David Stockman On Why Money Printing Doesn’t Generate Economic Growth

David Stockman On Why Money Printing Doesn’t Generate Economic Growth

Authored by David Stockman via InternationalMan.com,

To understand the Fed’s culpability for the inflationary disaster afflicting the American economy, it is necessary to start with the Big Lie that underlies all of its destructive machinations: the claim that market capitalism gravitates toward cyclical instability, recession and chronic shortfall from its potential Full Employment path.

From this presumption, there flows an alleged requirement for continuous central bank “stimulus.” Deft action by the central banking arm of the state is purportedly needed to compensate for the inherent prosperity-retarding imperfections of the free market.

If Fed policy has actually been reducing cyclical instability and pushing the $21 trillion US economy ever closer to its Full Employment potential, then productivity growth should be rising over time commensurate with the Fed’s more aggressive deployment of its “stimulus” policies.

In this context, it should be noted that productivity growth is a purer measure of monetary policy impact than total real GDP growth. That’s because the latter is in part driven by long-run demographics and the annual growth of the labor supply.

Productivity growth has exhibited an indisputable decline over the past 72 years, even as Fed policy has become dramatically and chronically more “stimulative.” For purposes of analysis, we have divided the 1947–2019 period, when productivity growth averaged 2.14% per annum for the entire period, into three sub-periods which roughly track the progressive ratcheting up of central bank stimulus policy.

During the first of these periods, the Fed was still tied to the Bretton Woods gold exchange standard and had modest room for stimulus, while during the second period it was just getting its money-printing sea legs and discovering how far it could actually go with a pure fiat dollar.

And the final stage commenced with the financial crisis of 2008, when the Fed embarked upon stimulus unbound. In this stage the balance sheet erupted from $0.9 trillion to $7.9 trillion during the 13 years after the pre-crisis peak.

Needless to say, Fed stimulus policy and US productivity growth are inversely correlated, and dramatically so.

Nonfarm Labor Productivity Growth per Annum decreased with each stage:

  • Gold-anchored dollar era, 1947–1970: 71% per annum;

  • Initial fiat dollar era, 1970–2007: 03% per annum;

  • Unhinged fiat dollar era, 2007–2019:37% per annum;

You just plain can’t argue with the above statistical riff. Nor can the Fed heads and their apologists claim that long-term productivity growth is not an appropriate measure of their policy efficacy.

The Fed is peddling a growth and economic performance narrative that is wholly unwarranted.

Annual Nonfarm Labor Productivity Growth, 1947–2020

It’s the Great Lie that obfuscates the fact that it’s really in the anti-prosperity, pro-inflation money-pumping business.

Common sense and casual observation tell you that the Fed got steadily more aggressive in its stimulus policies during the unfolding of the three periods shown above.

The following illustrates the point well:

Fed Balance Sheet Growth/ Per Annum Money GDP Growth = Stimulus Ratio

  • Gold anchored dollar era, 1947–1970: 6.6% GDP growth, 2.4% Fed balance sheet growth = 36% Stimulus Ratio;

  • Initial fiat dollar era, 1970–2007: 7.3% GDP growth, 6.7% Fed balance sheet growth = 92% Stimulus Ratio;

  • Unhinged fiat dollar era, 2007–2019: 3.1% GDP growth, 12.3% Fed balance sheet growth = 400% Stimulus Ratio

The above omits the 2020 data owing to the massive disruption of both the GDP numbers and the monetary statistics caused by the COVID-Lockdowns and the radical fiscal and monetary experiments implemented to counter them. In fact, the Fed’s balance sheet soared skyward by $3 trillion, even as money GDP fell backward resulting in a 13-year trend that was even more over the top:

  • Unhinged fiat dollar era, 2007–2020: 2.9% GDP growth, 17.1% Fed balance sheet growth = 590% Stimulus Ratio.

At the end of the day, the only real policy “tool” the Fed possesses is its printing press. Namely, it cannot really move interest rates lower, implement QE, ease financial conditions on Wall Street or accommodate better economic performance on Main Street (to use its preferred nomenclature) except by expanding its balance sheet.

Accordingly, the ratio of Fed balance sheet growth to money (nominal) GDP growth is a close quantitative proxy for its level of “stimulus.” And on that measure, the results are the opposite of the deteriorating productivity trend shown for the three periods above.

Stimulus has gone parabolic.

