Is the consumer back? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 30 June 2014
Is the consumer back? A  A  A

New York, New York

    De hosses run down an den dey come back
    Doo dah, doo dah

    Bet my money on a bob-tail nag
    Oh de doo dah day.
A trifecta of disappointment last week....

First, the inflation number came down the track faster than expected.

Then, the GDP lumbered across the finish line, lower than expected.

And finally, at the end of last week, the poor consumer practically broke a leg in the home stretch.

As you know, dear reader, the whole idea behind the Fed's ZIRP and QE policies is to stimulate demand. More demand - meaning more consumers spending more money they don't have on more things they don't need -- is supposed to be a good thing.

Fed economists have made trillions of dollars' worth of bets on it. Not their money, of course. But each year, since 2009, they've put money on the consumer nag. And each year, he's failed to win, place or even show up. Then, the following year, they've doubled down...with the chant "the consumer is back."

The economy is 70% consumer spending, reason the geniuses at the Fed. So anything we can do to boost consumer spending will also boost the economy.

--- Advertisement ---
Why Walk Away When Other Investors Are Seeing Their Investment Multiply?

We wish to disclose some crucial information to you.

And urgently.

There is a small group of investors who are earning high returns like 160% in 24 months, 250% in 25 months, 217% in 47 months... and many more.

And today, We want to tell you how you can join this select group of investors and start benefitting from such opportunities as well...

So don't delay, click here for full details...

This sort of simpleminded logic is either breathtakingly naive. Or mindboggling stupid. Consumers need to have money to spend before they can spend it. Where are they going to get it? If the economy is working properly, they earn it from honest bussing and schlepping. But suppose the economy is in a funk? Then, what are they supposed to do?

No problem, say the economists. We'll just print it. This ersatz money is supposed to stimulate the consumer to spend...whereupon, businesses will spring to life. They'll offer him a job, boost his wages, and then he'll have real money to spend!

But wait. If the Fed can just print money to increase demand, why bother with doing it the hard way? Why do you need to earn money to create demand...when you can just print it?

This point has never been clarified. Nor have the feds ever noticed that consumer demand is the result of savings, investment, work, skill...and all the other things that go into producing a real product or service. Consumer demand is not what causes those things to happen. In the abstract, demand is unlimited. But output is not.

Nor has it ever been demonstrated that the central financial planning works at all. And as of last week we have more evidence that it doesn't.

What last week's figures tell us is that there is no real recovery. Just a sham boom created by EZ money.

We've now got two months of figures for the second quarter. They tell us the same thing the first quarter's numbers told us. Consumers aren't spending like it was 2007. They're spending like it was 2009...or 2010...or 2011...etc. In other words, they're spending as if they were reasonable people who have realized how the system works.

The Fed gives out below-inflation credit to its friends and cronies. The 1% gets richer. And the other 99% struggles to keep up with the bills. As we keep saying, consumer prices are rising faster than the feds admit. That leaves the typical household with less money to spend than the numbers suggest. And we see the effect of it in consumer spending. The Fed pinched off savings, investment, and employment. Now, it gets what you'd expect...low GDP figures!

In short, 6 years of 'stimulating' the economy by giving it more of what it least needed has produced no real recovery...and more debt.

It has also produced an economy in which the grease of a corrupt money system in which almost every race is fixed...the 1% wins every time, while the consumer barely is able to limp around the track.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Get The Daily Reckoning directly
in your mail box.
Just enter your e-mail address » 

Read our Privacy Policy and Terms Of Use.

Equitymaster requests your view! Post a comment on "Is the consumer back?". Click here!


Recent Articles:
A Darkness Is Spreading Across the US
August 22, 2017
Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.
Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working
August 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Trump Takes a Beating
August 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Which Gods Will Bring Down the US Empire?
August 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?