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If Donald Trump has even a partial clue about the nation’s monumental economic mess one of his first acts will be to demand Janet Yellen’s resignation. And for sheer incompetence among countless other failings.
She was out there again today talking in completely incoherent circles. On the one hand, Yellen robotically insisted that the U.S. economy is moving steadily toward the Keynesian nirvana of full employment.
At the same time, she struck a profile in cowardice that was downright pathetic. Yep, after 90 months of ZIRP the Fed has decided to wait for further confirmation from the “incoming data” before concluding that another baby step toward interest rate normalization is warranted.
Needless to say, our paint-by-the numbers school marm has no clue that money market rates at 0.38 bps have nothing to do with the Fed’s so-called dual mandate. It’s sole impact has been to flood the canyons of Wall Street with zero cost carry trades and endless cheap debt for corporate financial engineering and other leveraged speculations.
By contrast, its massive spree of money pumping never got anywhere near to main street. It couldn’t deliver honest full employment through cheap money inducements to borrow and spend because households are still stranded at Peak Debt.
Based on the most recent flow-of-fund report for Q1, households now have record debt of $14.3 trillion. Anyone who can scratch an application signature has been given a student loan and all who can fog a rearview mirror have been loaned 120% of the cost of a new car. And, of course, the castles of main street families are still mortgaged to the hilt.
So just exactly what is the point of ZIRP?
Likewise, the Fed’s perverse pursuit of 2.00% inflation on the flawed PCE deflator less food and energy is also pointless. The deflationary tide impacting commodities and goods is global and can’t be reversed; its the morning after effect of massive excess capacity and malinvestments that stemmed from 20-years of financial repression by all of the world’s central banks.
Besides, most of Flyover Zone America has been hammered by the four horseman of household inflation—- food, energy, housing and medical costs—-to the tune of 3% or better for two decades running.
Yet the incompetence we are addressing here goes far beyond Janet’s bogus bathtub model of GDP, and the spurious notion that it can be pumped full to the brim by stimulating an invisible economic ether called “aggregate demand”.
Instead, what we are talking about here is the plain vanilla failure to acknowledge that the US economy is badly impaired from a structural viewpoint and is already sinking into another recession before any meaningful recovery from the plunge of 2008-2009 has actually occurred.
The data which demonstrates that Yellen and her band of money printers are either lying or just plain stupid just keeps on coming. Thus, while the Fed’s Wall Street lap dogs got all heartened about yesterday’s seasonally maladjusted 0.5% gain in retail sales, the actual data behind the headline tells an altogether different story.
To wit, retail sales have been flat-lining for two years!
Yesterday’s monthly figure for May of $471.4 billion was barely above last May’s $462.6 billion and only marginally higher than the $459 billion figure for May 2014. In fact, the nominal growth rate of retail sales during the last two years have been just 1.37% per annum.
Even the Fed’s short-stick inflation measure is running higher than that, meaning that real retail sales have stalled out for two year.
And yet this robotic Keynesian—— who falsely assumes that consumption and spending are the elixir of economic growth and prosperity—-can’t see that even our vaunted main street consumers are flat on their financial posteriors.
Once upon a time economist closely tracked inventories and their ratio to sales because they knew that real world businesses can’t remain profitable if they allow their balance sheets to become piled with excess inventories.
Yet exactly that has happened. Retailer inventories are now up by nearly 50% from the post recession bottom, but the failure of sales to take off has resulted in dangerous climb in the inventory/sales ratio. Indeed, it well into the recession zone already.
The industrial heartland of the US economy is in even worse shape. Industrial production declined (0.4%) again in May, marking the 7th drop in 10 months and the longest streak of declines outside of recession in the last 100 years.
Not only did Yellen give no hint about this southerly direction in US output, but also seemed totally perplexed as to its implications for capital spending. Instead of wondering why CapEx has been softening so much during recent months, she might have noted the Fed’s own figures on capacity utilization.
At 74.9%, the May capacity utilization rate was at the lowest level since October 2010, and has been virtually cliff-diving since November 2014. Why should anyone paying attention, therefore, be surprised that business fixed investment has faltered?
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