MORE ON THE ECONOMIC CRISIS IN AMERICA

MORE ON THE ECONOMIC CRISIS IN AMERICA

GUIDED BY NONSENSE - THE DATA DOESN'T ADD-UP

Submitted by MN Gordon of Economic Prism (annotated 

by Acting-Man's Pater Tenebrarum),

Seven Year Achievement

U.S. consumers are at it again.  After a seven year hiatus they’re once again doing what they do best.  They’re buying stuff. .. The consumer, you know, is the primary engine of U.S. economic growth. Without consumption GDP doesn’t go up; rather, it goes down.  Moreover, in a debt based money system, when GDP goes down the whole financial debt structure breaks down. … Naturally, we want to know what’s going on.  Namely, we ask, where’s the money coming from?

Where’s the Money Coming From?

Middle class incomes, the last we recall, scored a big fat rotten goose egg over the last decade.  By this we mean incomes haven’t gone up.  To the contrary, they’ve going down.  .. Our understanding of this unfortunate situation isn’t based on anecdotes we overheard at the corner donut shop.  Nor is it based on experiences shared by the crusty fellows casting their lines off Belmont Veterans Memorial Pier.  Instead, we have hard evidence and solid proof.  Specifically, we point to the distilled findings of Pew Research released earlier this month.

So if it isn’t rising incomes that are propelling the PCE increase then what is it?  According to recent findings from the New York Federal Reserve, “total household debt climbed 1.1 percent in the first quarter to $12.25 trillion.”  This is “the seventh straight quarterly rise, and the biggest increase in mortgage debt since the Great Recession began.”

Yet, while “there were also increases in auto and student loans, […] credit card and home equity debts declined.”  In particular, “total debt remains more than $400 billion below the peak of 2008.”

See big image at: http://www.acting-man.com/blog/media/2016/06/2-household-debt-1024x520.png

Guided By Nonsense

Hence, if rising incomes and an increase in consumer debt are not culpable for the PCE gains, then what is?  One possibility is that Americans are dipping into their savings…

“Americans had been socking away money,” reports the Wall Street Journal, “but now appear a little more confident.  The personal saving rate in April was 5.4 percent, down from March’s 5.9 percent and the lowest level of the year.”

Perhaps this explains it.  But, nonetheless, something about it doesn’t quite add up.  Especially since it contradicts the story included in the May issue of The Atlantic, aptly titled The Secret Shame of Middle-Class Americans.  In short, the premise of the article is based on a Federal Reserve survey that found that nearly half of Americans would have trouble finding $400 to pay for an emergency.

If that’s the case, and consumers really can’t spare $400, how is it then that they can dip into their savings to push up PCE?  As far as we can tell, there’s no good answer to this question.

One conclusion we can offer is that this little review of odds and ends shows that economic studies and reports are utter nonsense.  One says one thing.  The next says the exact opposite.  Certainly they don’t tell you if you should buy – or sell – Microsoft or Macy’s.  They merely take you down a never ending network of rabbit holes to nowhere.

Of course, it is this utter nonsense that Fed monetary policy is guided by:  Income, labor, inflation, these are the “key metrics” the Federal Reserve uses to inform their federal funds rate decision.  Is there any question why they dither and dawdle over what it is they think they are doing?  Here’s one recent example – as  Fed Chair Janet Yellen, clarified  just one week ago:

“It’s appropriate, and I’ve said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate.” 

Just like the data points they look to for guidance, the Fed’s utterances are absolute nonsense.

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