The real state of the economy

( – promoted by buhdydharma )

  A few days ago Bonddad basically did a call-out diary to all skeptics on the economy. He called everyone who doubted the strength of the recovery a “Zombie Bear” (i.e. unthinking pessimist).

  He then went on to unload nearly three dozen charts.

 The one thing I could never accuse Bonddad of is an inability to read a chart. He’s got that down. My criticism of Bonddad has always been something else – he never asks “Why?”

 Since Bonddad would count me as a skeptic, and since Bonddad felt it necessary to call me out, I feel obligated to respond in kind.

  First of all, not all of us skeptics are unthinking zombies. For example, its been obvious since the middle of 2009 that manufacturing had hit bottom. While capacity utilization is still at recessionary levels, it’s been slowly growing for over a year.

 The question is: Why?

It’s not enough to just point to a series of charts, not if you want to actually understand the world around you.

  The reason for the modest rebound in the manufacturing sector is because of exports.

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 Well, what’s wrong with that? Nothing is wrong with it at face value, but some of us want to dig deeper.

 Why are exports surging? Because emerging markets are booming. In fact, most of those enormous corporate profit numbers you read about are from overseas sales. Why are emerging markets booming? Well, that’s where you find a huge problem.

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Emerging markets are booming because we are flooding them with currency in an effort to devalue the dollar. Even in the face of a sovereign debt crisis in Europe, the dollar has weakened because we’ve printed so many.

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 So much money is flowing into emerging markets that many countries, such as Brazil are taxing capital inflows in order to discourage foreign speculators. Can you imagine a third-world country discouraging wealthy people from investing in their country? Why would they do that? Because they are fully aware that a bubble is forming. China has called us out on our increasing money printing and the problems it is causing.

 You have to wonder what is going to happen to the speculative edge in emerging markets if things continue to deteriorate in Europe.

 All of our money printing has a multiplier effect on the rest of the world.

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 So what? All that money has to go somewhere, and that somewhere happens to be in things that get traded in devalued dollars.

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  Food price inflation is a reality, and it strikes the poorest the hardest.

 For example, prices for feedgrains like corn, wheat and soybeans are up anywhere from 20-65% (not annualized) over the past six months, while prices for imported foods like coffee and sugar have jumped by 60% over the same period. Those increases are only beginning to show up in the popular price gauges.

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 To put it simply, printing money is a zero-sum game. Some will win and some will lose. The manufacturers are winning, although manufacturing is less than 15% of the economy.

 The losers are a) everyone getting paid wages or saving in dollars, and b) the lower class who spends most of their income on food and energy.

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 There is another winner to all this money printing, and those are the people who are closest to the source of the printing – Wall Street.

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 As you well know, the Federal Reserve’s Quantitative Easing (aka money printing) involves the purchase of trillions of dollars worth of securities. Who do they purchase all those securities from? Mostly from big Wall Street banks and financial institutions. That’s why those Wall Street bonuses are so high – because taxpayers are subsidizing them.

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 Now it would be a mistake to think that Wall Street banks own all those securities they sell to the Fed. Most of the time they just trade them. The top 20% of society, and mostly the elite 1%, are the ones who actually own the securities.

  And let me tell you, they are doing great!

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 So when I say that I am skeptical of how the economy is functioning, don’t mistake me for saying that some segments of society aren’t doing spectacular. Their wealth is increasing immensely, mostly because taxpayers are making sure that financial asset prices, the vast majority of which are owned by the wealthy elite, are propped up at the expense of the working class.

  So with all that extra money, the wealthy are going to spend.

  We’re already seeing hugely positive results out of luxury brands like Coach (NYSE: COH), which reported sales growth of 20% this quarter, and high-end department stores like Nordstrom (NYSE: JWN) and Saks (NYSE: SKS), which reported same-store sales of 5.8% and 5.7%, respectively…

  High-end jeweler Tiffany alone saw earnings jump 27% this past quarter.

 While the wealthy are shopping until they drop, sales at working-class retailers like Walmart are disappointing.

  So when you see a modest (and below historical average) bounce in real final sales, you might want to ask the question – who is doing the buying and why?

 One other thing on that call-out diary that I couldn’t help notice was missing – the real estate market. You might remember it. It’s considered a leading indicator by the experts, and was responsible for crashing the financial system, leading to a worldwide recession.

 Oh, yeah! That real estate market.

Things aren’t doing so well there. Well, for some at least. Companies like The Property Block are doing their part to help the housing market by offering above the asking price for homes that they are interested in which is stabilizing the asking price for other homes in the area at least, so there might be light at the end of the tunnel.

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 Despite whatever you may have heard, there has been no rebound in the housing market. The government wasted hundreds of billions of dollars getting temporary (and false) bounces.

