Proof of U.S. Greater Depression

Proof of U.S. Greater Depression

Courtesy of Jeff Nielson

It has become increasingly difficult to engage in credible economic analysis, especially with respect to the U.S. economy. The problem: ever more limited sources of uncorrupted data, while the farcical “official statistics” have long since been totally divorced from the real world.

Fortunately we have been presented with some raw, uncorrupted data which demonstrates in conclusive terms that the U.S. economy is literally shriveling before our eyes: a 21^st century economy with plummeting energy consumption, and even a declining use of electricity.

As I was sifting through all of Bloomberg’s propaganda on the latest U.S. trade numbers (and trying to latch onto a few facts), I came across one very peculiar passage:

…American companies also bought more consumer household items, automobiles and parts, and crude oil from overseas.

Exports increased 0.7 percent to $178.8 billion, boosted by record sales of petroleum to buyers overseas. That caused the trade gap excluding petroleum to widen even more than the deficit overall…

The great U.S. economy, the largest oil-glutton in the history of humanity (by several multiples) is now a “net energy exporter”. How can this be possible? The U.S. economy has contracted so severely (already) that the only way that U.S. refineries can sell all the petroleum products they produce is to sell them to the growing economies of “emerging market” nations.

Reflecting the broad-based collapse of the U.S. economy, these refineries are now exporting all categories of petroleum products: diesel, jet fuel, and even gasoline are now being exported in large quantities, month-after-month by U.S. refineries. Recall that it was only four, short years ago that many American politicians were alarmed by the crisis of the “lack of U.S. refining capacity”. No new refineries have been constructed in the U.S. in more than 30 years, and at that time those refineries were straining to meet the demand of solely the U.S. domestic market. With that domestic market collapsing, these refineries are now straining to find enough foreign buyers to unload all of their inventories.

Given these facts alone, it is utterly absurd for the U.S. government to pretend that the U.S. economy is growing. Note that the government claims that most of this growth is occurring in agriculture and manufacturing – both very energy-intensive industries. There’s no doubt that the energy-intensive agriculture sector is thriving, a result of a growing global “appetite” and Wall Street-induced shortages in most commodities. So with the large U.S. agriculture sector gobbling up more energy than ever, what does that say about the rest of the (decaying) U.S. economy?

Let us not forget that the U.S. population continues to grow. More people using much, much, less energy; and this is called a “growing economy”? Absurd. Even more absurd, this steadily growing population has been using much less electricity, going back to around 2007.

Mark Lundeen provided a very detailed analysis of the consumption of U.S. electricity in a recent commentary. It shows U.S. electrical consumption peaking in approximately 2006, and then beginning a distinct decline starting in 2007. Yes, power demand has “bounced back” somewhat from the worst of the collapse – but at levels still more than 3% lower than in 2007. Put another way, the supposed “U.S. economic recovery” has only resulted in roughly half of that lost demand being restored.

 

 

 

This minimal boost in electrical demand reflects nothing more than pent-up demand from the increase in population which has taken place since 2007, and in no way is suggestive of any economic growth. And we must keep in mind that this is taking place in a climate of ultra-insane monetary policy: interest rates permanently frozen at 0%. Even with this maximum stimulus, the dying U.S. economy is unable to come close to maintaining its level of demand for electricity.

We must also never forget that all of this decline in energy and electricity consumption comes after the largest/most reckless fiscal stimulus as well. The U.S., with by far the world’s largest national deficit (even using the absurd, official number), has not yet begun the fiscal tightening being attempted in most other Western nations (with the notable exception of Canada).

What happens when this dying economy actually turns off the taps with all of this “easy money” from the government (which the U.S. government obviously cannot afford)? If the most insane/extreme fiscal and monetary stimulus in the history of the global economy has produced nothing but further economic decay, what happens when this unsustainable stimulus ceases to be sustained?

The obvious answer to that question is a Soviet Union-like economic implosion, assuming that reckless money-printing doesn’t produce the nightmare of hyperinflation first.

How sick is the U.S. economy? Bloomberg was recently trumpeting the news that construction of “multi-family units” in the U.S. housing market (the low end of the market) was rising to the same level as in 2008. Yes, and everyone can remember what a wonderful year that 2008 was for U.S. housing. And this is the good news?

Actually it is. Construction of single-family units remain at all-time lows since they first began gathering such data on the U.S. housing market. Thus we are to believe that the U.S. economy is growing and producing new, net jobs each month with plummeting energy consumption, declining usage of electricity, and with the propagandists cheering the housing market because things are now only as bad as they were in 2008.

Again, what happens when the unsustainable stimulus can no longer be sustained?

This is a dying economy in the midst of a Greater Depression. Even with B.S. Bernanke’s permanent 0% interest rates (something which would have been totally unthinkable just four years earlier), this monetary defibrillator cannot continue to feign “life” in this economic corpse. The moment that fiscal tightening inevitably begins, the full brunt of the U.S.’s Greater Depression will bludgeon the American people – and hopefully (finally) awaken then from their terminal apathy.

