.
29   DemocratsAreTotallyFucked   2024 Jan 27, 8:45pm  

HeadSet says

AD says


“The dollar is finished as the world’s reserve currency,”

I have been hearing that since the 1990s.


Yep.

"The dollar is falling! The dollar is falling!"


30   AD   2024 Feb 5, 7:41pm  

HeadSet says


I have been hearing that since the 1990s.


See below November 2023 article:

https://finance.yahoo.com/news/7-6-trillion-us-government-040643412.html

$7.6 trillion in interest-bearing US public debt will mature within a year, Apollo's chief economist said in September.

That represents 31% of all outstanding US government debt, adding upward pressure on rates.

This explains why Pocahontas (Senator Warren) and Biden White House is pressuring the Federal Reserve to lower the Fed Funds rate. Jerome Powell said they may lower it from 5.5% to 4.6% this year with inflation ranging from 2% to 3%. PCE, the Fed's preferred inflation measure, is at 2.6%.
31   WookieMan   2024 Feb 5, 8:24pm  

UkraineIsFucked says

China is fucked.

Lol. 100% correct. Has this not been known for almost 2 decades?

US debt is never getting paid. We fucked them and we'll fuck them harder as their demographics crash in China. We're moving out manufacturing. China is a rudderless ship and they don't even know it. We can easily exist in this hemisphere without China. All you CA cats barely leave the state. Look at the chip factory near Anthem, AZ. The structures are like 2 miles long.

China is toast. Russia is toast. We're going to import LNG to Europe. This has been a long term play. We've put China and Russia back 20-30 years. Europe did it on its own. We've cemented our world super power status for the rest of our lifetimes basically.
32   Patrick   2024 Feb 5, 9:06pm  

WookieMan says

We're going to import LNG to Europe.


That's far more expensive that piping it from Russia. I think the pipelines will come back.

Russia seems to be doing fine lately even after Biden sabotaged Nordstream. China does have financial issues at the moment though.
33   AmericanKulak   2024 Feb 5, 9:32pm  

Yeah, the RMB isn't going to replace the dollar as the World's Reserve Currency until it's used... outside of China.

The BRICS is a joke because the S is imploding like all Turd World decolonized states do. It's just happening in slower motion because there are still millions of Whites. GDP is about the same it was 15 years ago, only bumping up temporarily in the flight to commodities in the Financial Crisis before crashing right back, but the Black population continues to explode. When (not if) EFF gets more seats, this will accelerate as ANC will have to move further to the Fannon Left to recapture lost votes. Brazil is a mess. India will not willingly collaborate with China for generations to come.
34   mell   2024 Feb 5, 9:41pm  

In terms of power grids Northern/Western Europe is light years ahead of the US (anywhere). Outages are pretty much unknown
35   AD   2024 Feb 6, 12:38am  

Patrick says

Russia seems to be doing fine lately


True Patrick, as even the Kiev Independent is stating that Russia is doing well despite the economic sanctions: https://kyivindependent.com/russias-increased-wartime-spending-catapults-economy-into-growth/

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36   WookieMan   2024 Feb 6, 4:28am  

mell says

In terms of power grids Northern/Western Europe is light years ahead of the US (anywhere). Outages are pretty much unknown

Yeah, but they don't have things like tornados and thunderstorms (frequently at least). Snow and freezing temps are mild at the lower altitudes. It doesn't start on fire like the US west. No hurricanes. They don't have vast farmland they have to build transmission lines through. We have so many weak spots due to geography.

There's a reason the world was developed in Europe first. Climate. You could grow crops and not die from natural disasters. War is the biggest issue. Maybe a heat wave occasionally.

Patrick says

That's far more expensive that piping it from Russia. I think the pipelines will come back.

Russia seems to be doing fine lately even after Biden sabotaged Nordstream. China does have financial issues at the moment though.

We can't believe the news that comes from Russia or China or anywhere. Even in the US. Russia is for sure hurting. The oligarchs and higher ups are fine, but your common Russian is absolutely hurting. Russia has lost more men in two years than we did in 20 in two wars. I know US Vets that were cheated on or left their state for greener pastures. It's the reality of war. GDP goes down when women leave and men are dying. Russia is in the tank.
37   AmericanKulak   2024 Feb 7, 10:00pm  

There's less distance to cross in Continental Europe. There's hardly a place in Germany where you'd drive more than an hour from one city to the next. You could start at middle of the Harz Mountains and be in either Hannover, Braunschweig, Leipzig, Magdeberg, Gottingen, etc. in under or an hour. If you drove along the Rhine or Danube or Oder, you'd hit an entirely new city (not a satellite or commuter city) every half hour. Same thing in Italy or France.

About half the US you could leave a city like Burlington or Cheyanne or Las Vegas or Salt Lake and not hit another city as large or larger for hours upon hours in most directions. EDIT: Forgot about Montreal from Burlington, only two hours, but that's the only direction.

Total aside: Montpelier, VT is not a city, I've been there. There isn't a single traffic light near the State House, which is tiny, and I think only a couple in the whole city. There are many churches or libraries bigger than the VT State House. It's smaller in size and population with fewer amenities than Florence, OR (which unlike Montpelier, has a McDs), if you've ever been.

Take a virtual drive:
https://www.google.com/maps/@44.2613535,-72.5809733,3a,75y,301.53h,86.81t/data=!3m6!1e1!3m4!1s8cDzCjzerSOI_izxawdYIg!2e0!7i16384!8i8192?entry=ttu
38   AmericanKulak   2024 Feb 7, 10:21pm  

WookieMan says


We can't believe the news that comes from Russia or China or anywhere. Even in the US.

This is a problem that some folks don't understand. Just because the US MSM is lying sacks of shit, doesn't mean PressTV or the MiddleEastEye or AlJeezera or Sputnik is telling the unvarnished or only a slightly embellished version of the truth. They're pushing a line on certain subjects HARD, esp. when that opinion conflicts with Western geopolitical interests.

Killing Suleimani shut the Iranians and their proxies up for years. Giving them cash always results in them getting their proxies to act up. Both when Obama did it and now that Biden/Kerry deposited billions in their Qatari bank account. The way to keep Iran behaved is to smack their elite like top IRGC Generals, not uselessly drone bomb their proxies footsoldiers or underlings, when they act up.
39   AD   2024 Feb 7, 11:18pm  

AmericanKulak says

Killing Suleimani shut the Iranians and their proxies up for years. Giving them cash always results in them getting their proxies to act up.


Yep, give the bully your lunch money does not guarantee he is not going to slap you around and rough you over especially in front of others.

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40   AD   2024 Feb 14, 11:39pm  

I thank Mish at Mish Talk website for this type of informative reporting.

The pandemic-spending spree and party is over. The economy is not great no matter what the Democrat narrative is.

I just hope the Federal Reserve does not get bullied into quantitative easing and/or lowering interest rates for at least the next 6 months.
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