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Wall Street highs cover the stagflation strangling Main Street
It all started with COVID fascism. Now there is no way out.
James Madison once warned‚ “Armies‚ and debts‚ and taxes are the known instruments for bringing the many under the domination of the few.” Well‚ the debts the U.S. government accrued while pushing COVID tyranny and the Great Reset continue to place the many under the domination of the few. Thanks to government largess‚ inflation for Main Street continues unabated while the top Wall Street companies enjoy a windfall. Meanwhile‚ Republicans refuse to fight — and‚ indeed‚ were complicit in creating the current crisis.
The administration’s refrain‚ echoed by the media‚ that inflation had been defeated was not merely a lie. The opposite turned out to be true.
For several months now‚ the corporate media and the Biden White House have pushed the narrative that inflation has fallen while the economy has grown at a record pace. The idea is to acclimate the public to a permanently high cost of living and to ignore the fact that our grandparents’ standard of living is now out of reach.
We have never lived through such debt-driven inflation and market distortions as we have since COVID-19. This has created bewildering‚ conflicting‚ and uncanny economic data in which certain economic reports seem bullish and the stock market is at a record high‚ but most people can barely afford to live.
The fact is that while the rate of inflationary growth may have slowed last year somewhat‚ prices never returned to pre-COVID levels. Inflation as measured by the Consumer Price Index grew 0.3% in December followed by 3.1% in January. What looks like positive GDP growth — 3.2% in the fourth quarter alone! — is an illusion driven by sky-high government spending and consumer credit card debt.
In absolute nominal dollar terms‚ that means our economy grew by $334.5 billion in the forth quarter. Yet during that same period‚ the government accrued $834.2 billion in debt — more than double our economic growth.
After January’s Consumer Price Index numbers were published earlier this month‚ it’s now clear we are still running at 4.9% median inflation. Again‚ this is on top of the current price plateau built up over the past three years of historic gains. Anyone with a brain would understand that you can’t hope your way out of a debt-driven inflation as large as the COVID spending that both parties continue to preserve and even expand.
This is why four years after COVID‚ 40% of business owners say they still plan to raise prices over the next three months‚ according to a survey of 10‚000 companies by the National Federation of Independent Business. Believe it or not‚ the worst is yet to come.
Crushing debt service
The fateful decision in 2020 to spend our way out of the COVID crisis will never correct itself without a massive downsizing of government – something Republicans won’t do. In fact‚ they are trying to undo the automatic 1% cuts slated to take effect at the end of April.
Interest on the debt for the first third of fiscal year 2024 will top $357 billion — 37% higher than same time last year. The money printing needed to service the debt alone is greater than the size of the Pentagon’s budget and dwarfed only by the cost of Social Security and Health and Human Services. The Treasury is slated to issue $2 trillion in new debt this year‚ in addition to $8 trillion in rollover of existing debt at higher interest rates.
In other words‚ close to one-third of our gross debt is going to be issued this year at a much higher interest rate than any time since we’ve been accruing anywhere close to $1 trillion annual deficits‚ much less $2 trillion deficits.
Even if the Fed wanted to lower interest rates‚ the sheer volume of debt it will indefinitely offload onto the market will drive up yields. The Treasury Department late last month was forced to sell a record $63 billion worth of two-year notes at 4.69%. It also sold $64 billion in five-year notes at 4.3%. Both were record numbers‚ and both were “tails.” When the yield is higher than expected‚ it’s called a tail‚ and when it’s lower‚ it’s called a “stop-through.”
We are now experiencing a pattern in which for the first time the government is having trouble finding investors and must offer higher yields on enormous sums of money. The problem will only worsen in the coming months.
An artificial economic boom
The old measures of GDP growth are practically irrelevant because it's being propped up by the very factor — government debt — that is dragging down 95% of the country to benefit a handful of companies. This has created an economy so distorted that any growth we see is built on a few companies well connected to government.
Just to illustrate how out of touch the stock market is with Main Street‚ market cap-to-GDP now stands at a whopping 181.4%. We have a concentrated market in which the S&;P 500 is 120% higher than its low in 2020 but the Russell 2000‚ an index that tracks small-cap companies‚ is down 27% since its recent peak.
