Gold remains far more overvalued than US stocks, which is saying a lot

Gold is at least 167% overvalued relative to inflation since 1913. $600ish gold makes sense. $1600 gold does not, let alone $2067, the 2020 high.

Meanwhile stocks are off-the-charts overvalued, about 93% relative to the post-Great Depression median valuation of 81 through 2019, as of the latest GDP figures from late May.

Speculation in both gold and stocks, not to mention a host of other things, has been driven by Federal Reserve interest rate suppression since 2001.

How long elevated gold and stock prices can persist in the new higher interest rate environment is anyone's guess.

The Fed Funds rate still averaged a low 1.69% in 2022, so it's still early innings.

.

May 25, 2023

Ben Bernanke wins Nobel Prize in Economics for 495 bank failures under his leadership as Federal Reserve Chair Feb 2006-Feb 2014

 

 

The 495 failures were a huge improvement over the 9,000 bank failures during The Great Depression of the 1930s, his specialty of study in the 1980s, experts said under their breath.

Real return since August 2000 has been Great Depression-like

 

The biggest investing lie of our times: "A host of factors ... has made U.S. equities an attractive place to park money and earn nice returns"

 CNBC, here.

S&P 500, average real return per annum, dividends fully reinvested:

August 2000 through April 2022, 21 years, 8 months . . . 4.6%;

The 21 years, 8 months previous to that, December 1978 through August 2000 . . . 12.35%. 

At 4.6% it takes about 15.5 years to double your money, at 12.35% just under 6 years, which means under current circumstances you haven't yet doubled your money twice, whereas previously you would have doubled it 3.6 times.

The stellar real returns to the August 2000 top have been cut down since then from 12.35% to 8.41%. How long will it be before they are cut back to 6.44%, the long term real return from January 1871 to December 1978?

The odds are not very long.

Those stellar returns of the second half of the 20th century are an artifact of The Great Depression lows. To achieve them again will require another one.

Safety check, Vern.

You fools who won't have enough electricity for air conditioning this summer have only yourselves to blame

From the story:

Peak temperatures are forecast to reach 115 degrees Fahrenheit (46°C) in interior California through the week, according to the state's electric grid operator, which warned the biggest supply deficit could occur on Thursday after the sun goes down and solar power is no longer available. ...

On Wednesday, solar power was providing about 30% of California ISO's supply, and the grid warned that it would be unlikely to be able to rely on additional supplies from other states due to the extreme heat hitting much of the Western United States.

The ISO was currently getting 13% of its power from other states. The ISO has said it expects to have about 50,734 MW of supply available this summer, but some of that comes from solar.

102,000 MW of coal-fired electric capacity was retired from 2010-2019, over 38,000 MW alone in 2012, 2015 and 2018. Another 17,000 MW is scheduled to be retired by 2025. 

The EIA blamed "flat electricity demand growth" during the decade for the retirements.

It should have blamed Obama, under whom real GDP grew at a rate worse than during the Great Depression.

But YOU elected him.

Twice.

 

 

Just because Congress in 1869 stipulated a Supreme Court of nine doesn't mean Trump must appoint anyone

 Trump would be a fool not to make a Supreme Court appointment, of course, and he has done it, but the executive branch is co-equal and doesn't have an obligation to comply with the act of Congress from 150 years ago by appointing a replacement for RBG to make it nine if it doesn't want to make an appointment for prudential or even political reasons.

The executive can say the court costs too much and for that reason not make the appointment. The executive can say the court hears too few cases to require a ninth justice. The executive can say "eight is enough". Marbury v Madison, perhaps the most consequential decision ever, was decided by a Supreme Court 4-0 with a 6-member court (two were sick at the time). There was no magic odd-numbered formula which was required before that decision was made. No one today as a matter of politics views the decision as illegitimate for that reason, nor because the case was decided by too few members.

And FDR certainly is precedent for saying there were prudential reasons for believing the nine member court was inadequate for the historical moment. Just because he lost in this political quest doesn't mean it was illegitimate.

Consider that FDR wanted to pack the court in 1937 through a bill scheming to swell its numbers because the Supreme Court kept thwarting his New Deal legislation in Congress as unconstitutional from 1933. The Great Depression was a dire moment in American history, requiring, in FDR's mind, one attempt after another to alleviate it, no matter how unprecedented.

The other powers that be thought otherwise.

But eventually and fortuitously one justice on the Supreme Court, named Roberts !!! by the way, actually switched sides to favor a New Deal case pleasing to FDR, which ended up having the odd result of taking the wind out of FDR's court-packing sails.

