Americans Are “Skint”

Guest Post by Bill Bonner

Last week, investors didn’t know what to do.

Incoming data left the falcons confused.

On the one hand, they heard that inflation was ticking up.

On the other, they heard that retail sales growth had slowed.

Sell Button

Consumer price inflation, as measured by the government’s bean counters, surprised to the upside with a 2.1% reading for the last 12 months.

(In financial industry jargon, it’s called a “2.1% print.”)

If the inflation growth rate from January alone continues, the Consumer Price Index (CPI) “print” at the end of the year will be 6.7%.

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And this attack on investors’ nerves was aggravated by data from the real estate sector. Bloomberg:

Home prices jumped to all-time highs in almost two-thirds of U.S. cities in the fourth quarter as buyers battled for a record-low supply of listings.

Traders knew what to do: They hit the sell button.

Rising inflation will mean lower bond prices… and it will leave stretched consumers with less money.

But just as the Dow began to collapse, more data came in. This time, it was the report on retail spending.

Hand to Mouth

As we reported last month, consumers were credited with having rescued the fourth-quarter GDP by digging into their piggybanks and emptying them to buy gewgaws and thingamajigs.

That bit of data should have caused investors to fly to safety, too.

Instead of the 10% savings rate that was customary in the 1970s, 1980s, and 1990s, household savings dropped to a near-record low of 2.4% last year.

We pause here to remind readers that savings are the key to economic growth and prosperity. Without savings, you live hand to mouth… consuming all that you produce.

Gradually, your machines, fields, and roads degrade. They must be continually renewed… with new factories and new businesses to offer jobs, compete in the market, and create wealth.

Without savings, progress stops… and then reverses.

The difference between a rich country and a poor one is the level of savings – stored up capital – that is available for business and consumer use.

Savings are also important as insurance. You never know when mere anarchy will be loosed upon the land. You save money so you will have something to spend when it comes.

Of course, no one seems to think times will ever get rough again. And with the geniuses at the Fed, the saints in Washington, and the magicians on Wall Street – maybe, they’re right!

In any event, when the data started coming in from retail sales, it revealed that households seem to be running a little short.

“Skint,” they say on this side of the Atlantic.

Rotten Structure

First, December’s retail sales numbers were revised down. Then, January showed retail sales growth at a little more than half the expected 0.5% rate.

This was not good news, either. But when translated to modern trader talk, it came out as this: “Hey, the Fed ain’t gonna continue raising rates… not with this kind of retail sales report.”

Traders – conditioned by many years of Fed meddling to “buy the dip” – took the bad news as good news and bought more overpriced stocks. The Dow ended up 1%.

But markets are discovering new things every day.

Last week, they discovered that bond prices should be lower (taking into consideration a probable, but not certain, new “quantitative tightening” program from the Fed… as well as the latest print on inflation).

As prices fell, the yield on the benchmark 10-year Treasury note hit 2.92% – a four-year high.

Investors will discover that stock prices should be lower, too. That much is a certainty, though the timing is always unpredictable.

More broadly, they will discover that the whole shebang – the entire capital structure – is rotten.

Passionate Intensity

For 30 years, the Fed has systematically discouraged savings…

…while the federal government’s appetite for spending the nation’s savings has greatly increased.

You can do the math.

In January 2017, there was about $8.8 trillion in savings stashed away in depository institutions in the U.S. (some of it belongs to foreigners). Today, there is $9.09 trillion… or an increase of less than $300 billion over the year.

Even if 100% of these savings were taken this year, it would only cover a quarter of the feds’ projected $1.2 trillion deficit.

We used to count on the Republicans to push back on deficits. They believed in small government and balanced budgets. But now, most of them lack all conviction – except in getting re-elected!

And the worst are full of passionate intensity…

…eager to snatch away every penny of other people’s savings.

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AC
AC

We used to count on the Republicans to push back on deficits. They believed in small government and balanced budgets. But now, most of them lack all conviction – except in getting re-elected!

If you have never read Mein Kampf, it’s worth it just to see how little things have changed in a century (in terms of how democratic governments function, or fail to do so). If you just changed the names, locales, and dates, his description and critique of Western democracy is easily applicable to us, today.

Anonymous
Anonymous

Things work the same way because people work the same way.

CCRider
CCRider

Yup. While I hate the dummo’s with a blinding passion, I hate the repo’s even more. So THEY are the ones we rely upon to reduce gov’t and promote free markets? What poor delusional sap still believes this? The dummo’s, like the dung beetles they are, are true to their nature. They believe what they purport out loud and for the record. The repos are infinitely more sinister. They look earnestly into their supporter’s eyes and lie through their fucking teeth. With a smile on their face. The deceit is palpable.

Vote, my ass.

Dr. Doom
Dr. Doom

Savings is a sign of health in a country . There is no such thing as an “economy”. Its a made up fiction. The economists are just con men conniving to explain the looting by the Central Bank of Thieves and usury. There are no “cycles”. There is simply looting and collapse. Every sector has been looted now. First it was the savings. Then it was the government coffers. Finally, inventions and businesses are being looted.
There are no “investments”. This is a giant tick sucking the life out of America and the West. It must be burned off or outright killed. It has no purpose but to wipe out all productive lifeforms and try to “create”a fake economy of slaves and thieves. It cannot stand. There is NO VALUE. There is nothing holding up this house of cards. Plastic cards held up with monopoly money.

Marc
Marc

“Of course, no one seems to think times will ever get rough again. And with the geniuses at the fed, the saints in Washington, and the magicians on Wall Street – maybe, they’re right!”
I love that. And stocks are priced to perfection once again. America’s motto: “What, me worry?”

Gilnut
Gilnut

LOL. I’m amused that people still believe that politicians actually have anything to do with “running” this country. Quaint.

https://www.youtube.com/watch?v=yB-JzPBJalA

overthecliff
overthecliff

20 Trillion and counting. Remember the last time Republicans controlled both houses of Congress and the White House? They went on a crazy thieving spending spree that got them thrown out in 2006. They are doing it again. It makes no difference we have long since passed the point of no return.

We have 2 choices. Individuals can earn and save enough to buy real assets . Politicians and their owners can steal real assets. Real stuff is the only thing that will be worth anything when this all comes crashing down.

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