GDP "anomalies" have been showing since 2011 that "the US economy is in serious, long-term trouble"

Jeffrey Snider, here:

The US economy is in serious, long-term trouble. We knew that very well by the volatile nature of GDP almost from the start (the big negative in Q1 2011, for example). Because orthodox economics is entirely obsessed with the economy that “should be”, it favors smoothing out what is truly pertinent texture because it isn’t directly cyclical by implication. What the mainstream needs is not to try to turn statistics into “ideal” numbers, but to actually see them for what they represent especially when they stray into unexpected ranges. From that perspective, weak quarters were not “anomalies” to be dismissed in a fit of confirmation bias, but rather warnings that actually explain how we got here and why everything from economists, especially“overheating”, was unlikely from the start.

The first three months of 2014 were worse than the whole 2001 recession

Jeffrey Snider, here:

"The first quarter of 2014 is worse than anything seen during the 2001 recession – which the worst contraction then was -1.2% in the third quarter of 2001. In raw GDP terms, that would make the first three months of 2014 worse than the whole of the 2001 recession."

Janet Yellen's Crystal Ball Utterly Failed Her In May 2007: She Never Saw The Crisis Coming

(as always, click on the image to enlarge)

“Taking a longer view, I anticipate real GDP growth over the next two and a half years [2008 & 2009] of about 2.6 percent, just a bit below my assessment of potential. My forecasts of both actual and potential growth are a tenth or two stronger than the Greenbook forecasts; but the basic story is very similar, and the underlying assumptions, including the path for the nominal funds rate, are essentially the same. I view the stance of monetary policy as remaining somewhat restrictive throughout the entire forecast period. The key factors shaping the longer-term outlook include continued fallout from the housing sector, with housing wealth projected to be roughly flat through 2008. Given the reduced impetus from housing wealth, household spending should advance at a more moderate pace going forward than over the past few years.” (Quoted here)

Revenues Show Global Economy In Full Retreat

Jeffrey Snider, here:

What feels like a still-recovering recovery to so many looks far different in comparison to the real recession that was already in full swing in 2008 – the fact that so many companies and so much of the economy is running below 2008 rates is very revealing and startling in its implication. It should be even more remarkable aside the fact that QE 3 & 4 are right now being pushed into “markets”, and that a renewed housing bubble is building next to myriad other asset bubbles.

There is no hiding the fact that the global economy, including the US, is in full retreat. Investors and observers may choose to ignore it, but that just makes their game of waiting for recovery all the more curious.

Bernanke Contradicts Himself

So says Jeffrey Snider, here:

Chairman Bernanke stole the show yesterday, certainly by his accommodative and now contradictory stand. I suppose that is the danger in trying to talk “markets” toward “targets”, much like Greenspan in the late 1990’s. Toward that end, he made at least one prediction that will likely come true (in sharp contrast to the Fed’s history), namely that the unemployment rate understates the weakness in the jobs market. ... As to the potential for tapering, that has always been about the rock and the hard place; the rock being asset bubbles in housing, credit and, yes, stocks vs. the hard place of lackluster, at best, economic performance. Given the problems of real time economic tracking and the dubious record of ferbus and other econometric models in use it would make sense that the FOMC appears to subscribe to each and every possible outcome concurrently. The committee both backs the accommodative approach (employment might be weaker than indicated) and the taper approach (things are getting much better) all at the same time.

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Still, it's an odd way to behave if you are being shown the door in a few months.

QE Removes Banking Collateral, So Gold Steps In And The Price Plunges

So says Jeffrey Snider of Alhambra Investment Partners, here, who sees it as a sign of big trouble ahead, with banks out front in the lead:

[I]n times of extreme stress, gold acts like a universal liquidity stopgap – when all else fails, repo gold. The operational reality of a gold repo is a gold lease, charged at the forward rate (GOFO). In terms of market mechanics, a dramatic increase in gold leasing is seen as a massive increase in supply on the paper markets. For various reasons in the past five years, collateral chains and the available collateral pool has dwindled dramatically. That has left banks to scramble for operational bypasses, but it also has led to periods of very acute stress. When we match the price of gold against these stressed periods, they coincide perfectly. In other words, whenever collateralized lending has become problematic banks appeal to the universal collateral. Unfortunately, that looks like gold selling to the uninitiated. These large declines in gold prices match date for date the extreme developments in the banking system across several currencies. And in each case the gold selloff has previewed a larger decline in systemic liquidity that eventually catches other asset classes.

Did you get that? The price drops on the appearance of a massive increase in supply, on the paper markets, when in actuality there is nothing of the kind.

Previous Bank Trend Treating Gold As Pariah Has Notably Changed

So says Jeffrey Snider of Alhambra Investment Partners here:

The new Basel Rules are positioning gold to enter the all-important ZERO RISK WEIGHTING category (targeted for adoption in 2015). Upon adoption, the new proposed rules would “elevate” gold in the regulatory hierarchy to the same status as cash and OECD sovereign debt in terms of capital ratios and regulatory leverage. Even the FDIC and OCC here in the United States have opened the requisite comment periods to adopt this proposal for US bank treatment. ...

