Nonna Sense

In the boom, low-cost imports held down US consumer prices. Now, immigrants — legal and illegal — have poured across the border and are willing to work for less, thus holding down wages and inflation.

Wednesday, June 19, 2024 

Bill Bonner, writing today from Paris, France

Here’s the headline news. The Washington Examiner: 

The federal budget deficit will be nearly $2 trillion in fiscal 2024, the Congressional Budget Office estimated Wednesday. 

CNBC: 
 

A blockbuster May jobs report showed the U.S. economy added 272,000 jobs last month, well above the Dow Jones’ forecast of 190,000. Meanwhile, the Bureau of Labor Statistics reported last week that consumer prices in May remained unchanged, and even fell slightly on an annual basis. This dynamic — a heating job market and cooling inflation — is in part the result of increased inflows of immigrants. The May jobs report found that the health care, government, and leisure and hospitality sectors saw the most growth. 

Isn’t it great, dear reader? More jobs. Lower wages. Less inflation. And a bigger deficit; who cares about that? 

We recall a remarkably dumb story in the Economist magazine a few years ago. It lamented Italy’s low growth rate... They blamed it on the ‘nonnas’ [grandmothers]. 

Rather than move to the go-go centers of commerce... get jobs... and put the kids in daycare, which would raise GDP growth numbers, the benighted Italians preferred to stay near home so the grandparents could look after the children.  

You might wonder... maybe the children were better off with their grandmothers than in a day care center. Maybe parents had more confidence in their own families than in commercial, or government-run, child warehouses.

Maybe the children themselves would be happier... under the careful eyes of their grandmothers... or maybe the grandmothers might appreciate their new roles — as guardians of the next generation... rather than just getting their hair done and watching daytime TV. Italian society might be more stable. Better anchored. Healthier. 

None of those maybes had a place in the statistics. The nonnas were standing in the way of GDP growth... that was all there was to it. But numbers often tell a tall tale. Credit-based ‘growth’ is often fraudulent. And the wealth it produces can be largely fictitious.  

Human Happiness

An example... Of 3.5 million veterans who served in Iraq or Afghanistan two thirds say the wars were not worth fighting. 1.8 million came home with a ‘permanent disability.’ Total veterans’ disability costs will reach as much as $2.5 trillion by 2050. Those disability payments increase GDP.  Do they also increase human happiness? 

The financial cost is a statistic. But what about the real cost... the effect of missing legs and arms on a real person... where is that number? 

Or...US retirees get an inflation adjustment in January. Monthly payments went up 3.2%. GDP went up! 

More money for farmers... more for ‘Green Tech’ hustlers... and chipmakers, too... whatever... GDP up! 

We are lost in a whirlwind of statistics. But the numbers are often empty... misleading... or just plain false.  

In the boom years, low-cost imports held down US consumer prices. Now, immigrants — legal and illegal — have poured across the border... and are willing to work for less, thus holding down labor rates (wages) and inflation. 

What part of this story is true? What part is statistical gibberish? How about the jobs themselves? Are they real?  

According to FXHedge the Bureau of Labor Statistics overestimated job growth in the fourth quarter of last year by half a million. That’s 500,000 jobs that never existed.  

Yes, you can add ‘phantom’ jobs to the long list of frauds, fictions and statistical ghosts in the US economy. But there’s more...  

On a discussion platform, we found this comment: 

That BLS data is as bad as I have ever seen it. The cynic in me says... election year shenanigans. The jobs data is a mess... not merely labor market weakness, but a prelude to recession. Another set of faulty data are the GDP numbers, which are increasing[ly] showing negative revisions. After 3.1% GDP growth in 2023, the initial Q1-24 print was 1.6%, only to be revised down a month later to 1.3%... hardly a “robust” economy...if you are a democrat, the economy looks relatively great... however, republicans and independents have an altogether different view...  

The fake money regime — post-1971 — changed America’s economy. From exporting finished products, at a profit, we shifted to exporting dollars. The good jobs went abroad with them. Economists and the financial press looked at the statistics and proclaimed the system a great success. But it was really an abject failure... replacing real wealth — earned by making things — with fake wealth, based on credit rather than real output.  

The credit-based dollar fostered credit-funded consumption and credit-backed asset prices. Now we have nearly $100 trillion of public and private debt. How much of that debt will go bad? How much of the stock and bond markets depends on it?  

We don’t know. But as much as $50 trillion in US fraudulent wealth could disappear — in defaults, bankruptcies, write-downs, mark-downs, and inflation — as the Primary Trend continues. 

Regards, 

Bill Bonner 

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Research Note, by Dan Denning

The details on the CBO’s update to the budget for the next ten years are worse than the $2 trillion headline suggests, and that’s saying something, given that the new deficit projection for 2024 is $400 billion HIGHER (27%) than the figure released in February. The culprits? Higher interest rates, $95 billion for Ukraine, Israel, and Taiwan, and the $100 billion in student loans ‘forgiven’ by President Biden.

CBO projects $22 trillion in NEW debt over the next ten years (see the table below). This will drive interest expense on the debt to $1.7 trillion by 2034—nearly double what it is this year and equal to annual spending on Medicare. Annual deficits will be almost $3 trillion in 2033 and 2034 and debt held by the public will be over 122% (it’s currently 99%, but even this figure is higher because it excludes debt which the government ‘owes to itself’).

The problem is not a decade away. It’s a problem right now. The Trump tax cuts expire in 2025. So does the agreement which suspended the statutory debt ceiling (it expires in January of next year). Whomever is elected in November will face an immediate fight over tax cuts, spending, and the debt ceiling. The total national debt will be over $36 trillion by then, and $56 trillion by 2034, according to CBO projections. More on the investment implications of all this in our note to paid subscribers later today.