Down the Drain

Never have so many lost so much money so fast...

(Source: Getty Images)

Bill Bonner, Reckoning today from Dublin, Ireland...

Last week, we got news that the US economy is now in reverse. It is no longer growing; it is shrinking, backing up. Less income, fewer sales, less profits, smaller salaries – the whole shebang.

Never, in our entire lifetimes, have so many lost so much so fast. MarketWatch has the shocking report:

The most concerning thing about Thursday’s report on U.S. gross domestic product for the first quarter wasn’t that the first line of the first table showed that real GDP fell at a 1.4% annual rate. It was the little-noticed news on line 34 showing that real disposable incomes fell for a fourth straight quarter.

Over the last four quarters, the purchasing power of after-tax household incomes plunged by $2.2 trillion (in 2021 dollars). That’s a 10.9% decline, by far the largest in the records dating back to 1947.

Wait a minute. It’s worse than that. Real disposable personal income (as opposed to household incomes) for March was actually 20% below that of March 2021.  

No mystery. No magic. It’s just that old symmetry we’ve been talking about.  

Hopes Flushed

When the Covid hit, the feds panicked. Donald Trump declared an emergency (there was none)… and started handing out money (there was none of that available either.) And then, Joe Biden and his team continued the madness with another $1.9 trillion in unnecessary spending of non-existent money.  

This tsunami of free money washed over a hunkered-down economy. Unable to spend the money, ‘savings rates’ rose like the plastic ball in a toilet tank. From an average of 6% the rate floated up to 34%.

But then, of course, the Covid receded, the masks came off, businesses opened up and Americans flushed all that extra money into the economy. Prices rose, as you’d expect. The gimmies and stimmies soon petered out. And savings rates went right back down to 6%.    

GDP growth – which, in the last quarter of 2021, had been hoisted to 6.9% on the feds’ $3 trillion budget deficit petarde – collapsed down to the aforementioned MINUS 1.4%.

It was fun while it lasted. But now it’s over. And it causes us to wonder… what if?  What if these things had not happened? What if the 21st century had never come… and things merely continued, more or less as they had in the 20th century? What if the feds hadn’t squandered $20 trillion (plus or minus) on wars and bailouts since 1999? What if they hadn’t shut down the economy in 2020… and spent money out the wazoo to make up for it?

And what if the internet had never been invented?

Sliding Poors

Access to the world wide web was supposed to bring unparalleled riches. After all, it was “information” that separated the rich from the poor. The rich know how to make money. The poor do not. And finally, thanks to Microsoft and Google… that vital information was available to everyone. Even the most humble peasant in the dustiest, most windblown burg in the the most dogsh*t country on earth could fire up his laptop computer and discover how to do Mergers and Acquisitions!

This knowledge was destined to blow out all the speed limits on the great highway of commerce and innovation, or so they said. And yet, since the Clinton years of the 1990s, GDP growth has dropped steadily… from nearly 4% down to this last quarter’s dismal reading of NEGATIVE 1.4%.

So, what if the internet hadn’t come along? What if the growth rates of the 20th century had continued?

Pew Research reports:

“Most of the increase in household income was achieved in the period from 1970 to 2000. In these three decades, the median income increased by 41%, to $70,800, at an annual average rate of 1.2%. From 2000 to 2018, the growth in household income slowed to an annual average rate of only 0.3%. If there had been no such slowdown and incomes had continued to increase in this century at the same rate as from 1970 to 2000, the current median U.S. household income would be about $87,000, considerably higher than its actual level of $74,600.” 

There you have it. Or at least part of it. The ‘more to the story’ is that the feds gummed up the banking system with all their deadhead rules.

And they fiddled interest rates into negative territory and brought forth an additional $50 trillion – household, business, and federal – worth of debt so far this century.

Meanwhile, the internet provided an around-the-clock circus, distracting the public from the real economy… and offering a cheap, hollow substitute for real knowledge. In 2001, the masses became experts on the geopolitics of the Middle East. In 2008, they mastered Keynesian economic theory. Then, in 2020, it was virology that absorbed billions of hours that might otherwise have been put to productive uses. And now, they know all they need to know about the Russo-Ukrainian war… and Kim Kardashian!

Without the internet, in other words, we might all be richer… happier… safer… and smarter…

…but we wouldn’t have TikTok or NFTs, would we?

Regards,

Bill Bonner