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Rich Man, Poor Man – Daily Reckoning Australia

Rich Man, Poor Man

It must take a special talent to wreck the world’s largest and most wealth-creating economy.

For example, if knowledge produces wealth, every American should be as rich as a Rockefeller; the US graduates 60,000 new PhDs every year. Whatever they’re learning, it doesn’t seem to make us more prosperous.

The US’s entrepreneurs should have been producing new wealth at record rates. The US has the world’s largest single consumer market. We have more people with more money than anywhere else. And we’re ready to spend on whatever new gizmo comes along.

Our 32 million small business owners get up in the morning with a single objective — to increase the GDP. New products, new services, new ways of doing business — they’ll try anything to help their customers and fluff up their bottom line.

And the nation’s investors are ready to fund them. About half of the population owns stocks…worth nearly US$50 trillion. They’ve proven that they’ll back almost any crackpot corporation that comes along. It doesn’t even have to make money.

And what about ‘the science’? Isn’t American science also second to none — on the cutting edge of every breakthrough…adding to our wealth-enhancing knowledge every business day? And our new technologies — 5G…the cloud…the metaverse…NFTs…birth control patches…self-driving cars — surely, they presage vast new industries — and untold wealth…ahead.

Going, going…gone

Given these conditions, you’d think the country would be unstoppable…getting richer than ever.

But the US is no longer getting richer…it’s going the other direction.

Disposable personal incomes are dropping — down 20% from March ‘21 to March ‘22. Of course, the steep drop is the result of winding down the Fed’s COVID gimmie/stimmy programs. But ignoring the ‘transfer payments’ still shows falling incomes. While wage increases are running at about 5%, consumer prices are rising at nearly 9%.

GDP is falling at a 1.4% annual rate.

The trade deficit just hit a new record high — at US$109 for April.

Productivity is in retreat — down at a 7.5% annual rate…the worst since 1947.

Consumer prices are rising at the fastest pace in 40 years…

Rents in Miami are up 40% year-to-year…22% in Orlando…17% in Las Vegas…

…the stock market just had the worst first quarter since 1939…

…and investors are realising that many of the most promising breakthroughs were just fads. NFT sales are down 92% from the peak. An NFT of Jack Dorsey’s first tweet sold for US$2.9 million a year ago; now it’s on sale…top bid so far: US$14,000.

Fed footprints

What’s the ‘takeaway’?

What failed? Who to blame?

Did investors forget how to put their money to work? Did entrepreneurs decide not to work so hard? Do our schools teach claptrap? Is ‘the science’ bogus?

Probably.

But if this were a crime scene, we’d take a careful look at the footprints. And we’d find those of the Fed governors.

This remarkable slowdown of the US economy comes after the Fed pumped up its balance sheet by US$8 trillion since 1999…and then increased the money supply by 50% over the last three years (the biggest increase ever).

In other words, this was the most bombastic episode of economic ‘stimulus’ in the history of the world. Never before have US authorities intervened so boldly to improve and protect the economy.

With their ‘dynamic stochastic’ modelling by the Fed’s 400-plus PhDs…

And their theories — the ‘neutral rate’ for interest rates, the wealth effect, ‘full capacity,’ and ‘data dependence’…

…they have made 330 million people poorer.

Regards,

Dan Denning Signature

Bill Bonner,
For The Daily Reckoning Australia

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