For many long term readers the above graph is familiar, it depicts to the extent the current economy is being buoyed up by the FED. The money stocks have skyrocketed, even as the velocity of the money moving through the economy has plummeted. This astounding feat of magic cash antics has continued even as Trump has taken office. (The graph above is up to date as of May 30th, 2017) The pent up cash reserves are enough to offer plenty of energy to an economic storm. It also explains the Federal Reserve’s indecision as to whether the future holds deflation or inflation. The continuing trend of slowing money velocity would indicate deflation fears are well founded, but the ballooning money supply is indicative of a potential for hyper inflation as well. Reality is, no matter which way the FED goes to fix the situation, the news for the economy is bad.
Another interesting graph drawn from the Federal Reserves Economic Data pits the Russel 2000 stock index against the labor participation rate. The shape of this graph eerily resembles the graph above. (let’s not use the term bubble, or shall we?)
What effect trumps loosening of regulations, combined with potential simplification of the tax code and lower corporate rates, will have on these graphs is yet to be seen. The stock market is roaring back to life, and the massaged unemployment rate is falling. Still, the Fed is being cautious; a fact likely connected to the first graph.
Yet for all the economic junkies watching the new records being set on Wall Street, there is yet another graph that looms even larger than those already shown. The staggering debt has moved off the front pages for now, but its impact on future growth has not diminished.
For all those that feel now Trump is President all will be well, none of this may seem to matter. The truth is, the perfect storm continues to gain momentum just off the radar screen of most people. Despite this, out of sight does not equal of no real consequence. The fear of collapse is still on the minds of the FED, and many market watchers as well.
This is not to say it will happen tomorrow, but it could happen soon. Those warning of the potential for economic devastation, if the present course remains unaltered, have grown hoarse proclaiming the dangers. Their voices all but drowned out by the drumbeats coming from both parties and the press. The engineers on this train are not asleep at the wheel, they left the driver’s cabin all together. Too busy looking for new ways to speed things up to worry about what is coming around the next bend. Promising subsidized or even free healthcare, trillion dollar infrastructure plans, and tax breaks, totally oblivious to the ramifications of their recklessness.
The removal of gold, with no real alternative debt governor put in its place, might of been sustainable before 1913. When Senators still were sent from the states, they represented a force outside of the beltway that kept things in check. With the seventeenth amendment, the main check on Federal insanity went away. When Nixon took the last strings of debt control away by totally removing gold from the equation, the stage for today’s looming disaster was set. Like a teenager given their parents credit card with no accountability for the debt incurred, the resultant fiscal irresponsibility of congress was totally predictable. In this case, not only was there an absence of adult supervision, they kids in congress were able to raise their own credit limit as well!
To expect any sort of fiscal restraint from the bunch on capitol hill at this point would be akin to believing in the tooth fairy. Unless the populous wises up, and stops expecting freebies for votes, the impetus is to keep things going as they are. As neither sudden personal restraint by politicians, nor public outcry over the handouts being given them, are likely at this point, it might be time to think about personal responsibility.
Getting out of debt, putting aside liquid assets in varied forms, and avoiding overly risky financial moves might be sound advice at any time, but it is getting to be essential. A day of reckoning is coming, how bad it will be is the only question. Avoiding disaster might be impossible at this point. Even if it isn’t, the will to do the drastic actions necessary simply does not exist.
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