Up The Creek Without A Paddle

The contrast between what we see in our every day lives is not consistent with what government tells us is happening in the economy. The so-called recovery certainly doesn’t feel like one; it is certainly unlike any of the others over the last 50 or so years. If inflation is not a problem, one can only wonder how government obtains their numbers. Apparently they exclude or weight insignificantly what we must buy every week, like food and gasoline. We are told that the unemployment rate is going down but that is inconsistent with what we see and hear from neighbors. How can that be when labor force participation rates are at recent record lows? How does one reconcile record-setting food stamp payments with a prospering economy?

If these are some of the contradictions you wrestle with, it is likely you believe what government is telling you. That is always dangerous, but especially so now when we approach an almost certain economic apocalypse.

The economic disaster in Europe produced political upheaval in their recent elections. These changes will likely only hasten the implosion of the Eurozone and the Euro and the inevitable economic collapse over there. Similar changes, both politically and economically, lie ahead for America, although likely not quite as soon as Europe.

The US government is responsible for putting this country in jeopardy. For the past fifty years they have attempted to manage the economy with tools that are both inflationary and price distorting. Each downturn in the economy has needed larger interventions to correct. All of these interventions have been done in an attempt to cover up problems caused by prior interventions.

Now the country nears its breaking point. Prior interventions have created such distortions that the economy is no longer functional, at least in a productive fashion. Additional interventions will only compound problems and they are not likely possible because  government is out of resources (fortunately).  Meanwhile the misallocations and distortions in the economy continue to percolate behind the scenes. There can be no recovery until the economy purges itself of these cancers. Yet that is exactly what each government intervention over the last fifty years was designed to prevent.

Government has exhausted its supply of false magic. All that is left is lying. That is why reality does not conform with the data — the data are false. There is nothing else left for government to do but fudge numbers. They have exhausted all other options. Actually, they still have one more option which they may or may not use. That is the “printing money” option that Bernanke has threatened and also withdrawn. When matters truly become desperate, I expect him to use that option.

James Quinn provides a “take-no-prisoners” article dealing with the fantasy of government data and how our decline is at least forty years old. We have had ups and downs along the way, but all have been within a secular decline.

Here is one of Mr. Quinn’s observations on the fraud that Washington attempts to paint as a recovery:

It divulges the extent to which Ben Bernanke and the politicians in Washington DC have gone to paint the U.S. economy with the appearance of recovery while wrecking the lives of senior citizens and judicious savers. Only a banker would bask in the glory of absconding with hundreds of billions from senior citizen savers and handing it over to criminal bankers. Only a government bureaucrat would classify trillions in entitlement transfers siphoned from the paychecks of the 58.4% of working age Americans with a job or borrowed from foreigner countries as personal income to the non-producing recipients. How can taking money from one person or borrowing it from future generations and dispensing it to another person be considered personal income?

Mr. Quinn discusses the deception and changes that occurred in this country over the decades:

Money taken from workers and investors and transferred to the non-working and spenders is NOT INCOME. It is just redistribution from producers to non-producers. The key takeaways from the chart [see his article for chart] are:

  • Working at a job generated two-thirds of personal income in 1970 and barely half today. This explains why only half of Americans pay Federal taxes.
  • One might wonder how we could be in the third year of a supposed economic recovery and wages and salaries as a percentage of total personal income is lower than pre-crisis and still falling.
  • Government transfers have doubled as a proportion of “income” in the last forty years. The increase since 2000 has been accelerating, up 122% in 12 years versus the 55% increase in GDP.  The slight drop since 2010 is the result of millions falling off the 99 week unemployment rolls.
  • Luckily it is increasingly easy to leave unemployment and go on the dole for life. The number of people being added to the SSDI program has surged by 2.2 million since mid-2010, an 8.5% increase to 28.2 million people. Applications are swelling with disabilities like muscle pain, obesity, migraine headaches, mental illness (43% of all claims) and depression. Our leaders have set such a good example of how to commit fraud on such a grand scale that everyone wants to get a piece of the action. It’s like hitting the jackpot, as 99% of those accepted into the SSDI program (costing $132 billion per year) never go back to work. I’ve got a nasty hangnail. I wonder if I qualify. I’d love to get one of those convenient handicapped parking spaces. Once I get into the SSDI program I would automatically qualify for food stamps, a “free” government iPhone, “free” government cable and a 7 year 0% Ally Financial (85% owned by Timmy Geithner) auto loan for a new Cadillac Escalade. The SSDI program is now projected to go broke in 2016. I wonder why? 
    • A nation that rewarded and encouraged savings in 1970 degenerated into a country that penalizes savers and encourages consumption. The government, mainstream media, and NYT liberal award winning Ivy League economists encourage borrowing and spending as the way to build a strong nation. Americans have been convinced that borrowing to appear successful is the same as saving and investing to actually achieve economic success.
    • Americans saved 7% to 12% of their income from 1960 through 1980. As Wall Street convinced delusional Boomers that stock and house appreciation would fund their luxurious retirements, savings plunged to below 0% in 2005. Why save when your house doubled in price every three years? Americans rationally began to save again in 2009 but Bernanke’s zero interest rate policy put an end to that silliness. Why save when you are being paid .15%? Buying Apple stock at $560 (can’t miss) and getting in on the Facebook IPO (PE ratio of 99) is a much better bet. The national savings rate of 3.8% is back to early 2008 levels. I wonder what happens next?

