Halloween's Scariest Costume: The Truth
In March, everything was crashing, it was the end of the world, etc. Blah blah. Along came Obama and the Stimulus Cannon of Change which fired your children's future at the economy and made things better. Or so we were told. Everything started going up. We're happy. Yay! GDP is positive, WooHoo! Yay! Oh snap, why are disposables incomes down 7% yoy when GDP is rising? Why is the housing market still sinking? Why is Wilbur Ross predicting a commercial real estate crash? Why is the stock market throwing up a hairball the same week the "recession" ended?
The truth is that all of it was a mirage. There was no recovery. None. All that happened was that trillions were spent to slightly slow the rate of decline of the economy. The artificially low interest rates have, as an Austrian economist with half a brain could tell you, stimulated false demand, needlessly driving up the cost of commodities and weakening the dollar, thus making a bad situation EVEN WORSE! Shelia Bair, in a profound understatement, told us that many more banks will fail in the coming years. No duh. The economy has built on a false foundation of cheap (much too cheap) credit and false hopes. Sure, earnings are "up." But what about revenues? Down 20 to 30% across the board. Earnings are up? Why? Cause companies fired tons and tons of people. Are those jobs coming back? No, unemployment has stabilized because people have abandoned their job hunts.
Consumer confidence, not surprisingly, fell today and was far weaker than expectations. Average Americans know the economy still stinks -- and they won't be putting up big #s for Christmas sales. It's only when you spend too much time around the Great Bloviator of Hope and/or mainstream financial "analysts" i.e. CNBS that you get sucked into thinking there is an economic recovery because the stock market has gone up. The stock has gone up because people expected the recession to end, once the market started rising, then people said, ah, the market is up, recession must be ending, buy more stocks... you can see how this ends. Real GDP (GDP - Cash for Clunkers - pay you to buy new houses - Government borrowing from China to fuel bridges to nowhere - etc.) is steadily sinking at a good 8 to 12% a year annualized. It's all been an illusion, the 7 months of Hope that we mortgaged our kids' future for. It's Halloween this weekend ... the truth is far scarier than you think.