How did productivity grow by 2.71% per annum over 1947–1970 — double the 2007–2019 rate — when the Fed’s balance sheet grew by a mere 2.4% per annum or just 38% of the growth rate of nominal GDP?

The truth is, we are dealing with narrative, not facts or analytics.

The Fed’s absurd money-pumping is so convenient for both Wall Street speculators and money-movers and Washington’s debt-addicted politicians that no one questions the narrative. No one points out that the emperor of improved economic growth and performance is buck naked.

*  *  *

The Fed has already pumped enormous distortions into the economy and inflated an “everything bubble.” The next round of money printing is likely to bring the situation to a breaking point. If you want to navigate the complicated economic and political situation that is unfolding, then you need to see this newly released video from Doug Casey and his team. In it, Doug reveals what you need to know, and how these dangerous times could impact your wealth. Click here to watch it now.

Tyler Durden
Sat, 07/31/2021 – 20:00

“They Just Appeared One Day”: Detroit Is Importing Millions Of Honey Bees

“They Just Appeared One Day”: Detroit Is Importing Millions Of Honey Bees

While most of the focus on Detroit generally boils down to how many vehicles it is exporting elsewhere, it’s what the city is importing now that is turning heads.

Detroit has imported about 12 million honey bees to the metro Detroit area over the last five years, the Wall Street Journal reported this week. The bees are part of an effort by a non-profit (called ‘Bees in the D’) to help urban farms that offer residents produce, the report says.

Detroit resident Don Carter said: “There are so many empty fields, it can’t do anything but help add some color to all the green, grassy lots.”

And of course, there’s pushback from environmentalists, who are accusing the non-profit of being mean to the local bees which “might not make honey but can hold their own as pollinators,” the report says. The newcomer bees might add competition and spread disease, environmentalists claim. 

Some local residents aren’t amused, either. 46 year old Damon Currie lives near where about 360,000 bees were placed in 2019 and was stung with his 8 year old son last summer. 

He told the WSJ: “I started waving off the bees that were around him and I got stung too. I had never been stung before that in my life.”

“They couldn’t knock on the door and tell us about it? The hives just appeared one day. We’ll just be sitting on the porch talking, laughing, and the bees will come at us and ruin it. Take those hives somewhere else.”

The founder of the non-profit, Brian Peterson-Roest, says he tells people close to the new hives but isn’t able to reach everyone in a specific area. “I was in a real low in my life when the bees came my way and brought new purpose to me,” he said.

Sheila Colla, an associate professor of environmental studies at York University in Toronto whose research focuses on the conservation of pollinators and who is familiar with the Michigan-area ecosystem, told the Journal: “Honey bees are so different from our native bees. The bees that are at risk of extinction are ones you can’t order by the millions.”

Annie Hakim, co-owner of Featherstone Garden, said of the bees: “I feel very fortunate to have them”. 

‘Bees in the D’ is expected to open a $1.1 million botanical garden that will house about 300,000 bees in Spring 2022. He has struck deals for the bees to live on properties of local farms and even on the properties of some General Motors facilities. 

Tyler Durden
Sat, 07/31/2021 – 19:30

One Lockdown From Disaster

One Lockdown From Disaster

Authored by MN Gordon via EconomicPrism.com,

The popular economic tune being played by the popular press drones on.  You know the melody by now…

That the post-pandemic boom is alive and well.  That growth is enduring.  That blue skies are here to stay.

If you listen closely, however, several notes ring sour.

The Commerce Department reported on Thursday that second quarter gross domestic product (GDP) increased at an annualized rate of 6.5 percent.  This may sound good, initially.  But economists with Dow Jones had estimated an 8.4 percent Q2 GDP increase.  Once again, extreme fiscal stimulus, at the expense of a long term debt burden, drifted off key.

The monetary policy refrain was also lacking.  This week, at the Federal Open Market Committee meeting press conference, Fed Chair Jay Powell remarked that, “we’re some way away from having had substantial further progress toward the maximum employment goal.”

Thus the Fed will continue to hold the federal funds rate near zero and will continue creating credit from thin air at a rate of $120 billion per month to purchase Treasuries and mortgage backed securities in the amounts of $80 billion and $40 billion, respectively.  By now these damaging actions have become exceedingly mindless.  The aim for maximum employment will ultimately prove to be a shortsighted calamity.

