A Phony Façade

Amid soaring debt and falling income, the feds propose a $739 billion dollar lie

(Source: Getty Images)

And Bill Bonner, reckoning today from Baltimore, Maryland...

With 100 million Americans under heat advisory, President Biden promises executive action

~ A headline at Deseret News

We’ve been following what we believe is the crack-up of American family finance.  Real wages are falling. Mortgage rates are rising. House prices are beginning to go down.

The NY Fed Quarterly Report on Household Debt and Credit adds detail:

Household Debt Rises to $16.15 Trillion Amid Growth in Housing and Non-Housing Balances

Mortgage balances—the largest component of household debt—climbed $207 billion and stood at $11.39 trillion as of June 30. Credit card balances saw their largest year-over-year percentage increase in more than twenty years, while aggregate limits on cards marked their largest increase in over ten years.

And here’s the latest from UPI: 

Job openings plunge in June to lowest level since 2021

The biggest drop in available jobs was in retail with 343,000 fewer openings in June. Larger companies also offered fewer jobs, while the number of jobs offered by smaller employers went up.

Unable to refinance at lower and lower rates… Unable to get a ‘cash-out’ mortgage loan…  Unable to earn enough to keep up with inflation…

…how does a family keep its head above water?

It cuts back on spending. Which is why Walmart and other retailers are reporting fewer sales… and rising inventories.  

And it’s why the US economy is in recession.

Fantasies and Foolishness

Normally, the Fed might toss out some life preservers – in the form of lower interest rates. But not his time. The Fed is trapped. It is ‘inflate or die.’ And for now, the Fed will let businesses and households die.

Meanwhile, it’s been a hot summer. People are calling on the president to take action.  

What action can an executive take? Can he command the wind to give us a gentle breeze? Can he order the clouds to shade us from the sun?  

No? We didn’t think so.

But maybe he can reduce inflation?

Reading the news is like wading into a swamp. You don’t know what’s under the surface. And soon you are up to your neck in fantasies and foolishness… with deadly snakes nipping at your fingers.

The cause, we believe, is a cynical collusion between government, academics and the media. One makes news. The others egg it on… and lie about it to the masses.    

And so it came to pass last week, the Democratic Establishment unveiled legislation supposedly designed to help “hard working American families” and advertised as the “Inflation Reduction Act.”  

We admire bald-faced lying as much as anyone. If we could get away with it, we’d probably do it too.  

Still, it is shocking how brazenly dishonest the feds can be. The deal struck between Senators Manchin and Schumer could be honestly described in many different ways. It is a pot-pourri of graft, corruption, giveaways, bribes, waste… counterproductive tax increases… green energy boondoggles… subsidies to pill poppers… a few billion here… and a few billion there…

…all $739 billion dollars worth!

Potemkin Production

There must be hundreds of possible ways to describe it fairly. But “inflation reduction” is not one of them.  

Nor will the bill help the typical household, add jobs, save lives, reduce deficits (by 2027!) or increase GDP, as supporters allege.

Prices are determined by balancing the supply of money (demand) against the goods and services it is meant to buy (supply). When government uses money for jackass purposes, it reduces supply. Naturally, prices rise.

Richard Vigilante explains:

Inflation is “always and everywhere” a result of the government constricting and displacing the real economy with its Potemkin version of phony production, phony work, and the phony money they pay for it. 

Second, subsidizing ‘green’ power, is inherently inflationary. Green power is more expensive (otherwise, it wouldn’t need subsidies). More costly energy leads to higher prices for just about everything else. Says Vigilante:

The energy will appear affordable only because it will be paid for twice, once by taxpayers and once by consumers.

Of course, that is the discreet charm of the ruling class. It gets to lie, cheat, and steal without ever having to say it’s sorry. But the glory of the IRA is that it manages to pack so much mendacity into a single piece of legislation.

Will the bill reduce inflation? No. Increase GDP? Not a chance. Reduce deficits?  Almost certainly not. Will it add jobs? Not in a meaningful way. (You can always hire people to dig ditches and fill them up again.) Will it save lives? More likely, it will cost lives. For all the ‘pollution’ caused by the industrial age, life expectancies have INCREASED from under 40 years to over 80 years. Raising the cost of energy will make people poorer and probably reduce life spans too.

Regards,

Bill Bonner

Joel’s Note: BPR’s resident macro analyst, Mr. Dan Denning, sent on this handy chart yesterday afternoon, depicting the rising total debt balance for American households. Take a look…

(Source: FRBNY Consumer Credit Panel/Equifax)

Among the contributors to the rising debt levels were, mortgage balances, up $207 billion during Q2, 2022; credit card balances, up $46 billion since the first quarter; and auto loan balances, up $33 billion in Q2. “Other” balances - which include retail cards and other consumer loans, were up $25 billion. Meanwhile, outstanding student loans stand at a whopping $1.59 trillion.

As you can see, when it comes to the bedrock of America’s economic woes, it’s debt, debt and more debt… all the way down.

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