Great Depression Online Archive Issue:

Teats On A Bull

Great Depression Online
Long Beach, CA
February 02, 2010

Inside This Issue You Will Discover…

*** A Puff of Smoke in the Windy Night
*** GDP Up, Stocks Down
*** Teats On A Bull
*** And More

A Puff of Smoke in the Windy Night

Fourth quarter GDP growth of 5.7 percent was reported last Friday by the Commerce Department – the strongest GDP report in over six years.  At first glance this signals a booming economy. 

Wall Street read the headlines and the DOW immediately jumped 117 points.  By mid-morning, however, traders concluded the numbers were hot air.  That’s when the DOW began its 172 point cascade…closing out the day with a loss of 53 points.

What happened?  Why wasn’t 5.7 percent GDP growth everything it was supposed to be?

“The question is how much more inventory build is left to go and what’s GDP going to look like once that inventory adjustment takes place?” said Carl Lantz, U.S. Interest Rate Strategist, New York.  “It still looks like the underlying growth rate of the economy is still pretty soft.  That’s kind of consistent with a sub-par recovery compared to what you normally would get coming out of a deep recession.”

~~~~~~New Rules to Get Rich~~~~~~

On December 12, 1900, Charles Schwab & J.P. Morgan Held a Secret Meeting to Restructure the Rules of Prosperity and Financial Wealth.

At first, only a select few insiders learned about the “New Rules.”  Those elite tycoons kept the New Rules buried for many years using the new system to hoard and stockpile mountains of cash.  It wasn’t until long after the Great Depression that the New Rules were discovered by a few in the public.  And, of course, by then it was way too late for most Americans.

Advanced Warning: The Rules Have Changed Again 

~~~~~~~~~~~~~~~~~~~~~~~~~

Furthering this point was Tom Porcelli, Senior Economist, RBC Capital Markets, New York…

“When you strip out inventories, you see real final sales were 2.2 percent.  This is not a fantastic number.  If you compare this to the ‘75 and ‘82 recessions, real final sales in the first two quarters after, we averaged 5 percent after ‘82 recession, and about 4 percent after the ‘75.  By comparison, we obviously are looking pretty weak.”

Bottom line, if the new inventory sits on shelves, and isn’t liquidated by the consumer, this boost to GDP will disappear like a puff of smoke in the windy night.

GDP Up, Stocks Down

Remember, too, this GDP number will be revised twice over the coming months.  Perhaps it will be revised down both times.  For example, the initial third quarter GDP number was first revised down from 3.5 percent to 2.8 percent, then it was revised down to 2.2 percent…down over 37 percent from where it was first reported.

Coincidently, our lovable Fed Chairman, Ben Bernanke, was confirmed by the Senate last Thursday to a second term on the job.  Over the next four years, we suspect, he’ll come to regret this victory.

Not by coincidence, last Thursday, Bernanke and his fellows at the Federal Reserve opted to keep the federal funds rate at practically zero.  Obviously, a robust economy is not what they’re sensing at the moment.  Yet, they’ve monekeyed around with the money supply so much no one really knows what to make of it…everything’s been muddied.

Black is white.  Up is down.  In is out.  Crisscross is sideways.  What’s more, GDP growth is reported at 5.7 percent – beating expectations – and traders sell stocks.  As you can see, the stock market’s been so disconnected from the economy that Wall Street cares more about interest rates than real economic growth.

Wall Street sees a GDP of 5.7 percent and takes that as a signal the Federal Reserve will begin raising interest rates.  Rising interest rates means they’ll no longer be able to speculate with cheap money.  When cheap money goes away, stocks go down.

Teats On A Bull

When it comes down to it, the economic growth, as reported, was borrowed from the future.  So in this respect, it’s a measurement of the rate we are going broke. 

Sure cheap money from the Federal Reserve and record deficit stimulus spending produced a strong positive number.  But what good is it really if it’s not driven by real demand?  And what good is a strong GDP number if only government stimulus jobs are created?  Are jobs created by government stimulus useful?

Not at all. 

Real jobs can’t be borrowed into existence from the future.  They must be borne out of their own merit.  In other words, they must be self supporting through their own contribution.  They must create more value than they consume.  They must produce more wealth than they destroy.

Stimulus jobs do the exact opposite.  They make the world a poorer place.  We’ve seen many differing accounts of the actual cost per stimulus job.  Many Republican supporters claim it will cost $217,000 of stimulus spending per job. 

We’ve seen other accounts ranging from Paul Krugman’s $100,000 all the way up to one crude calculation released over the weekend claiming $655,000 per job.

With all the intangible variables involved, we won’t pretend to know what the true cost per stimulus job really is.  But, we imagine, it’s much more than $40,000, which is the national average salary.

If it costs more to create a job than the job is worth, then the job is a waste of money.  It makes the world a poorer place.  It subtracts value from the face of the earth. 

By all accounts, government stimulus jobs are more useless than teats on a bull.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  On September 22, 2008, Lehman Brothers, the world’s largest bank, announced its insolvency.  Within minutes, the stock market plunged to historic depths, terrifying investors and individuals the world over.

Lehman Brothers was not the first (remember Enron?), nor would it be the last. Soon there was a long line of banks, insurance agencies, corporations, and other institutions running to Washington, D.C., with their hands stretched out, grasping to be part of the “bail out.”

A pitiful and disgraceful display of dishonesty, greed, and deceit.

What is going on in our world today?

 

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