The Dying Middle-Class

by Tyler Durden

Sep 27, 2016 8:00 PM

Authored by Bonner & Partner's Bill Bonner (annotated by Acting-Man's Pater Tenebrarum),

Largest Theft in History

As expected, Ms. Yellen smiled last week, announcing no change to the Fed’s extraordinary policies. For the last eight years, she has been aiding and abetting the largest theft in history.

Asset valuations are not outside of historical norms, particularly if one disregards the past 5,000 years.

Cartoon by Bob Rich

Thanks to ZIRP (zero-interest-rate policy) and QE (quantitative easing), every year, about $300 billion is transferred from largely middle-class savers to largely better-off speculators, financial asset owners, and the biggest borrowers during that period – corporations and the government.

The financial press, nevertheless, finds something vaguely heroic about enabling the grandest larceny ever. Bloomberg:

“Federal Reserve Chair Janet Yellen braved mounting opposition inside and outside the U.S. central bank and delayed an interest-rate increase again to give the economy more room to run.” 

The U.S. economy is barely limping along. As we noted last week, when you adjust nominal GDP growth by a more accurate measure of inflation – David Stockman’s “Flyover CPI” – you see that the economy is actually in recession. Room to run? It is backing up!

Bloomberg continues its brain-dead coverage:

While agreeing that the case for a rate rise had strengthened, Yellen on Wednesday argued that it made sense to put off a move for now amid signs that discouraged Americans who dropped out of the labor market are returning and looking for work.

“The economy has a little more room to run than might have been previously thought”, Yellen told a press conference in Washington after the Fed’s two-day meeting, as she explained the decision to keep rates on hold. “That’s good news.”

We have numerous reservations about GDP as a measure of economic growth, but it will do for the purpose of showing the long term trend in output growth. It is worth noting that this downshift has occurred in tandem with accelerating credit and money supply growth. While there are other factors in play as well (such as the inexorable increase in regulations), this outcome is in line with Austrian business cycle theory, which posits that  booms driven by credit expansion ultimately lead to capital consumption. Over time the structural damage to the economy evidently adds up – click to enlarge.

Voodoo Trade

We listened to Ms. Yellen’s remarks. She sounded like a well-trained functionary, a technician. Lots of economic mumbo-jumbo. Academic phrases. Latinate words and passive sentences.

She might have made a good doctor, we thought. Or maybe a decent metallurgist. In an honest métier, she might have been able to hold her head up high.  Instead, the poor woman is condemned to ply her voodoo trade, pretending that it is based on science, and feigning that it improved the economy.

Pity the economist without a sense of humor. His head must ache when he hears Ms. Yellen talk. His heart must break when he sees his profession brought to ridicule by its most prominent practitioners.

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