David Stockman deep dives into six decades of economic statistics to make a virtually irrefutable case for what most of us older than thirty know in our bones—the economy isn’t what it used to be. From Stockman, at stockmanscontracorner.com:
During the heyday of post-war prosperity between 1953 and 1971, real final sales—–a better measure of economic growth than GDP because it filters out inventory fluctuations—-grew at a 3.6% annual rate. That is exactly double the 1.8% CAGR recorded for 2000-2014.
And after this morning’s punk GDP report in which growth stayed above the flat-line by a hair only due to a massive inventory build, the contrast is even more dramatic. Real final sales actually declined by 0.5% during Q1 and, more importantly, reflected a mere 1.1.% annual growth rate since the pre-crisis peak in the winter of 2007-2008.
The long and short of it, therefore, is that there has been a dramatic downshift in the trend rate of economic growth during an era in which central bank intervention and stimulus has been immeasurably enlarged. In this regard, the size of the fed’s balance sheet is the telltale measure of its policy intrusion. That’s because the only mechanism by which the Fed can actually impact the real economy is through open market purchases of treasury bills, bonds and other existing securities for the purpose of raising their price and lowering their interest rate or yield. And it doesn’t matter whether the Fed is buying short term T-bills to peg the federal funds rate or 10-year notes to drive down long-term interest rates and flatten the yield curve.
Thus, the old-fashioned business of pegging the Federal funds rate and the new-fangled intrusion of massive bond buying under QE are all the same maneuver. They both involve expansion of the central bank balance sheet and, therefore, the systematic injection of fraud into the financial system.
That is to say, growth on the asset side of the Fed’s balance sheet involves the acquisition of financial claims that arise from the utilization of real labor and capital resources. This happens, for example, when the Fed buys treasury notes that were issued to fund the purchase of concrete and bulldozer operators under the highway program or when new homes embodying carpenters’ wages and lumber are financed with Fannie Mae guaranteed mortgages purchased by the Fed.
That contrasts with the liability side of the Fed’s balance sheet, which expands dollar for dollar with the asset side, but represents nothing more than bottled monetary air confected from its digital printing press. Stated differently, the Fed’s fundamental tool of open market purchases of public debt and other securities, and thereby the expansion of its balance sheet, embodies the exchange of claims based on something for credits made from nothing.
To continue reading: Exploding Money And Imploding Growth
Great article. Then I read this article on the Mises website by Mark Thornton about the CPI. Good supplement.
https://mises.org/library/many-failures-cpi
That was a good article on the link. The implicit point, that in a fixed money supply world there would be deflation as productivity and innovation drive the costs, and competition drives down the prices, of goods and services. This is exactly what happened under the gold standard in the late 19th century.