If banks can now, under these proposed rules, keep the physical in their vaults and monetize it as collateral in derivative arrangements (IR swaps mostly), then they have a new outlet to obtain positive cash flows from gold without rendering additional physical selling – an almost exact reversal of the [previous] leasing/swap dynamic. This is also extremely useful if gold is accepted at the zero risk weighting, meaning that it would provide not only direct monetization for gold holders, it would do so with added regulatory and capital leverage (which is all that banks are after for any asset they own). Less selling pressure has been positive for price thirteen years , but it might also lead to banks reclaiming physical stocks from the market place if demand is high as a preferred collateral (which would be the case as uncertainty rises, particularly with regard to currency risk since gold is a good hedge against shifting currency prospects).

Another Person Notices Declining Savings Fueled Personal Consumption

Jeffrey Snider here:

To maintain the post-recovery muddle required a serious correction in the personal savings rate – from a high of around 6% in mid-2010 all the way down to 3.2% earlier in 2012. Without that decline in the savings rate personal spending and consumption would have likely contracted long before 2012. The savings rate has backed up toward 4%, and it appears retail sales are following that.

We noticed the phenomenon already last November here, calling attention to the role that the Social Security tax reprieve was playing in the equation.

Imagine how bad the savings rate and retail sales would look now without that extra cash sloshing around. As it is we're still robbing Peter to pay Paul from Social Security, if anyone out there remembers anymore who those two guys were.

If anyone in the media bothered to check, regular folks out here are getting crushed in this economy at the same time that they are paying for all the handouts given up and down the ladder.

Unfortunately no one will listen to those of us who say stopping the run-away spending train is job one. Not Bush, and now not even Romney.

YOU PEOPLE ARE IN DENIAL.

Government Intervention Reduces Amplitude At The Expense Of Longer Wavelength

And we're all pretty sick of it, too.

Macroeconomic wisdom from Joe Calhoun, here:

Government intervention in times of recession is seen as the compassionate thing to do but it doesn’t accomplish what it purports to. Intervention – monetary or fiscal – can reduce the amplitude of the business cycle but only at the expense of a longer wavelength. Fiscal policies that provide temporary income support during unemployment only work until the benefits inevitably run out. Bailout programs that rescue badly managed companies only work until further mismanagement destroys the capital provided by the bailout. Monetary policies designed to distort asset prices have no lasting effect and only work as long as the Fed is actively intervening in the market. All interventions may be well meaning but there is no free lunch. Eventually, economic reality must be accepted and the excesses purged.

Europe Proves Nothing Except That Tax Increases Reduce Growth

So says Joseph Y. Calhoun here:

The G-8 met this weekend at Camp David to address the failure of austerity in promoting economic growth, specifically in Europe where it has allegedly been practiced. Of course, austerity, as modernly defined by a certain segment of the economics profession, has nothing at all to do with the definition from Merriam-Webster ... . Austerity is reckoned by those who oppose it to be an attempt to balance government budgets primarily through cruel spending cuts. Those who make this claim will find it hard to back up with facts in any European country outside Greece[,] which had little choice in the matter given that no one will lend them the Euros to keep up their previous pace of spending. The reality is that efforts to balance budgets in Europe have depended much more on tax increases than spending cuts. The European experience proves nothing except that tax increases reduce growth.

Without Low Valuations and Widespread Skepticism, True Bull Markets Are Not Born

From Joseph Calhoun at Alhambrapartners.com:

"Bull markets are born from low valuations and widespread skepticism, neither of which is extant in the current environment. At best, stocks are currently at average historical valuations; at worst, based on measures such as the Shiller P/E, they are considerably overvalued. Sentiment, as measured by the various surveys, is approaching euphoric levels. I don’t know yet what will upset the bullish mood but the last few years have proven beyond a shadow of a doubt that when it happens, the move down will not be pleasant for the fully invested."

Read the full entry here.

Obama and Romney Defend Progressive Taxation, But It's an Attack on Property and Justice

So says John Chapman, here:

To prove the moral case for progressivity — that, in President Obama’s exact words, the rich should pay “their fair share”, it would have to be shown that the marginal utility of the last $100,000 of income for the millionaire was providing less satisfaction than the last $1,000 for the worker making $10,000 in income.

To say this colloquially, Messrs. Obama and Romney feel that the millionaire should feel as much pain from losing his last 10% of income — should bear as much burden from this loss — as does the worker who loses his last 10%.  President Obama and evidently Governor Romney both posit that this is not the case with flat-rate taxation; they believe that the loss of the last 10% is not equiproportional for both without progressive rates.  But there is of course no way to know that empirically, and indeed, there are sound reasons to think the opposite is true — that progressive taxation is “unfair” to the higher-income earners by taking an “unjust” amount of their property from them, that ultimately harms the economy as a whole. ...

For steep progressivity is, at root, an attack on both property and blindness in the application of law.  Marginal rates of taxation now approach 60% in states like New York, and “the rich”, rather than acquiesce to Mr. Obama’s concept of paying their “fair share”, are simply vacating the state and/or ceasing in the taxable production of goods and services: chronic deficits leading to fiscal collapse then appear on the horizon in such cases.  Greece is a current exemplar of the extreme end to which this situation leads, and no amount of moralizing about “fairness” is relevant on the streets of Athens today.