While the media and politicians tell us we’re in an economic recovery… I keep writing about the slowdown we’re heading towards. How can I say that?
First, take out the stock buyback programs, and you’ll see that U.S. companies are seeing their earnings and revenues grow this year at their slowest pace since 2009. (More on that in today’s “Michael’s Personal Notes” column below.)
From an economic point of view: When a country experiences economic growth, industrial production of electricity and gas utilities pick up as factories and consumers use more electricity and other utilities. This is not happening in the U.S. economy. As a matter of fact, industrial production is contracting!
An index tracking industrial production of electric and gas utilities has declined almost eight percent since this past March. It stood at 103.76 then; in August, it stood at 95.62. (Source: Federal Reserve Bank of St. Louis web site, last accessed September 19, 2013.)
But it doesn’t end there.
Another key indicator of economic growth known as “capacity utilization” shows companies in the U.S. economy are operating below their historical norm. In August, the capacity utilization in the U.S. economy was 77.8%, three full percentage points below the historical average from 1972 to 2012. (Source: Federal Reserve, September 16, 2013.)
And we are seeing layoffs and discharges in the manufacturing sector accelerate in the U.S. economy. In March, there were 83,000 layoffs and discharges in manufacturing. In August, that number rose to 91,000—an increase of almost 10%. (Source: Federal Reserve Bank of St. Louis web site, last accessed September 19, 2013.)
When we look at the underemployment rate in the U.S. (that includes people who have given up looking for work and those who have part-time work but want full-time work), it’s been stubbornly around the 14% mark since 2009!
The fact that money printing in the U.S. economy has gone on for so long now is masking the real health of the economy. The U.S. economy is so weak, the Federal Reserve couldn’t even pull off a minor pullback of its $85.0 billion a month in new paper money printing last week!
I stay pessimistic on the economy. Take the stock market out of the equation (after all, only a very small portion of the U.S. population actually owns stocks) and the economic picture is not pretty! We have the Federal Reserve essentially printing money since 2008 to “help” the economy, but those trillions of dollars in new money have benefited the stock market and big banks the most.
Key economic indicators are issuing warnings of trouble ahead for the U.S. economy—warnings smart investors shouldn’t discount....
As I have recently written, it’s not just corporate earnings growth that’s the problem—revenue growth is also lacking. Companies in key stock indices enjoyed double-digit (or close to it) earnings growth in 2009, 2010, and 2011, as they recovered from the recession and the credit crisis. But today, take away the stock buyback programs and cost-cutting, and these companies are barely growing earnings or revenues.
As this disparity continues—key stock indices climb higher and corporate earnings growth becomes tricky to achieve—the risk for the stock market only rises. The market knows companies can’t deliver on earnings and revenue growth, hence the dependence on money printing now to drive key stock indices higher. How sad.
2--Housing: Is it really recovering?, Lance Roberts
According to an editorial in last Saturday’s Financial Times: “A sudden end to quantitative easing could imperil the recovery, especially if asset prices fell quickly enough to produce widespread insolvencies. Yet if a gradual end is announced, a more sudden one will automatically ensue.”The editorial went on to warn that the Fed could not pursue its policies by “stealth,” and that if markets were “kept in the dark, their behaviour will become dangerously unpredictable.” But an increase in such volatility is a direct consequence of the Fed’s surprise announcement. The Fed had claimed that it was carrying out its policies with “forward guidance” by alerting financial markets as to its intentions. But having signalled a move to taper and then retreating, it has created a new source of turbulence
It also revealed that, far from having been resolved, the crisis that erupted with the collapse of Lehman Brothers five years ago is deepening, as the policies of the Fed and other central banks create the conditions for another financial disaster, potentially on an even bigger scale than that of 2008-2009....
Announcing its decision, the Fed pointed to the “tightening of financial conditions observed in recent months [which], if sustained, could slow the pace of improvement in the economy and labor market.”
Since “tapering” was first mooted by Fed chairman Ben Bernanke in May, interest rates on ten-year US treasury bonds, regarded as a central foundation of the global financial system, have increased from 1.56 percent to nearly 3 percent.
While couching its decision in terms of the need to bring down unemployment, the central concern of the Fed is not the real economy and the worsening conditions faced by hundreds of millions of working people, but the need to maintain the inflation of asset prices, thereby benefiting the corporate and financial elites.
There is widespread acknowledgement in financial circles that the quantitative easing policies of the Fed and other central banks have done virtually nothing to boost investment, jobs or economic expansion, but are aimed at financing speculation at the expense of the mass of the population...
Analysing the dynamics of capital accumulation, Marx pointed out that in its most basic form its driving force was the transformation of money into an even greater quantity of money, with the process of production appearing simply as a “necessary evil for the purpose of money-making.” This explained, Engels noted, why all capitalist nations are periodically “seized by fits of giddiness in which they try to accomplish money-making without the mediation of the production process.”
What was a “fit” in the days of Marx and Engels has now become a permanent condition of the global capitalist economy.
The crisis of 2008 was an initial expression of this historic transformation. But the measures undertaken since then have only exacerbated the contradictions that exploded to the surface in the financial meltdown.
Through its program of quantitative easing, the Fed has expanded its asset base from under $1 trillion in 2007 to more than $4 trillion today, equivalent to about one quarter of US gross domestic product.
This asset-buying program, unprecedented in economic history, signifies that instead of standing to some extent outside of financial markets as a lender of last resort, as they did in 2008, the Fed and other central banks are themselves now deeply integrated into the operations of the markets. This means that the next financial crisis, the conditions for which are well advanced, will involve the central banks themselves, posing the complete collapse of the financial system.