Any further pretensions of economic growth and job-creation can now only be regarded as absurd and transparent fiction. The world’s great energy glutton is claiming a robust “economic recovery”without using any energy. The statistical charlatans at work for the U.S. government can pretend there is positive GDP growth. They can pretend there is positive jobs growth. But they cannot pretend to consume energy.

There was never any “economic reckoning” for the U.S. economy following the economic collapse which began (in earnest) in 2007. Reckless money-printing (the most reckless in history); reckless fiscal spending (the most reckless in history); and absurd statistical lies (the largest in history) have merely provided a coat of whitewash over top of this economic train-wreck…and now the paint is beginning to peel.

Mowers Coming for the “Green Shoots”

By Dan Amoss

“Business is gradually but unmistakably coming out of the depression.”

–Dr. Julius Klein, Asst. Sec of Commerce, September 26, 1930

“It’s very hard not to be bullish today when you look at the fundamental data. You need to be invested right now.”

–Rob Lutts, Chief Investment Officer of Cabot Money Management, August 6, 2009

The rising stock market, itself, is providing some of the very economic data that are inspiring investors to buy stocks. Weird, huh? Unfortunately, this perpetual motion machine cannot, in fact, operate perpetually. Eventually, the real economy will have to get in on the game, or share prices will tumble again.

Blindly optimistic expectations for the economy are driving much of the buying in today’s stock market. Money managers like Rob Lutts, quoted above, represent part of the delusional group-think that is powering the stock market at the moment. I don’t know what “fundamental data” inspires his optimism. Maybe he thinks that government spending is the key to prosperity? Or maybe he thinks the stock market’s rising trend is, in itself, a reason to keep buying stocks.

Lutts reminds me of the many quotes from money managers and government officials in the wake of the huge 50% rally during the end of 1929 and early 1930. Today’s situation is no so very different. We are clearly in an economy-wide deleveraging process that will last for years.

The next few years will not mirror the 1930s exactly, because the government and central bank are debasing the currency to prevent a dreaded debt-deflation spiral. But make no mistake: we will pay for the government’s trillion-dollar bailouts at some point down the road. The price will be an inflationary spiral, at least, if not a full-blown currency crisis. But that’s a problem for another day.

Today, the story is all about “recovery.”

The rising market is driving the majority of the economic data supporting the “green shoots” crowd. The Index of Leading Economic Indicators, which has been pointing up for a few months, is heavily influenced by the stock market. Now, stock market bulls are pointing to the Leading Economic Indicators as a reason to buy stocks. This is very flawed circular reasoning, plain and simple. Meanwhile, the real world economic trends are offering up plenty of reasons for caution.

Here are six “lawn mowers” from the real economy that could easily mow down the green shoots:

1) Stabilizing numbers for continuing unemployment claims are painting a misleading picture. In reality, hundreds of thousands are rolling off of the traditional six months of benefits into extended unemployment benefits rolls. This morning’s payroll data was temporarily inflated by a rebound in auto production from depression levels, and the government’s hiring of census workers. Also, the unemployment rate fell because the number of people actively looking for work keeps falling. There are absolutely no signs that those who were laid off will find a new job anytime soon.

2) The federal government’s income tax receipts are still collapsing. Paycheck withholding tax receipts are still falling sharply. As data services like TrimTabs have demonstrated, income tax receipts are far more accurate gauges of trends in personal income than the highly massaged employment figures from the government. Falling tax receipts translate into a higher threat of confiscatory marginal tax rates in the future, deficit monetization and more inflation.

3) Yesterday’s aggregation of July same store sales in the retail business confirms that end demand for many products remains bleak (aside from auto sales in the “cash for clunker” program, compliments of the ballooning national debt). For perspective, gasoline prices in July 2009 were about 35% lower than the $4-plus per gallon level of July 2008. One would think that this would be a major tailwind for retail, but it’s not.

4) The federal government is spending other people’s money like a drunken sailor, yet a good portion of the sugar high “stimulative” effect of this spending on GDP will be offset by lasting cuts in state and local government budgets.

5) The bond market will continue balking at absorbing trillions in new Treasury bond supply to fund the deficit. Rising mortgage rates, which are tied to Treasury Note yields, will limit the positive impact of refinancing those few homeowners that have any equity left in their homes.

6) Has the market noticed that the FDIC is stalling on its duty to shut down and eat heavy losses at several zombie regional banks – - Corus, Guaranty, and Colonial to name a few? When it does so, it will have to draw down tens of billions of dollars from its emergency line of credit with the Treasury.

These factors all indicate that the economy is most certainly not returning to pre-credit bubble conditions. Yet the stock market is pricing in a return to such conditions.

Don’t trust it.