America’s Peak Prosperity Is in the Past (and Most of Us Know It)
From Peter Reagan at Birch Gold Group
In the mainstream corporate press like Fortune magazine and the Associated Press, the desperate attempts to milk even the faintest hints of optimism continue.
Here’s a taste of what I’m talking about:
The unemployment rate fell to 3.5% in March. More than 236,000 jobs were added. But there has been no political payoff for the president.
Well, we’re still recovering jobs that evaporated during the pandemic panic. This is sometimes referred to as “labor participation,” and right now it’s still 1.8 million short of pre-pandemic numbers.
Despite the relentless parade of “good news” stories in the mainstream media (which aren’t actually “good” news, usually they’re “less bad” news at best), Americans aren’t buying it.
And you don’t have to look at the President’s poll numbers to see it.
Recently, The Wall Street Journal polled Americans on the next generation’s chances for a better life. A staggering 78% of respondents “do not feel confident” of continued American prosperity:
Which brings us to the next logical question to ponder: Why might they feel that way?
When times are tough, we expect a certain amount of pessimism. We tend to project the present into the indefinite future. With that in mind, let’s look beyond opinions and feelings. Instead, let’s consider facts.
Let’s try to figure out whether 78% of Americans might have logical reasons for their serious concerns regarding their children’s future.
We’ll start with a quick look at the most recent FOMC meeting back in March.
The Fed anticipates an imminent recession
We already know the folks at the Federal Reserve don’t have a crystal ball. We also know they’re willing to, let’s say distort the truth when facts interfere with their preferred narrative.
With that in mind, here’s their forecast for the next three years:
Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.
Taking two years to recover from a “mild” recession? That’s absurd! Recessions in the U.S. over the last 120 years last 15 months on average (or five quarters). Why would it take us 60% longer to recover from the “mild” recession?
Is it because most Americans are still trying to put their lives (and their finances) back together after the pandemic panic, the subsequent “Everything Bubble” and its slow but persistent collapse?
Maybe it’s not that at all – maybe significantly higher prices for everything might have something to do with it?
The only thing worse than high inflation is entrenched high inflation
Don’t worry – the Fed’s on the case:
With inflation still well above the Committee’s long run goal of 2 percent, participants agreed that inflation was unacceptably high. Participants commented that recent inflation data indicated slower-than-expected progress on disinflation. In particular, they noted that revisions to the price data had indicated less disinflation at the end of last year than had been previously reported and that inflation was still quite elevated.
Following the botched response to rising inflation in 2021, it’s gratifying to see this pack of bureaucrats grudgingly admit that inflation is “still quite elevated.”
In fact, according to the Bureau of Labor Statistics, inflation from May 2021 to present (22 months) is still running hotter than any point since 2008…
The all items index [or “headline inflation”] increased 5.0 percent for the 12 months ending March;
The all items less food and energy index rose 5.6 percent over the last 12 months. The energy index decreased 6.4 percent for the 12 months ending March, and the food index increased 8.5 percent over the last year.
Look: food and energy prices really are more volatile than most of the other items on the index. Over the last two years, though, food prices have only risen. That’s not good, and it means the “tax that no one voted for” is still robbing ordinary Americans.
Every. Single. Day.
Depressing as it is to watch your purchasing power decline, it’s a lot worse to watch your money vanish…
The banking crisis isn’t over
Which leads us to the last bit of commentary from the Fed about the recent banking crisis, which could be causing people to rethink their financial future:
Participants agreed that the U.S. banking system remained sound and resilient. They commented that recent developments in the banking sector were likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. Participants agreed that the extent of these effects was uncertain.
Look: the only reason the “U.S. banking system remained sound and resilient” is because the Fed started loaning banks money regardless of their collateral’s value. U.S. banks are missing somewhere between $1 to $1.7 trillion.
That’s why the Fed and the Treasury, Powell and Yellen, keep swearing up and down that the banking system is just fine. It’s absolutely not! As long as we all pretend everything is fine, maybe it will be. (Oddly, that’s the same attitude Sam Bankman-Fried had of FTX’s solvency, right up to the day it failed.)