The March 1937 5-4 decision came to be known for this reason as "the switch in time which saved nine". The court showed that it could, in fact, rule New Deal ideas constitutional. That removed the argument for packing the court, by effect if not by intent. The nine member court was adequate after all.

It's an interesting case showing the power of the Supremes, not just to rule, but to maneuver.

The presidential appointment power is a political matter because the president is elected.

But don't kid yourself that the court absolutely eschews politics when rendering its opinions. Though not politically conservative in nature, a March 1937 ruling upholding innovative, New Deal legislation, ended up preserving the traditional character of the Supreme Court reaching back to just after the Civil War. And it persists to this day.

The founders were genius in this respect, recognizing that political forces are inescapable and must be accepted, accounted for, and balanced in order to prevent a lurch into the absolute tyranny of a single one of the branches of government.

The imperative of the moment is the free exercise of politics within the constitutional framework, not tampering with the framework.

Real GDP growth since 2007 lags the Great Depression era by 42% and the post-war by 52%

And Trump thinks this is the greatest economy ever.

Gramps, born in 1926, says this is worse than 2008

Dad will be 94 this year if the coronavirus doesn't get him first.

He's been through a lot, seen it all. Darmouth graduate. Served in the US Navy from World War II to Vietnam, retired as a captain.

He was just a little kid during the Great Depression, didn't really know any better. But he's watched America become a lot better since then, and now it suddenly isn't.

Things may end for Dad the way they began, with Great Depression II.

Long war on terror, coronavirus, economic meltdown.

We've had war, plague and depression before in this country, sometimes in rapid succession. WWI ended with a whimper as the Spanish Flu pandemic killed tens of millions, followed quickly by the depression of 1920. That one was very deep and severe, but ended quickly because the government . . . did nothing.

Free market economies, if left to be free, quickly recover from catastrophes because debt overhangs are allowed to clear through bankruptcy. Bankruptcy is the cure.

But we can't stomach that, same as we haven't been able to say No to our children. Self-esteem and all that.

So, expect the suffering and disorder to continue.

Sad. 

It's official: Economic growth 2007-2019 (full year) is 42.6% worse than during the Great Depression 1929-1941

Growth of US GDP since 2007 underperforms the Great Depression by 42%, the post-war by 51%

Yet the lunatics on TV and radio call this a booming economy.

B E  H A P P Y  I N  Y O U R  W O R K!

Compared to the Great Depression 12 years out from 1929, GDP the last 12 years has been worse

Clueless AP article calls US economy resilient when it's been in the rut they fear is coming since 2007

The compound annual growth rate of real GDP since 2007 has been WORSE than for the same time frame of the Great Depression, yet AP is completely oblivious. The upside is when things really go to hell they'll still be.

As global economic picture dims, solutions seem out of reach:

Barely a year after most of the world’s major countries were enjoying an unusual moment of shared prosperity, the global economy may be at risk of returning to the rut it tumbled into after the financial crisis of 2007-2009. ...

The U.S. economy, now enjoying a record-breaking 10-year expansion, still shows resilience. American consumers, whose spending accounts for 70% of U.S. economic activity, have driven the growth.

Retail sales have risen sharply so far this year, with people shopping online and spending more at restaurants. Their savings rates are also the highest since 2012, which suggests that consumers aren’t necessarily stretching themselves too thin, according to the Commerce Department.

People keep repeating the myth of "no immigration from the 1920s-1960s" because Rush Limbaugh spread it in 2014

Conservatives Don’t Hate Immigrants!:

Every time I tell people that there was no immigration in this country for over 40 years, from the 1920s to the 1960s, seventies, they’re shocked. You’d be amazed at the number of people that do not know we totally closed the borders after the wave of European immigration in the 1920s. And we did it for one reason. That mass arrival of immigrants needed to be assimilated.

The truth is between 1920 and 1965 inclusive we let in 10.1 million, 4.5 million of which came in between 1920 and 1930. It was the Great Depression and World War II which brought immigration down to a trickle. There were no jobs for the people already here in the 1930s for cying out loud, and we didn't want any Nazty Spies comin' in in 1940 either.

You can examine the data for yourself here:

Legal Immigration to the United States, 1820-Present

Jeffrey Snider: The last 11 years of real GDP worse overall than the Great Depression

 Told ya.

Are the Great Depression and the Last 11 Years Comparable?