 Well, I shouldn’t say “wasted”. The Fed has purchased more than a trillion dollars worth of questionable mortgage-backed securities from Wall Street banks at face value. So I guess that the wealthy don’t consider the spending to be “wasted”.

  Now I’m sure that some bullish economist out there can produce a chart that shows that we are at the bottom in the real estate market right now, but it won’t look like this.

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 The amount of housing inventory on the market is in the double-digits of months. The shadow inventory is even more.

 Like a real estate agent who will always tell you that “now is a good time to buy”, its not hard to find an economist to tell you that the economy is improving. Anyone who saw Inside Job knows the scam.

  However, there are people who’s job depends on making a correct call on the economy, and they aren’t very optimistic.

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In conclusion

 Certain sectors of the economy are doing very, very good right now. Those people don’t read blogs like these. They are busy living large and voting Republican because they want more tax cuts.

 Working class people read blogs like these, and they aren’t living large. They are struggling to get by.

 So when someone comes by and basically says that if you were smarter that you would see the economy is doing much better, its not really a surprise that some people would resent it. Maybe even get nasty.

  They have a right to be nasty. All it takes is for one person, like me, to break down those charts to show that they are being screwed in order for the rich to get richer. Then those people who resent you telling them that they aren’t very smart will realize that what those charts are actually showing is theft on a massive scale, and they are the marks.


Skip to comment form

    • gjohnsit on December 1, 2010 at 2:54 am

    Nothing personal against Bonddad, but I’m tired of chart-readers acting like they are somehow brilliant.

    • RiaD on December 1, 2010 at 4:32 am

    for always explaining so that i understand.


  1. America has fewer manufacturing jobs today than before the war.

    No, not that war. Nope, not that one either. Nope, not that one. Yes … that one! The United States today now employs less people in manufacturing than anytime since 1941. This is even more staggering when you consider there were 132M Americans in the 1940 census … and we have a good bit over 300M today. So more than double the population (and I’d model double the work force), but less of these type of jobs.

    An amazing chart in John Mauldin’s weekly letter shows why we are having increasingly jobless recoveries.

    Where there once was a massive uptick in employment when the manufacturing economy kicked in (as it has done the past 12 months), now we have the surge in activity and profits to shareholders – but much of the resultant employment pickup is in some distant land. Of course those that remain within our borders are much more productive worker bees as well.

    This is either an incredibly debilitating chart (if you are labor) or pleasing (if you are an owner of the means of production – “darn expensive Americans”). Since a lot more Americans are labor than owners of capital you can see the effects on the larger society … one of the many underpinnings of the income inequality chasm that has burst to the scene in the past few decades.

    Either way, it is jaw dropping. We can see the great sucking sound Ross Perot warned us about in the early 90s really took off in the 2001 recession where 3M plus manufacturing jobs went away … and during the 4-5 year ensuing recovery in the general economy, there was no bounce in mfg jobs as has been the history of the country earlier in the century. Then when this “Great Recession” began, another 2.5M or so washed away. If the pattern of 2003-2006 repeats, these won’t come back in large number either – they are permanently affixed in a factory town in China.

  2. that you post above, basically says it all. If you think that an ‘economic recovery’ is possible if only say 1% (or whatever the number is)  benefit, then it’s a recovery. If you think that a ‘recovery’ means that most people should benefit then it’s not; and may never be. Ever.

    In other words, the growth or lack of growth of the total economy isn’t the issue-in fact it could actually retract and yet most people could still benefit.  

    Think of the class war the rich would wage then !

    As it is, it’s a transfer of wealth the other way-and moreover towards certain sectors of the economy as well, mainly the MI.  

  3. The GREEN SHOOTS folks can’t see the forest for the trees.  😉

    • Xanthe on December 1, 2010 at 11:15 am

    here in Cook County, all RE taxes have gone up – some as high as 30% (or more).  And – our homes are worth less and less, of course. FYI bills came out after elections – surprised?

    If you look at the RE bill – much of the money goes to for instance Cook County Hospital and social nets like that (as is necessary and moral)- we pay taxes locally up the orifice as the Republicans continue to call for TAX CUTS – don’t make me choke to death laughing.  Of course, if you live in a highincome suburb, you don’t mind paying those high taxes because it’s for your small and worthwhile tribe.  

    I hope you don’t mind my saying this in this diary, GJ, but if Rahm becomes mayor – look for privitization big time – they (you know “they”) will say we need to privatize to cut high local taxes and guess what – local taxes will continue to rise.  

    It’s called coming and going.


  4. that I am in an industry that is in a supposed upswing.

    I can tell you with certainty that the data upon which this assertion is made is marginally accurate, at best – loose extrapolations morphed into facts.

    Don’t count your chickens until 4Q hard data is in.

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