“The Greatest Stagnation”
by David Stockman
No matter that we may mount on stilts, we still must walk on our own legs.
And on the highest throne in the world, we still sit only on our own bottom.
–Michel de Montaigne, “Essays” (1595)
“We’ll head into the weekend with another triple-digit rally for the Dow Jones Industrial Average… and entirely new levels of “Peak Trump”. Bubblevision teed up Art Cashin to pull on a gold-lettered “27,000” ball cap on the floor of the New York Stock Exchange yesterday. There’s some irony there; in the Thursday edition of Deep State Declassified, we talked about how memories of mid-20th century America are fading fast.
Well, Art was on the floor of the NYSE during the Cuban Missile Crisis and the day Kennedy died. He’s seen some things. Old Art, he’s as decent a totem as there is these days. He sure marks a stark contrast with our current breed of monetary central planner. Consider Jerome Powell, a lawyer and a deal-maker who nevertheless has never traded a share of stock or even met a payroll in his life. We should be less Jay, more Art, less Ivory tower, more feet on the ground…
Systemic arrogance means the Federal Reserve will never acknowledge that its money-pumping is the cause of the continuing bifurcation of the American economy. Monetary central planning is showering the 1% with unspeakable paper wealth, even as 90% of U.S. households soldier on, approaching each day on a hand-to-mouth basis.
This maldistribution is the central feature of an economy Powell himself described as being in “a good place” not so long ago. Of course, he knows as well as I do that health care and education spending financed by Uncle Sam’s credit card count dollar for dollar in the gross domestic (GDP) accounts with the output of the private goods economy but don’t measure up on the scales of sustainable wealth creation. Neither does household spending for Chinese imports when financed with borrowed funds.
We’re now well into month No. 121 since the Great Recession ended. This is the longest expansion in recorded history. Yet, this “recovery” has generated a real GDP gain of 20%. And that’s just punk. Consider the honest-to-goodness expansions of the 1960s, where over 105 months GDP increased by 54%. During the famous 1990s boom, total output rose by 43% over 119 months. Here’s the crucial rebuke: Real value-added manufacturing output grown a total of 1.6% from the peak of the last cycle in the fourth quarter of 2007 through the first quarter of 2019.
Folks, that’s stagnation. Main Street’s gone nowhere.
Now, think about the fact that the Nasdaq 100 Index is up about 250% during this same period. In annualized terms, adjusting for inflation, that’s about 9.7% per year. Real final sales growth during that same 12-year interval was 1.6%. These are peak-to-peak measures, not cherry-picked calculations from post-crisis bottoms. What they describe is an epic decoupling with potentially destructive short-, medium-, and long-term consequences.
It’s a plain fact that stock prices can’t grow at 6.1 times the Main Street economy’s growth rate… well, it can’t do so sustainably. Real median household income plunged by 8.5% during the Great Recession. A decade on, it’s barely regained its 2007 pre-crisis peak. At $61,377, it’s only 2.2% above its 1999 level. If “easy money” is the elixir our monetary central planners claim it to be, it’s an anemic one.
The Fed’s balance sheet has grown from rose sheet rose from $500 billion to $4.5 trillion… all for a tiny 2.2% gain in real household income? Well, there is that 250% gain in the Nasdaq 100…”
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