Lack of confidence in the banking system will probably last until that $1.7 trillion hole in their balance sheets is acknowledged and written down. Accounting shenanigans and emergency loans can’t hide the truth indefinitely.
Navigating the unstable banking system is a challenge, without a doubt. And speaking of balance sheets, banks aren’t the only ones raising eyebrows…
Fed’s balance sheet grows 853% since the last crisis
Remember when the Fed started buying up the collapsing subprime mortgage bonds during the Great Recession?
That was just an “emergency measure” at the time.
Unfortunately, the response to that financial crisis set a precedent of constant, massive intervention in the American economy that hasn’t stopped since:
The key question to ponder about the chart above is: How much longer can the Fed keep adding to its balance sheet if things go south again at the end of this year?
Theoretically? Forever. That’s the pattern the Bank of Japan followed, and look how well that’s turned out. (Per capita GDP less than half that of the U.S. after a “lost decade” of massive central bank intervention to prop up failing banks – sound familiar?)
The reason central banks usually don’t print infinite currency is pretty simple: No amount of money-printing creates economic growth.
Money-printing causes inflation. Worse, when that new money gets handed to banks, it tends to encourage malinvestment.
And when that new money gets handed to the federal government?
Bloated government: our gift to future generations
There’s a reason the debt ceiling is on everyone’s minds these days. Federal government spending is not only out of control, President Biden is insisting on a blank check to spend as much as he wants without conditions.
Charles Bilello really put this into perspective for me. His analysis of the same WSJ poll I mentioned earlier is a masterpiece of brevity:
But how did we get there?
As it turns out, the same generation that is worried about their children’s future chose to continually borrow from that future to spend more money today.
A look at federal government spending tells the story, with a 185% increase over the last 20 years, far greater than the overall rate of inflation (64%).
Are we better off today than we were 20 years ago?
Only the truly fortunate.
What about the rest of us?
“We may not return to normal financial conditions for years”
One of my favorite analysts, Mike Shedlock, explained how the Fed is caught between a rock and a hard place:
The Fed has so distorted money supply and housing with its totally flawed QE policy we may not return to normal financial conditions for years.
Factor in boomer retirements and the massive inflationary policies of President Biden on energy and regulations, and the Fed will have its hands full for potentially a long time.
The dilemma for the Fed, and it’s a huge one, is that credit conditions are very deflationary, but the economic policies of this administration coupled with trade wars everywhere are very inflationary.
As much as I hate to surrender to pessimism, it’s difficult to disagree with 78% of Americans who are predicting an economic decline that will last a generation (at least).
So what can we do about it? How can we improve conditions for ourselves and the next generation as well?
Improving your financial security for long-term prosperity
Back to Bilello for a moment – who had a suggestion that’s both practical and attainable (but it isn’t one that will be popular with politicians):
If we live within our means (reduce deficits) and let free markets dictate supply and demand (stop subsidizing industries and artificially boosting asset prices), the future will be bright.
I’m pretty sure Jerome Powell isn’t a regular reader and I’m certain President Biden isn’t a fan of my work. In other words, we cannot count on government policies to fix this situation for us.
That means we have to do our best to follow Bilello’s policy advice on an individual level. Living within our means and looking for ways to improve our financial security. Thinking long-term rather than letting the siren song of electric vehicles, artificial intelligence or the next “Wall Street darling” asset class sway our minds.
When I consider “security” and “stability” and “long-term,” the first thing I think of is physical precious metals (especially gold and silver). Think about it: one hundred years ago, “prosperity” meant gold and silver. One hundred years from now? I’m confident gold and silver will still be prized commodities – and who knows what their price will be?
If you agree that diversifying your savings for the long term with real, tangible assets might help you improve your financial stability, we can help. Right now is a good time to learn more about physical precious metals like gold and silver.
I wish I could go back in time and buy gold and silver at 1923 prices. But I can’t – and the next best time to buy gold and silver, as my friend Phillip Patrick says, is today. If not for yourself, for the next generation.
The kids are going to need all the help they can get.2023, Featured, federal government, federal reserve, inflation