If the economy was really strengthening, the Fed would be tapering back these security purchases and even normalizing its balance sheet.  At the very least, it would be talking about tapering.

But the economy’s not really strengthening at all.  Rather, the economy and financial markets, handicapped by extreme intervention, are entirely dependent on this monetary stimulus.

And there’s no easy way out…

Woke and Enlightened

The Fed’s predicament tightens by the day.  Take away the monetary crutches and the Fed risks a catastrophic financial meltdown.  Yet keep them in place for too long and the Fed risks a significant dollar devaluation.  These, no doubt, are the disagreeable options that remain following decades of the Fed’s erudite handiwork.

The promise of planning the economy via monetary policy, like the promise of gun control or mandatory mask mandates, is a farce.  The body of empirical evidence – the science – shows that monetary policy fails to smooth out the ups and downs of the business cycle.  Moreover, by intervening in credit markets, the Fed actually intensifies the booms and busts.

Still, central planning via the Fed is not the only madness one must contend with.  There’s a whole army of planners in Congress and dispersed throughout the government’s countless agencies and bureaucracies working overtime to steal your wealth and freedom.

Today’s central planners and social engineers are especially special.  They’re woke…and progressive.

They slog away in home offices with central air conditioning, as they swig chilled seltzers and munch on fresh, refrigerated grapes.  Their privilege is both sweet and juicy.

Yet all the while, they bemoan the cruelty of unequal outcomes.

“Why can’t others get paid by the government to munch on grapes from home too?” they ask.

These wokesters jump from one zoom call to the next, figuring new legislation to redirect the flow of money to somehow make society more equitable.

You see, equality under the law is not good enough.  Charges of systemic racism and white privilege must be overcome with government directed outcomes that are, somehow, morally equitable.

Partiality centered on an extreme fixation upon micro gradations of skin color is the great cause of the woke and enlightened.

One Lockdown from Disaster

Implicit to the planner’s toils, is a shared sense that they know how to spend your money better than you.  At best, the central planners call your money to Washington so they can then distribute it back to your friends and neighbors.  In reality, the lawmakers call your money to Washington where they distribute it to their friends and neighbors – not yours.

This is not a matter of opinion.  It’s a matter of fact.  Could it really be a coincidence that the top three wealthiest counties in the country are in the shadow of the Capitol in the D.C. suburbs?

What it is exactly that the residents of these counties do that’s of tangible value is unclear.  However, what is clear is that phony government jobs in Loudoun County, Falls Church, and Fairfax County, Virginia, pay big bucks.

This week a bipartisan group of senators reached an agreement to advance a $1.2 trillion infrastructure bill, of which $550 billion is in new spending.  The rest of the package uses previously approved spending, though we can’t tell if this is for infrastructure or something else.

Regardless, this government-directed stimulus will further the economy’s dependence on federal spending.  Workers will base their livelihoods on these projects.  Many will be boondoggles.  Some may provide useful assets.  They will all contribute to an economy that’s ultimately doomed, where debt well outpaces GDP.

But wait, there’s more…

Navigating its way through Congress after the infrastructure bill is the $3.5 trillion budget reconciliation plan, which focuses on something called ‘human infrastructure.’  This plan is slated to include complete giveaways for health care, paid family leave, education and climate change, among other things.

Make of it what you will.  Physical infrastructure.  Human infrastructure.  Debt.  Deficits.  Nonstop money printing.  Price inflation.  Woke central planners.  Economic stagnation.  Delta variant.  Perpetual dependency.

If that’s not enough, with each passing day it appears more and more likely the CDC will goad the Biden administration into another lockdown.  And at this point, we may just be one lockdown from disaster.

Tyler Durden
Sat, 07/31/2021 – 19:00

Need A Divorce? There’s An App For That, And They Just Raised $2 Million

Need A Divorce? There’s An App For That, And They Just Raised $2 Million

750,000 divorces happen, on average, every year in the U.S.

While some call that a shame, others see it as a total addressable market. Take, for example, online divorce startup Hello Divorce. They have just raised $2 million to help couples streamline to the inevitable: splitting up. The company provides a combination of software and legal services that start at $99 and average at about $2,000. 

The company’s seed rounding of funding was “led by CEAS, with additional funds coming from Lightbank, Northwestern Mutual Future Ventures, Gaingels and a group of individuals including Clio CEO Jack Newton, WRG’s Lisa Stone and Equity ESQ led by Ed Diab,” according to TechCrunch

The total cost of divorce is, on average, between $8,400 and $17,500. The industry as a whole is valued around $50 billion per annum, the report notes. 