    • The proportional distribution between interest and dividends which had been in the 3 to 4 range for decades is now virtually 1 to 1, as Ben Bernanke has devastated the lives of millions of poor senior citizen savers while continuing to subsidize his wealthy stock investors buddies on Wall Street.

Mr. Quinn explains how inflation has devastated the lives of average Americans:

Total wages and salaries have risen by only 112% on an inflation adjusted basis over the last 42 years. This is with U.S. population growth from 203 million in 1970 to 313 million people today, a 54% increase. On a real per capita basis, wages and salaries rose from $16,079 in 1970 to $22,060 today, a mere 37% increase in 42 years. That is horrific and some perspective will reveal how bad it really is:

  • The average new home price in 1970 was $26,600. The average new home price today is $291,200. On an inflation adjusted basis, home prices have risen 85%.
  • The average cost of a new car in 1970 was $3,900. The average price of a new car today is $30,748. On an inflation adjusted basis, car prices have risen 33%.
  • A gallon of gasoline cost 36 cents in 1970. A gallon of gas today costs $3.85. On an inflation adjusted basis, gas prices have risen 81%.
  • The average price of a loaf of bread in 1970 was 25 cents. The average price of a loaf of bread today is $2.60. On an inflation adjusted basis, a loaf of bread has risen 76%.

In most cases, the cost of things we need to live have risen at twice the rate of our income. This data is bad enough on its own, but it is actually far worse. The governing elite, led by Alan Greenspan, realized that accurately reporting inflation would reveal their scheme, so they have been committing fraud since the early 1980s by systematically under-reporting CPI as revealed by John Williams atwww.shadowstats.com:

The truth is that real inflation has been running 5% higher than government reported propaganda over the last twenty years. This explains why families were forced to have both parents enter the workforce just to make ends meet, with the expected negative societal consequences clear to anyone with two eyes. The Federal Reserve created inflation also explains why Americans have increased their debt from $124 billion in 1970 to $2.522 trillion today, a 2000% increase. Wages and salaries only rose 1,250% over this same time frame. Living above your means for decades has implications.

Given these numbers, it is hard to argue that government will not resort to Bernanke’s “print money” option. After all, they have used this consistently since the formation of the Federal Reserve and especially during the last fifty years when, arguably, there was no economic crisis.

Read Mr. Quinn’s full piece to understand what has happened in this country and how bad things truly are.

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  1. To paraphrase Shakespeare:

    Skies this dark only clear after a storm.

    A BIG storm is coming no matter what the Chrissy Matthews of the world would have you believe.

  2. Reality can be ignored but it cannot be denied. Thatcher’s statement that socialism ends when you run out of money inevitably leads to an inflationary depression like Zimbabwe or Argentina. This is a process that can take decades if it occurs slowly or it can happen rapidly in these two beautiful but horribly mismanaged nations.

    What is remarkable is the decline in velocity of cash. Milton Friedman’s monetary work indicated that money velocity was a constant with only a slight variation. That was true since WW II during Friedman’s life. More recently, money velocity has dropped and the fact that the Fed has provided reserves to their favorite banksters, but this money is largely being kept out of the rest of the economy is a partial explanation for part of the odd set of bank numbers that end up being reported by the various federal government data generating agencies.

    Economists, excluding the small band of Austrians, should be engaging in massive soul searching for their incredible lack of knowledge, forecasting, or economic insights of our current worldwide stagflationary environment. The ignorance of ivy league Keynesian economists in econmics in general and monetary/banking economics in particular is a unreported scandal. That is why a third rate Nobel Laureate like Krugman ends up on the tube debating a physician turned congressman, Ron Paul to the formers inability to respond to Paul’s basic Austrian insights.

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