Contrary to High Priest Powell, the Economy is NOT Strong

With rapt attention from all across the nation, the High Priest of Finance at the Federal Reserve took his position behind his presser pulpit. Biting his quivering lip again and again, he uttered his benediction over the US economy. He made sure to carefully speak the words I hear repeated across the nation like a mantra: “The Economy is Strong.”

It seems that, wherever I wander on my own through the concrete canyons, I keep hearing all the stock market evangelizers on Wall Street say, “The economy is strong.” I hear Goldman’s Fed acolytes say it surrounded by their Sachs of gold, but also I hear the merry band of Robinhood retail investors, who want to believe they are immortal, proclaim it out in the streets. I especially hear the televangelist economic gurus of our time who worship at the door of the Fed’s ecclesiastical temple — the Eccles Building — say it ALL THE TIME.

These are the words that keep up the spirits of mammon worshippers everywhere. They shore up the faith that maintains market sentiment into the rising fervor of a pentecostal crowd. They are calming words, reassuring words, even strengthening words — the Wall-Street equivalent of “A Mighty Fortress is Our Fed.”

Unlike the worshipping crowd, I feel nauseated every time I hear people singing that tune from a sidewalk cafe as I walk by, from a radio program playing in my car, or from High Priest Powell, himself. The cognitive dissonance between what I hear all these people saying and what I see for myself about the economy around me on Main Street causes my brain to churn like it has some kind of mental version of the stomach flu. I am sure those around me can hear and see as easily as I can what is happening in our world, so the disconnect between what they all claim to see and my own sense of reality makes me dizzy.

On what basis can anyone possibly think this is a strong economy? Look aground you, and let me point out a few ghosts, goblins and zombies that I see scattered like shadows throughout the scenery. I do it not to haunt you with woe-begotten tales fear but to reinforce what your sense of what are seeing, lest you waver in your own sense of reality and doubt your eyes as their lids start to droop under the opiate words of puppet master Powell. (All that I present is not much different for other nations right now either, so everyone can probably apply it wherever they live and maybe even multiply it to reinforce their sense of reality and their belief that they are not going insane IF they prefer reality over the hyped sentiment that pervades the wound-up world of finance.)

I’ll put it in simple bullet points to help it penetrate the fog.

Here is reality as I see it

• GDP growth is shriveling rapidly and is probably lower than the Fed is letting on, and retreating GDP growth is never a sign of a strong economy.
• The job market is not strong as Powell claimed it was due to a strong, healthy economy. It is tight because a huge part of the labor force quit for good in total disgust, leaving us incapacitated in production. Many of those retired for good (even Powell admits that) because their companies were destroyed by our various COVID lockdowns over the past two years. They were close enough to retirement that retraining or relocating made no sense to them. The job market has been made even tighter by the unconstitutional Biden vaccine mandates and then again by Omicron sending many out on temporary sick leave. All of those mean the market is NOT strong and healthy because of a growing, vibrant economy, as Powell claimed, but is tight because of economic ruination!
• Headline unemployment is actually starting to rise again. That is never part of a strong economic picture.
• The businesses that closed because of the COVIDcrisis stand out like enduring economic ruins on the landscape. They do not just represent a permanent loss of jobs, leaving more people taking from the government via social security than giving into it. They are also permanent waste of productivity littered around the nation. Those particular businesses are never coming back, and in the present plague-ridden environment, new production or service businesses will be slow to get going. (I mean who really wants to open a restaurant or hotel at a time like this when many establishments are still forced to run at partial occupancy or to turn patrons away who are not vaccinated because of local vaccine mandates?)
• Inflation is a roaring inferno and not primarily because of demand due to a strong economy, as the parrots of the priesthood keep screeching, but due to shortages in the face of the greatest money printing since Zimbabwe bought new printers when the old ones smoked out.
• We were told shortages were going away soon many months ago, but we can readily see they are slowly building. (Even Powell acknowledged they had not gone away, saying there were a few hints that some supply-lines were improving, but they were marginal hints at best in his view, and he was content to leave it with they are not abating for now.) There are more ships waiting to get into port, not fewer; they are just waiting out at sea, and it would take a couple months to clear out the present mess if everything else improved immediately.
• China has shut down entire cities, businesses and ports in its zero-COVID policy, leaving it unable to keep up with our supply needs for both consumers and industry, and we have let ourselves become deeply dependent on China for those needs. So, that part of the supply-side shortage isn’t going away anytime soon.
• Various other nations are facing similar shutdowns with lasting wreckage to some of their companies, leaving them unable to send sufficient resources and components to producers in the US.
• We’re two years into a global plague, and we were told at the start of the plague we’d be heading out of it within a year. The end may be near, but we’ve seen a rise in deaths reportedly due to COVID many times. I have no idea who is right about how fake or true those reports are, but I do know that Omicron has sent a lot of people home sick. Regardless of what is real and what its the fog of delusions on both sides of the COVID argument, the plague or our perception of plague (however you want to call it) is destroying our economies.
• We have a quivering mass of zombie corporations leaning out over us like some sort of shadowy collective of ghouls. These are the skeletal companies that have been sustaining themselves for years on a phantom diet of debt because their investors are running, and they have no profits. They threaten to collapse like empty sheets in a world of rapidly rising debt costs.

