The US Economy is Growing Again

The private sector isn't borrowing. Every day brings more proof. Consumer credit contracted again in September - the 8th month this year.

The US Economy is Growing Again

The US Economy is Growing Again

According to the news reports, the US economy is ‚Äúgrowing‚Äù again. That’s the official storyline. What kind of growth is this? David Rosenberg, economic guru states, “All we can say is that if the overwhelming consensus is correct that the recession is behind us, then what we have on our hands is the mother of all jobless recoveries and whatever economic growth is being squeezed into the system comes courtesy of the most dramatic intervention by the government in recorded history, including the New Deal 1930s era. President Obama is now running fiscal deficits that would have made FDR blush.”

The quacks at the Fed and the Treasury department have delivered the biggest jolt of adrenaline in history. People in the private sector won’t spend? Hell, the feds will spend for them!

It took the Fed nearly one hundred years to grow its balance sheet, which is the foundation of the US money supply, to $800 billion. Then, after Lehman Bros. went broke, it doubled its balance sheet… to more than $1.8 trillion.

Early last week, the Fed announced that it would keep the firehose – sized IV in place. Then, by the end of the week, the G-20 meeting of finance ministers confirmed said they were all sticking with their stimulus programs.

You can’t put that much cash into a financial system without getting some kind of reaction. Goldman is making record profits, for example. How does Goldman make money? It is the finance business, which profits by offering credit. When credit expands, the moneylenders and speculators at Goldman make money.

The private sector isn’t borrowing. Every day brings more proof. Consumer credit contracted again in September – the 8th month this year.

Unemployment just passed the 10% mark, reports The New York Times.

“Small Businesses Hunker Down to Survive,” says another headline story.

Another big bank went bust in California. But while the private sector de-leverages, the public sector expands. Now, it’s the feds who are doing the borrowing – about $1.7 trillion this year. This is great for the people who help the feds finance their spending. But all it does is add more debt to the system; and debt is the real problem.

If former OMB director David Stockman is right, we’ll see deficits over $2 trillion for a decade. What people once took for absurd they now take for granted, such as trillion-dollar deficits. For even with a hole in public finances equal to 13% of GDP, the US House of Representatives passed a law overhauling the health care system at a cost of more than $1 trillion.

What were they thinking?

Well, they were probably thinking that ‚Äúdeficits don’t matter.‚Äù And they were probably justifying the expense on the grounds that it was ‚Äúcountercyclical spending‚Äù that would help pull the US out of its slump.

Whatever they were thinking, they weren’t remembering what happened 20 years ago. It was almost exactly 20 years ago today that the Berlin Wall fell, bringing to an end a 40-year demonstration project. The East Germans/Soviets wanted to show the world how well economists working for the government could run an economy.

… and we found out!

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  1. Publisher

    Dear Market Man. As an economist myself I look with horror at the precedence that has been set by choosing bail out and stimulus as the instruments to restart an economic ideology that is based on market forces. It's not necessarily because I think socialism or capitalism are economic options to pursue, but it is the willful choice to opt for a lifetime lasting chronic pain instead of a very short acute pain. In reality however I or better WE should not have been surprised, considering that everything in our society today accepts chronic pain over acute pain. We have an expression in the Netherlands that translates pretty much as: “Weak doctors create smelly wounds”. Keep your options open as long as you can.

  2. tommylee

    Borrow from the weak, spend it for the super rich and you have The Rocky Horror Picture Show – 95% will never understand what happened when the tidal wave hits.

    The Law of economy is equal to “frugality”. More and more constituents are forced or by their own will “saving” while the Feds are spending. The more people that “save” and the more the Feds spend the greater the chronic pain will hammer hard those that “listen” to the “Law of Economy”.

    The people that try to do the right thing are going to be the biggest loosers if they don't turn their savings into anything else then paper. Gold and silver are NOT investments but SAVINGS that you can rely on when the debt is so overwhelming that it will weaken the dollar into monopoly paper and when a thousand bucks won't buy you a loaf a bread anymore. And that is the sad part.

    The Frugalistas (those that save i.s.o. spend) are going to be the most deceived ones and those that keep the printing presses alive and well will shrug and go “Oh well, I turned my money into precious medals” so who cares…. Sad.

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