If you want to know why we are heading for a financial trainwreck, just consider the back-to-back statements this AM uttered/tweeted by arguably the two most powerful economic players on the entire planet:
Powell: “There’s nothing about this expansion that is unstable or unsustainable”.
Trump: BEST USA ECONOMY IN HISTORY!
Powell: The US economy is in”a very good place”.
Trump: “When Jerome Powell started his testimony today, the Dow was up 125, & heading higher. As he spoke it drifted steadily downward, as usual, and is now at -15. Germany & other countries get paid to borrow money. We are more prime, but Fed Rate is too high, Dollar tough on exports.”
Notwithstanding the Donald’s routine “low interest” dig at the Chairman, the real scary thing is that the two actually took turns this morning praising the un-praiseworthy. After all, how could anyone in their right mind praise an economy that has gone more than a decade with virtually no gain in industrial production?
The fact is, the business cycle has not been outlawed by the economic gods and has always and everywhere defeated central bankers who think they partake of the divine. So we are now at the expansion’s 11th hour at a point 147 months from the pre-crisis peak of the last cycle in November 2007, and here what there is to show for it:
- Manufacturing output is still down by 2.1%;
- Gas and electric utility production is still lower by 1.5%; and
- Total industrial production has barely crept forward by 3.9%, which represents a niggardly 0.32% annual rate of gain.
We will address on another occassion the spurious notion that America can thrive on services alone and that when everyone takes Pilates classes in the AM and teaches them in the PM that the apotheosis of prosperity will soon arrive.
But as a sheer practical matter, if population and aspirations keep on growing and industrial production virtually stagnates, how in the world is that a “good place”?
And, of course, it’s far, far from the Donald’s strongest economy ever. For want of doubt, here are the same three basic industrial production measures for the slightly shorter 126 month span between the June 1990 pre-recession peak and the next cycle peak in December 2000.
So memo to the Donald and Jay: This is what a real recovery and “strong” economy actually looks like. During the 126 month span between recessions,
- Manufacturing output (brown line) rose by 56.5%;
- Gas and electric utility output (blue line) increased by 30.9%; and
- Overall industrial production (purple line) expanded by 47.3%.
Compared to the above results for the current 147 month peak-to-peak span, this isn’t even a different ball game or zip code; it’s an altogether different economic planet.
And it’s one that has apparently been lost for the duration. That’s because at 127 months of age and in the context of a massively bloated financial system which is rife with egregious speculation and reckless leverage, the current expansion’s days were already numbered—-and then came the Donald’s Trade War and the Red Ponzi’s coronavirus and the resulting acute contagion of its entire $44 trillion mountain of debt.
The world has simply not changed so much in the last 10 years that a decade of no industrial growth equates in any way, shape or form to the 1990s decade of solid industrial output growth depicted in the chart below.
Moreover, the Donald’s very idea that “Germany and other countries get paid to borrow money” and that therefore the Fed is derelict in not racing them to the bottom is just plain bonkers.