The company was started in 2018 by family law attorney Erin Levine, who called billable hours for divorce an “antiquated process”. It currently is available in just four states: California, Colorado, Texas and Utah.

She told TechCrunch: “Right now, lawyers are the keeper of information, and clients keep paying until the divorce is done. Divorce is more than forms. It is a challenging time, and most people need or want support. I saw a big hole there to use technology and fixed fees to put couples in the driver’s seat and take down that level of conflict.”

The company says that most people spend 2 to 5 years thinking about divorce and that 80% of them won’t have access to counsel. 

The company’s plan is to use the funding for “rapidly scaling legal filing options across the U.S., improving its ground-breaking product, and giving consumers more of the content and services”. It is already operating at a profit and will use the cash to scale to places like New York and Florida. 

Levine says the company had 2,000 inquiries into divorce over the last year, thanks to the pandemic forcing couples to actually stay in each others’ company: “The inquiries increased about staying or going, and what divorce will look like. It will be awhile before we see the total effects of what divorce looks like following the pandemic.”

Lightbank’s Eric Ong concluded: “They are a combination of industry expertise and thinking outside of the box. Eighty percent of people are still not getting meaningful representation, and we looked for technology that would provide a customer value proposition and we didn’t find one until Hello Divorce.”

Tyler Durden
Sat, 07/31/2021 – 18:30

Goldman Flow Desk Weekly Recap

Goldman Flow Desk Weekly Recap

By Goldman’s Michael Nocerino, flow trader and vice president of multi-asset platform sales

GS Post Bell

Quick Look…Best performers on the Week…

The Worst…

*DESK ACTIVITY…Markets ending the month in the red after a lackluster session dictated by the AMZN sales miss after the close yday and additional delta variant headlines hitting the tape. Albeit we are just a hair off ATH’s and despite ending in negative territory, all three indices ended July higher and it marks the 6th consecutive monthly gain for the S&P. According to Stat News’ Covid dashboard, the U.S.’ 7-day moving average for cases as of yesterday reached the highest number since April 19 and has been steadily increasing for the past month. Another pain point this week was the weakness in Chinese stocks as Beijing continues their crackdown on tech companies – KWEB capped off their worst 2 week performance since inceptive and FXI suffered worst month since Sept. 2011. We finished up the busiest earnings week in the history of the SPX (51% of the index reported) and solid prints continue to be unrewarded – another round of prints next week (12% of SPX). Have a great weekend.

*US DESK FLOWS…The desk finished the day with HF skewed better for sale 1.07x while LO skewed better to buy 1.13x. We were significantly active in info tech, and consumer discretionary names. In terms factors, we net bought value, and we net sold growth.

*ACROSS THE POND…Flows on the desk today ended up c.1.1x better for Sale. LOs were our most active group, amounting for the majority (c.50%) of flow actually skewed (c.1.1x) to buy. HFs kept their activity relatively high (c.30% of total flow) with a (c.1.2x) sell skew. Sector-wise, we saw net demand for Discretionary, Energy and Real Estate vs supply for Industrials and Financials.

*THEMES OF THE WEEK…China Crackdown…Delta Variant…Earnings…TMT Pain…Inflows and August Flows…Seasonals Shift…


XI…Has stabilized…for now…

(Source: Bloomberg as of 07/30/21)

DELTA VARIANT…*MORE THAN 110,000 VACCINE BREAKTHROUGH CASES IDENTIFIED IN U.S.: BBG…110K break through cases / 164M vaccinated = 0.0671% infection rate among fully vaccinated…

Global Health Basket (GSXUPAND)…continues to fade…sitting right on the 200dma of 137.22…

(Source: Bloomberg as of 07/30/21)

-Q2 EARNINGS…This week was the busiest earnings week in the history of the U.S. stock market with 51% of S&P’s cap reporting. Next week the action slows significantly with just 12% of cap reporting. We are STILL seeing the highest percentage (74%) of companies beat street wide earnings ests (by >1SD) in the 20+ years that we have tracked this data (well ahead Q121 which was previous best at 61%) . Very few (4%) companies are missing. However, beats are NOT being rewarded and the few misses we have seen are being punished. I will be keeping a close eye on AMZN today already down 7% pre mkt (clearly should weigh on overall mkt sentiment especially after FB closed down 4% yesterday).

