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Governments Giveth and Taketh Away

Posted May 02, 2022

By now, we all surely know that the “GDP” means almost nothing, except that it means everything. More specifically, it is a purely technical measure, easily distorted by crazy inclusions and exclusions. On the other hand, the data reporting alone has a huge psychological effect on markets and investor sentiment. One more quarter and the recession will be officially declared. 

Two things about that. 1) Absolutely everyone in mainstream financial media will be united in messaging that this is purely a technical and very mild recession, if it is a recession at all. They will be out in full force to dial back the worry and panic. 2) It is more correct to say that we are actually entering into the third year of an authentic recession. We just don’t see it, due to wild government spending and money printing. 

There are, however, some pieces of data that government cannot hide. Let’s look at the latest punch in the chops: real disposable personal income. This is the stuff that people actually care about, unlike GDP. Here we see the biggest shell game in the modern history of government fiscal and monetary policy. 

It shows that: we were rich! And then suddenly we were not. They gave us lots of money! Then they took it all away by depreciating the purchasing power of that money. If there is a case for mass outrage, this is it. Sadly, most people cannot figure this out. It is opaque and the lines of cause and effect are too complicated for the Facebook and Tiktok generation. 

We know what happened now, thanks to reporting from March. This is a beautiful yet terrifying picture of trickery and robbery. 

FRED DisposeableIncome 540
Now let’s flow the data a bit differently, looking at percentage change year over year. You can see here how suddenly all of this caught up with everyone. The valley mirrors the peak almost exactly. 

Fred DisposableIncome2 540

And guess what? Inflation is still rocking in real time, right now running 12.1% according to the data tracker at Truflation (which I’ve come to trust). That’s a very slight pullback from a month ago but nothing to celebrate. And there’s every indication that this problem will get worse over the summer. So you can take a ruler and plop it on the down turn in the above chart and draw a line. 

Here is a perfect picture for why so many among the not-ridiculously-rich are now seething in anger. They sense prosperity draining away. They are spending and adding debt like there’s no tomorrow. And that’s because there are widespread expectations that tomorrow is going to be much worse. 

Consumer confidence is right now lower than it was during the depth of lockdowns. And this is because policy has done nothing to repair the grotesque damage and much to make it worse. 

Fred disposableIncone 3 540

And Yet the Flowers Bloom 

Spring has bloomed all over the country and people are out and about rediscovering the meaning and beauty of life. It’s a happy time that masks deep hurt and depression. In the South and most of the West, apart from crazy California, there are no masks to be seen. 

In the Northeast, there are still some sad sacks out and about wearing masks, perhaps 5-10% of the population that is still very confused. They got vaccinated and boosted and maybe boosted again and still got Covid. They mask up because they don’t want to get it again, completely oblivious to the reality that natural infection is protective, while the mask is not. 

The truth is that public health messaging for two years has been nothing but obfuscation and duplicity. As a result, we lost many souls and people lost their minds too. 

Still, it’s great that the pandemic is officially declared to be over. But we might ask why. The reason is entirely political. The DNC has discovered through its polling that it faces an absolutely political calamity in November. The party is flying into action, doing its best to dramatically change the public mood. 

The CDC went along and changed the color coding on its inflection map and is ever more saying that infections don’t matter, only deaths. We are now in another seasonal downturn, so it works out. 

Currently seroprevalence data show that 60% of the country has been infected and recovered. What is the right percentage for the absolute achievement of herd immunity? No one knows because it really does depend on the prevalence of the strain it is above 50% and below 100%. What this means is that there are likely many more people who are vulnerable to catching this thing two years later. 

This leaves open the possibility of a complete repeat of the hysteria starting after November. The ruling class has now full confidence that it can turn on panic and turn it off in a matter of weeks, with just the right messaging. Will anyone believe them next time? Maybe… 

The Crypto Shift 

As financial markets continue to weaken, and the dollar loses value, plus many in the housing industry are anticipating that the peak for prices is over and now the industry could face a crisis, there is a real question about where the smart money is going now. 

The obvious answer is crypto. But here there is tragedy too. Almost the entire industry has gone custodial, meaning that third parties control most all access. Here we had the perfect technology for the achievement of absolute financial independence but it has been eschewed due to intimidation and widespread ignorance. 

As a result, there is a real recession in the distribution and deployment of Bitcoin ATMs across the country. That of course could turn around in the next bull market for crypto. But in the meantime, we are seeing all the big financial houses shift to allow ever more investment in crypto from 401Ks and other investment funds. This seems like a good path for diversification but it is far from being the ideal and it betrays the promise that crypto hoped to offer ten years ago. 

Meanwhile, spring has sprung, the flowers look sweet, and people are glad for a return to normalcy, no matter how degraded it is relative to three years ago. If governments would leave the markets alone, recovery could be real. But there is almost no chance of that, regardless of who takes control of the machinery of the state starting in November. 

Regards,

Jeffrey Tucker

Jeffrey Tucker

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