Those are economic realities that do not look like a strong, vibrant economy. It doesn’t matter what people say the metrics are, which are so easily massaged and rigged, but I’ll give you a real look at the most economically descriptive metrics, too.

When you look around and see the wreckage, this economy looks more like a knee-capped old man who was knocked into a casket by COVID and is trying to crawl back out against a strong wind, and that doesn’t even consider the financial meltdown many nations have with bond funds and their stock markets right now, especially the US with which I’m most familiar. If you add all that is happening there at present, the skies darken considerably around you.

No, I’m just talking in this article about the condition of the Main-Street economy where most of us work and take our leisure if we’re allowed. I’m talking about the fractures in its structures — the economy’s fundamentals, not the stock market’s fundamentals — which are why those financial markets are crashing, though the walking blind refuse to see that, too.

Let’s take a real look at GDP

Let’s take a look at how strong our economy is from just the first point I brought up — GDP, the big number — but let’s get real about GDP. Headline GDP is measured in dollars, so what does it matter if it appears to be rising but is not rising as fast as the dollar it is measured in is falling? That is phantom GDP growth. GDP growth is not making you or the nation richer if it is not keeping up with population growth or the declining value of the instrument used to measure it.

Let’s take a look at real GDP, but first, the usual headline number to see the illusion conjured up by the priesthood that all the blind are staring at. It is the number they are meant to see:

Hey, that doesn’t look too bad! Economic growth since the 2020 COVIDcrash has almost brought our nation’s total production back to where it was headed throughout the Trump years, right? How remarkable is that for a recovery.

Oh, but wait, printing all that money and having all those shortages due to the lockdown has an insidious undercurrent not seen in that headline number. Haven’t we had a lot of inflation that I have been writing about during the last part of that recovery? That is the unseen damage. How much difference does it make if we adjust that illusory GDP, measured in dollars, for inflation? Well, then the recovery of the “strong economy” looks quite a bit different, even using the priesthoods own numbers:

Woe to us! Not only has “the strong economy” really fallen short of getting us back to the path we had been on, it even appears in the final quarter shown to be falling back away from the original flight path. That would be because the real GDP growth rate has been stomped down by inflation! Imagine that! And in terms of the many other metrics you hear bandied about in the stockyards of Wall Street, remember their earnings all need to be factored down by 7%, too!

Here is the real GDP growth rate up to the third quarter of last year (last number in), and remember inflation didn’t get scorching hot until we were moving into the fourth quarter:

You can see we got a big kick back up right after the crash because, as I have said, having turned the economy off with a switch, we turned it back on with a throw of the switch. That sudden restart felt exhilarating like a strong economy, but the real condition of the economy (how much damage it sustained) can be seen by what did not come back on.

Look at the last quarter we have in available data where we ended up as the dust of crashing and the bursting then bursting back in some kind of resurrection was settling down because there was a cost to doing all of that on credit with newly created money. No, there is no free lunch when you’ve been Fed, no matter what the conjurers tell you.

