Posted on 05/28/2021 3:20:38 AM PDT by Browns Ultra Fan
Yesterday’s GDP report was great with real GDP growing at a 6.4% annualized pace.
To get 6.4% annualized GDP growth, The Federal Reserve had to print a massive amount of money. Even with a great GDP report (preliminary), M1 money velocity is at a historic low. In other words, the US economy got relatively little for all the money it is printing.
Things improved if we look at the broader definition of money, M2. Again, despite the excellent real GDP report, M2 velocity for Q1 actually declined since The Fed went ballistic printing money. Again, the bang for the buck, so to speak, is near the historic low.
The good news is that The Fed is slowing its M2 growth rate YoY. We shall see if Q2 GDP growth slows as well.
Then we have this chart showing the massive expansion of The Fed’s balance sheet and the near-zero Fed Funds effective rate. Fuel for the Veloci(ty)raptors! We will discuss the relationship between bank reserves and money supply when summer class begins on June 21st.
Another troubling chart is average hourly earnings of all employees, year-over-year. That is 0.3% in April and is not a great signal for Q2 GDP.
Then we have CPI growth (aka, inflation) growing at 4.2% YoY, the highest since 2008 and The Great Recession.
We shall see if President Biden’s $6 trillion budget 1) gets through Congress and 2) whether the money passes through to workers.
Lastly, I want to reiterate the decline in purchasing power of the consumer dollar since the creation of The Federal Reserve in December 1913 when the dollar had a base index of $994.2. The index is now at $37.4. That is a 96% loss of consumer purchasing power since The Fed’s creation.
(Excerpt) Read more at confoundedinterest.net ...
The last great economy was in Jan 2020. Those days will never return.
The U.S. economy has been out of gas since the early 2000s. The evidence for this is that we have reached the point where we celebrate 3% GDP growth rates that would have been considered mediocre in the 1990s and downright abysmal in the 1980s.
That’s a massive understatement of the real inflation rate.
“celebrate 3% GDP growth rates”
If house size grew at 3% growth rates, the average new house would double in size about every 20 years.
1000 sq. ft.
2000 sq. ft.
4000 sq. ft.
8000 sq. ft.
16000 sq. ft.
32000 sq. ft.
....
I'll second that...
“celebrate 3% GDP growth rates”
Good news Comrade Doctor, the proletariat got 3.2% sicker this year. Break out the vodka.
That is what happens to a country when the HEART of the economy, manufacturing, is off shored.
The last great economy was in Jan 2020. Those days will never return.
/s
When the dust settles, this will have become epic and, probably, biblical in its scope and impact on the human race.
I go back to the 60’s. We got rich rebuilding the world after WWII. That train left the station decades ago.
It’s fun to hold up a roll of 10 late 1800’s silver dollars and say, “when these were minted, they were worth $10. In the mid-70’s they were worth $10. Now they are worth $400. This reflects how worthless the money used to mark their value has become.”
And that’s about to heat up.
GDP growth is a function of population and productivity growth. Our population growth has been anemic and our productivity has probably been DECLINING for 15+ years.
I think you are 100% correct about that.
That’s a massive understatement of the real inflation rate.
—
The government uses a sick magic trick of excluding food and fuel increases from what it calls “core” inflation to help with the illusion that inflation is not as bad as it really is. This is all well and good if one doesn’t need food or fuel.
And don’t even get started on how they handle rising housing costs...
“In other words, the US economy got relatively little for all the money it is printing.”
Who didn’t see that coming? The government always gets “relatively little” for the money it spends. And government got the majority of the stimulus money.
To me, low velocity of money when you have high QUANTITY of money is a very good sign. It shows people are not panicked, that they think holding money is ok, they aren’t rushing to spend it.
Wasn’t it 4.2%? Yes
Inflation speeds up in April as consumer prices leap 4.2%, fastest since 2008
https://www.cnbc.com/2021/05/12/consumer-price-index-april-2021.html
3.6 was the experts expectation. Like 1 million jobs, and the reality was 220K.
And the markets went up on that news.
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