Rich Man, Poor Man

How all the Fed's horses and all the Fed's men... made 330 million people poorer

(Source: Getty Images)

Bill Bonner, reckoning today from Youghal, Ireland...

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

If knowledge produces wealth, for example, every American should be rich as a Rockefeller; the US graduates 60,000 new Ph.Ds every year. Whatever they are learning, it doesn’t seem to make us more prosperous.

America’s entrepreneurs, too, 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 that will 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 $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 new 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 America 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 feds’ Covid gimmie/stimmie 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 $109 for the month of 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 realizing 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 $2.9 million a year ago; now it’s on sale... top bid so far: $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 $8 trillion since 1999… and then increased the money supply by 50% over the last 3 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’ modeling by the Fed’s 400+ Ph.Ds…

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,

Bill Bonner