That quarter looks kind of puny and was a big step down. That is why you see in the graph of total real GDP (because we are getting real here) that the final leg of the journey on record was still rising but was no longer rising as fast as the trend in the “old economy” had been rising. That is you new weaker economy, not stronger. Stronger economies don’t have declining GDP growth. It means we won’t even remotely get back to where we should be just due to population growth and the regular improvement in business we had been known in our former world.

Oh, but Jamie Dimon, the priest over the JPMorgan congregation, told us this was the strongest economy he had EVER seen! And a big new GDP number for the fourth quarter is coming that is supposed to be 4%, right? Well, just remember to factor in the 7% bite out of your butt (and headline GDP that inflation takes as all the market evangelists try to keep your eyes focused on the phantom headline number.

[UPDATE: Shortly after publishing this article, fourth-quarter GDP for 2021 came in significantly hotter than the ~4% most economists were expecting and hotter still than I ever thought we would see, but I decided to keep all of the above about the direction of GDP as I wrote it because, if I’m wrong on some or all of that, I’m wrong; and we all need to admit when we’re wrong. Still, I want to look under the hood and digest the numbers and will then write a report on today’s GDP report. We’ll see also in that article what it means for my recession prediction for the start of 2022. In the meantime, keep in mind that inflation is hotter than the government is showing in its numbers (see next paragraph in this article as originally written), so real GDP is likely lower than the government figures, albeit higher than I expected.]

Then, after all of that, remember that the government underestimates inflation particularly in how it asks the laity to guess what their biggest cost — housing — would be if they rented the home they own. (So that only rental rates are adjusted for, not the change in the price of housing.) Here is where Shadowstats says the real GDP growth rate would be if GDP were calculated as it used to be prior to the time long ago when the Fed switched away from true housing cost estimates to best guesses via a survey of its parishioners as if rent equivalence and the cost of buying a home are the same: (the blue line)

The end of the red line is about at the level of the little blip in the third quarter on the earlier chart. You can see that, with proper housing adjustments, etc., real economic growth is likely just as far south of zero as the official number is north of it.

Oh, and did you think that maybe you are doing better in spite of this falling GDP growth rate because income has risen greatly as a result of the tight labor market? Father Powell made some big statements about that. Remember, however, that population has grown and so has inflation, so look at how much of all that income growth has been eaten back out from under you as one individual by inflation. Here is how the average Joe and Jolene were doing, how his or her situation improved as labor rates started rising and (mostly) free money started falling from the hands of Father Fed … and, finally, the bite that inflation has already taken back out of that:

Oh well! Easy come, easy go.

Those are the numbers that probably don’t keep priestly Powell up at night as much as they should. Yup, we got a rocket ride out of the last recession with the help of money printing, and the resulting labor shortage did raise wages, but look at where the average person ended up once the inflation monkey started riding our backs in 2021 and as all the monkey business of free Fed funds into our pockets dried up.

Still think an economy with some decent headline GDP is a strong economy or that inflation is not that big of a boogey monster? Inflation has already devoured more than every benefit you might have gotten out of the restart — if you got any at all and if you are the average person.

Are you starting to think that maybe the reason people are telling you “the economy is strong” is to convince you of some other reality than the one you are living. The way to fleece the flock is to pull their own wool over their eyes. Maybe the high shepherd is giving his flock the opiated words they need to believe in order not to rebel … or leave the faith.

Of course, I do not think you are one of the blind sheep, or you would not be reading here. I am just hoping to help keep you from questioning your sanity or give you something to steady yourself if all the illusions and the fog necessary to mask them make you a little dizzy.

Summary

The COVIDcrisis gave us two years of economic crisis, its form created by how the world responded as one nation to it. That economic crisis, as we unwind our inflated response, is already becoming an economic collapse. I am writing a series right now for my Patrons called “The Everything Bubble Bust.” It will dissect the details of the economic collapse I predict we are now experiencing. Why do I have to “predict” something we are now experiencing? Because too many people don’t see it because they believe “the economy is strong.” But they will see it as the illusion falls like a curtain.

In Part 1 of “The Everything Bubble Bust,” I have laid out some clear lines of trajectory for how far the stock market will likely fall over time and where it will find strong support along the way, and what its reaction yesterday to Jerome Powell means. I am just finishing it up and will publish that Patron Post later today.