-296 S&P500 companies have reported 2Q results (76% of total market cap). So far 74% of companies reporting have beat street wide earnings estimates by >1SD (significantly higher than 46% historical avg) whereas only 4% have missed estimates by >1SD (significantly lower than historical avg of 14%).

Firms beating earnings ests by at least 1SD have only outperformed the S&P 500 by 31bps on the trading session directly after reporting (vs a historical avg of +103bps of outperformance). Companies missing earnings ests by at least 1 SD have underperformed the S&P 500 by -224bps, which is worse than historical avg of -211bps of underperformance.

(Source = GIR as of 7/30/21 Snider, Hammond) – ty Snider / Hammond

TMT (Callahan)…‘Where does Tech’ go from here? … a bit of a buzz / debate around the risk of Tech losing its leadership as soggy T+1 price action for the ‘FAAMG’ group (.. nothing new .. ) and NDX -75bps today leave the group without a catalyst & fresh off a torrid stretch (up ~20% in 6-wks) … to balance that nervous energy, it is worth noting that the backdrop should still prove supportive for ‘Big Tech’ (low rates, hybrid WFH/re-opening, moderating US growth, big cash balances, etc), though likely more ‘intra-FAAMG’ rotations and stock selections. To level-set on YTD moves: GOOGL +55%, FB +31% (vs EPS revisions up ~25% YTD), MSFT +29%, AAPL +10%, AMZN +5%. More TMT earnings to come Monday…

-WFH Theme as a theme has NOT aged well during earnings – AMZN, NFLX, CTXS to name a few .. next week, watch Video Games (px action today = indicative of positioning / what’s priced in?), streaming names (FSLY, AKAM, etc) and E-Commerce .. keep an eye on: GSTMTWFH / GSXUSTAY Index.

GSXUSTAY Index…Stalling at the top here…

-INFLOWS CONTINUE (Rubner)…This week (week 30) global equities logged +$23.233 Billion worth of inflows ~ right in line with the YTD run rate. In 2021, there has been +$636.30 Billion YTD inflow into global equity funds, +$518 Billion inflows or 82% passively and +$118 Billion inflows or 18% passively. Global Equity inflows are annualizing +$1.10 Trillion for 2021. This is not small and on pace for the largest annual inflow on record by 2.5x. There have been 143 US trading days this year, which means daily equity flows of +$4.443 billion inflows everyday “buying dip alpha” or $21.21 Billion per week.

-BUT OUTFLOWS IN AUGUST? Over the last 30 years, money flows change in August. I expect this year to be no different. August typically sees the largest outflow of the year. Even if there are no outflows, but the inflows stop, this will change the #BTD dynamic in the market. Detailed analysis below. Its vacation time now that earnings (which were faded) are behind us. Stay nimble in August, I am focusing on liquidity.

-SEASONALS SHIFT…We are coming out of one of the strongest periods of the year and heading into one of the worst – no surprise given the historical outflow dynamic. This runs us right into Jackson Hole.

-CRYPTO been catching a bit of a bid into and post the US equity close. Since 15:45 NYC time, XBT has rallied almost 6%. Not sure if this is noise or signal but something to keep an eye on.

*NOTES IN CASE YOU MISSED…After Peak Growth: A Slightly Slower Service Sector Recovery (Walker) – Until a couple of months ago, GIR’s GDP growth forecast had been distinguished for the prior year by being well above consensus expectations, reflecting their optimistic view of the prospects for an early vaccination timeline and a strong economic recovery. But at this point, their forecast is instead distinguished from consensus expectations by the sharpness of the deceleration that they expect over the next year and a half, from 8.25%/8.5% during the Q2/Q3 mid-year boom all the way down to a trend-like 1.5-2% by 2022H2 (Exhibit Below).

After GDP Growth Peaks in Mid-2021, GIR Expects a Sharper Deceleration Than Consensus to a Trend-Like 1.5-2% in 2022H2

Corresponding to the downgrade to their growth forecast, they have also bumped up their unemployment rate forecast slightly from 4.2% to 4.4% at end-2021. GIR expects to learn considerably more about the prospects for labor market recovery from the July employment report, which should provide a test of the impact of seasonal adjustment irregularities and the early expiration of federal unemployment benefits in some states.

Tyler Durden
Sat, 07/31/2021 – 18:00

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