But even the S&;P’s endless bull run is a mirage. The top 10% of stocks now reflect 75% of the entire market‚ and the top seven corporations are up 1‚700% since 2015. The “stock market” has become so concentrated that a handful of companies can post massive gains that do not reflect the world around them.
Even the Nasdaq‚ which is full of large tech companies and recently hit a record high‚ is a fake representation of the high-tech market because it is dominated by just four companies. It turns out that 95% of the $1.6 trillion in market capitalization added to the Nasdaq year-to-date comes from Nvidia‚ Meta‚ Microsoft‚ and Amazon. Thus‚ it’s easy to see how we can experience a bull market and “economic growth” while 90% of the economy‚ including many large companies‚ is contracting.
To further drive home this dichotomy‚ Home Depot‚ the nation’s largest home improvement store and a Fortune 500 company‚ just posted negative 3.5% in sales for the fourth quarter of 2023. That is the fifth consecutive quarter with negative sales. It’s reflective of how consumers are struggling‚ especially homeowners.
Joe Biden can brag all he wants about a record stock market and greater than 3% GDP growth. But the rest of us are living essentially in a recession burdened by a record-high cost of living.
Indefinite stagflation for Main Street
Thanks to the Federal Reserve keeping rates artificially low for so many years‚ then suddenly raising rates in a doomed effort to combat COVID-driven inflation‚ the United States is experiencing an inventory shortage in housing. This government-contrived shortage is fueling a generational crisis that is placing homeownership out of reach for most young adults.
As of December‚ only about 1 million housing units were available‚ down 50% since 2020 and the lowest level on record. Although prices are down slightly from their peak last year‚ prices were at a record high for the month of January‚ with the median sales price for homes hovering around $420‚700 and the average price topping $534‚000. As a result‚ most first-time buyers are priced out of the market‚ as the scarce supply is gobbled up by institutional investors and cash buyers.
Recently‚ mortgage rates have come down a bit‚ but commensurate with the decline in rates is the rise in prices‚ with the Case-Shiller Index increasing 5.5% nationally December. We are now seeing a recoupling of mortgage rates and home prices‚ as is usually the case‚ but that recoupling is impelled from a record-high baseline after prices rose despite higher rates.
That’s partly why rents remain so high. Rent has increased in the CPI month over month by at least 0.4% for 29 consecutive months. It’s the same story with food‚ transportation‚ car loans‚ and car insurance.In short‚ the administration’s refrain‚ echoed by the media‚ that inflation was defeated was not merely a lie. The opposite turned out to be true. Consumers are tapped out. Credit card debt is at an all-time high of $1.13 trillion‚ with an average balance of $6‚360‚ also a record. Americans spent 11.3% of their disposable income on food in 2022‚ the highest share since 1991. How can they afford anything else if food‚ cars‚ and shelter costs so much? The frightening answer is‚ of course‚ personal debt‚ which reflects (and is induced by) the governmental debt.
According to a new analysis by the Consumer Financial Protection Bureau‚ the average interest rate on credit card balance paid by consumers in 2023 was 22.8%‚ the highest level since the Federal Reserve began tracking the data. What will happen when the tab comes due on the inflation-driven spending that consumers placed on their credit cards the past two years? Unlike the U.S. Treasury‚ consumers can’t service the debt by selling fiat currency.
Brace for impact
This is why outside the doomsday consumer and governmental spending fueling GDP — along with the largest handful of companies prospering — America is really suffering from stagflation: a contracting economy coupled with rising inflation.
It’s also why the Consumer Confidence Index plummeted in February and the numbers for the previous few months‚ which originally signaled optimism reflected in the GDP data‚ were all revised downward. It was the largest cumulative downward revision in history. Any good news late last year was a mirage.
Further reflective of an anemic economy‚ preliminary January data shows U.S. durable goods orders contracted 6.1% month over month‚ the steepest decline since the lockdowns in April 2020. Orders have declined for three out of the past four months and are ameliorated only slightly by an increase in government defense contracts.
In short‚ there are signs that many consumers are finally hitting the wall in terms of cash and credit. Once the credit runs out‚ then the de facto recession most people are facing now will turn into a recession de jure that even government data can’t hide it.
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