In terms of modern calculation of real Gross Domestic Product, the last eleven years in the United States have been worse overall than the Great Depression. 

 

Growth of GDP in the last eleven years is now officially worse than in the Great Depression

The economy of the last ten years has had much more in common with the Great Depression than the post-war

Stock market return in the last 18 years has been better than during the Great Depression and WWII, but not by much

Author finds cost of housing and daycare to be the main drivers of the middle class "squeeze"

From the transcript of the podcast here:

Middle-class life is 30% more expensive than it was 20 years ago. ... The main problem is the cost of housing. ... The second problem was the cost of daycare. A lot of it had to do with wages that were just not keeping up with other kinds of expenses. ...  [R]eal estate is no longer a place to live, but it’s an investment vehicle. That has driven up the cost of housing for ordinary people or the precarious middle class, as I call them. 

Unstated here is the new necessity of two incomes once women entered the labor force in quantity after the 1960s under the influence of feminist ideology. For the first twenty years of the post-war this was not so. When you dramatically increase the size of the labor force, the cost of the labor naturally comes down. The result was that women entering the workforce increased their average real income, but only just enough over time to pay for the cost of daycare, a wash. Meanwhile real male incomes stagnated.

Women working in large numbers naturally put pressure on the future growth of the labor force as well. Because they were not having the children who would become the country's next workers, a future labor shortage was inevitable as the post-war 4-child families transformed into 2-child families.

Enter the pressure to increase immigration, wink at low-labor-cost illegal immigration, and export jobs, a new era of which was inaugurated under George H. W. Bush in 1989, who doubled the level of legal immigration overnight, and under his son George W. Bush in 2001, who presided over the export of 3 million manufacturing jobs, a trend continued under Barack Obama who exported 3 million more. Manufacturing jobs had been the most important anchors and hubs for middle class jobs in American communities, the absence of which turned college from an option into a necessity in order to maintain what was formerly possible with only a high school diploma. Increase the demand for college, and you increase its price, and with it the pressure on stagnating pocketbooks.

Housing prices rose dramatically from the late 1990s in consequence of the fateful decision under Bill Clinton to unleash the savings hidden in the nation's housing stock for sixty years. Clinton signed in 1997 the libertarian Republican legislation rewriting the tax laws which had forced homeowners to stay in their homes or move up to avoid large capital gains tax hits. Large economic forces were behind this, not the least of which was the growing sense of the unsustainability of the middle class consumption culture without a new source of savings. 

The birth of the housing ATM under Reagan in the 1980s had no doubt prepared the way for these developments, who infamously did away with the tax deductibility of credit card interest while increasing the same for home equity lines of credit. The effect was to get the children of the Baby Boom to think of their homes as mere commodities which could be exploited to extract value. The liquidity unleashed by the Clinton legislation ten years later hit the economy like a tidal wave, driving prices higher and higher into the now infamous housing bubble as homes were churned by flippers and families alike. It took just ten years of that to drive the economy into the worst panic it had experienced since the Great Depression.

Reversing these horrible developments would require a civilizational transformation of values which in the past only Protestant Christianity seems to have been able to provide. Feminist ideology, like all ideology, has done nothing but take away. The revaluation of values necessary in our situation would have to begin with women insisting on fidelity and marriage once again. Women are biologically predisposed to the self-sacrifice needed. To get the men to go along they will need a Lysistrata, but she's probably not Camille Paglia.

Communism works in only one place.  

The crisis in growth of personal income since 2007 shows why it feels like a depression

The 13.9% growth of personal income between 2007 and 2017 is the worst since the Great Depression and is 60% off the average growth rate of 35%.

Somebody should elect somebody to do something about this!

Robert Shiller: Great Depression tariffs did not plausibly, directly affect economic growth in a major degree

Everywhere we turn we hear the opposite. It's standard operating procedure to blame protectionism for the Great Depression. Shiller knows it can't be demonstrated from the data. Hence the psychological argument. 

Quoted here:

Shiller said he did not believe there would be a significant inflationary effect to the U.S. from steel and aluminum tariffs, but he warned that heated trade rhetoric from both sides could send the American economy reeling into a recession.

"When you ask about the size of the impact on the economy, I think a lot of it is more psychological than direct, unless they really slam on tariffs," he said. The Yale economist pointed to the "most famous tariff war of all" during the Great Depression, which he said did not "plausibly, directly" affect economic growth "in a major degree," but it may have helped "destroy confidence" and willingness to plan for the future.

"It's exactly those 'wait and see' attitudes that cause a recession," he explained.