The Second Depression started, near as we can figure, in March of 2020. That’s when the markets tanked and the Fed became the biggest inflator of paper assets – ever.
In fact, the tip-off that the U.S. Economy is still on a ventilator may be clearly seen by anyone with half a brain. Though even these are now in short supply:
“The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.
In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”
Buying a stairway to heaven?
$120 billion per month = $ 1.44 trillion per year.
Since the present National Debt is $28.132 trillion, we sort of figure the debt will climb to $29.572 trillion next year PLUS whatever wild spending the Bidenhood gang can slam through.
Since we found on the web that “Of the $3.46 trillion in receipts taken in by the U.S. Treasury during fiscal 2019, nearly half came from the $1.72 trillion in individual income taxes collected….” We can easily see how whatever Bidenhood gets through (increasing the deficit by perhaps $3 to 4 trillion will bake-in an inflation rate of (worst case):
- $4 trillion in new spending
- (less $1.72 trillion in tax revenue)
- Plus the Fed’s planned $29.572 trillion…
- Bottom lines to $31.852 trillion.
Which, divided by this morning’s Public Debt to the Penny infers for us a baked-in inflation rate of (31.852/28.132) ABOUT 13.2%. Then back out Real Growth (6%) and you can still see 7% inflation ahead.
Offsets and Velocity
The Bidenhood spending plan (which we already assume will benefit blue cities and states more than red) will enjoy some offsets. Not the least of which is that someone is likely to rein it in a bit in the Senate.
And sure, there will be increased tax revenues, but whether they will take effect during the present tax year – or 2022 – is another political debate in the wings.
Still, even with a much lower spending level – and with the Fed already keeping a weather-eye on inflation – what’s the deal?
Velocity at M2 has been stuck at Depression-like levels.
As you can see, Velocity (defined as GDP by M2) is basically the “turnover of money.” As the turnover slows, so does the economy. Dark pools of capital pile up.
The good news – such as it is – is that a high enough rate of inflation (which stealthily steals purchasing power of “stored money”) will FORCE the use of money to become more efficient.
Saturation Still Matters
What’s harder to judge is how hard the American consumer will be spending – which will drive demand – which in turn will “entice” some slow money off the sidelines.
Problem most of us have is our typing and talking speeds haven’t increased much – so who needs a newer phone or new PC? With our house littered with 55-65″ UHDs, is there some real payback from upscaling to an 8K TV this early?
Big Ticket Item? Rent It!
This is all symptomatic of the major change – just a tad now, but more to come – of what we call the “Rent Your Life” Business Model. (How long have I been telling you this is in the works?)
Did you see where Tesla is looking at Subscriptions? Heads up move if you read about their full self-driving subscription model here.
Already, software companies like Microsoft and Adobe are working consumers over to the rent-to-use model for their product lines. Recurring revenues.
The basic formula for coming products (personal robotics, self-driving cars, and such) will be: If you can’t write a check for it, you can still rent it. And get a superior product.
The reason self-driving is so important is that the development costs are huge (along with product liability, lol) so who except a few well-heeled readers can afford to have $150-thousand catching rain in the driveway?
Nope. Renting works because just like aircraft, the secret to financial success is increasing utilization.
When I was an airline VP (KX) we went from 7.3-7.5 hours of flight time per day (losing money) to 12.5-13.5 hours of flight time per day. Made m0ney, why? Because the fixed costs were spread over almost twice the time.
Elaine and I have a 16-year old Lexus – which has been babied through 120-thousand miles. Now driven less than 4-thousand miles a year. Having been paid for – long ago – no big deal.
But, aged now in our 70’s, does it make sense to get a “latest and greatest self-driver” and let it rust as we age? Hint: I’m thinking “Not so much…”
What mainstream economists haven’t figured out is that the rent-to-own model is a dandy way to bridge the divide between capitalism and socialism. We’ll be covering more of this in future Peoplenomics reports, but for God’s sake, open Ure eyes and see the changes ahead.
Massive technological changes come our way and most will be taken by surprise. But the numbers can be made to work.
Weekly Unemployment Filings: Predictions were that new filings would fall to 540,000 on a crooked (seasonally adjusted) basis. We always go by the non-adjusted numbers which are highlighted in yellow: (a bit lighter than hypecasts)
GDP A Touch Light
Bureau of Economic Analysis reports:
“Real gross domestic product (GDP) increased at an annual rate of 6.4 percent in the first quarter of 2021, reflecting the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic. In the first quarter, government assistance payments, such as direct economic impact payments, expanded unemployment benefits, and Paycheck Protection Program loans, were distributed to households and businesses through the Coronavirus Response and Relief Supplemental Appropriations Act and the American Rescue Plan Act. In the fourth quarter of 2020, real GDP increased 4.3 percent.”
The GDP growth numbers when discussed in percentages are terribly misleading. Because what matters are units, not dollars. And ESPECIALLY NOT DOLLARS when the Fed is making those up on the fly.
The REALITY is that GDP (as a number, not a percentage) and PCE (personal consumption expenditures) are as follows compared with 2020 data:
As you can see, after Covid initial impacts the real gains in GDP have been 4-10th’s of one percent. Grow of personal expenditures is up 1.6%. Whoo-hoo!
Dow futures up 150 something and S&P up nearly 30.
In the Shorts
Chips are still down in the auto biz: “Ford Crashes After Slashing Full Year Outlook As Chip Shortage Decimates Production Plan.”
Buying government policies? “Pelosi’s PACs flooded with over $1M in cash from teachers’ unions as debate raged over school reopenings.” Best house speaker money can buy…
Blood Pressure tip: My buddy Gaye has a new article out: Using Essential Oils to Manage Blood Pressure | Strategic Living (strategiclivingblog.com).
And seriously? No one could make this one up: Seriously: Hunter Biden Will Help Teach a “Fake News” Course at Tulane University This Fall – Big League Politics. (Hat tip to reader Ray for the catch!).
Off to toil…sweat…and dream of someday retiring…
Write when you get rich,