The
State of the Economy
By Paul
Craig Roberts
Dear Readers: We live in a Matrix of
Lies in which our awareness is
controlled by the explanations we are
given.
The control exercised over our
awareness is universal.
It applies to every aspect of our
existence.
In the article below I show that
not only is our understanding of the
economy controlled by manipulation of
our minds, but also the markets
themselves are controlled by official
intervention.
In brief, you can believe nothing
that you are officially told.
If you desire truth, you must
support the websites that are committed
to truth.
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June
06, 2019 "Information
Clearing House"
- The story line is going out that the
economic boom is weakening and the Federal
Reserve has to get the printing press running
again.
The Fed uses the money to purchase bonds,
which drives up the prices of bonds and lowers
the interest rate.
The theory is that the lower interest
rate encourages consumer spending and business
investment and that this increase in consumer
and business spending results in more output and
employment.
The
Federal Reserve, European Central Bank, and Bank
of England have been wedded to this policy for a
decade, and the Japanese for longer, without
stimulating business investment.
Rather than borrowing at low interest
rates in order to invest more, corporations
borrowed in order to buy back their stock.
In other words, some corporations after
using all their profits to buy back their own
stock went into debt in order to further reduce
their market capitalization!
Far
from stimulating business investment, the
liquidity supplied by the Federal Reserve drove
up stock and bond prices and spilled over into
real estate.
The fact that corporations used their
profits to buy back their shares rather than to
invest in new capacity means that the
corporations
did not experience a booming economy with
good investment opportunities. It is a poor
economy when the best investment for a company
is to repurchase its own shares.
Consumers, devoid of real income growth,
maintained their living standards by going
deeper into debt.
This process was aided, for example, by
stretching out car payments from three years to
six and seven years, with the result that loan
balances exceed the value of the vehicles.
Many households live on credit cards by
paying the minimum amount, with the result that
their indebtedness grows by the month. The
Federal Reserve’s low interest rates are not
reciprocated by the high credit card interest
rate on outstanding balances.
Some
European countries now have negative interest
rates, which means that the bank does not pay
you interest on your deposit, but charges you a
fee for holding your money.
In other words, you are charged an
interest rate for having money in a bank.
One reason for this is the belief of
neoliberal economists that consumers would
prefer to spend their money than to watch it
gradually wither away and that the spending will
drive the economy to higher growth.
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What is
the growth rate of the economy?
It is difficult to know, because the
measures of inflation have been tampered with in
order to avoid cost-of-living adjustments for
Social Security recipients and the payment of
COLA adjustments in contracts. The consumer
price index is a basket of goods that represents
an average household’s expenditures.
The weights of the items in the index are
estimates of the percentage of the household
budget that is spent on those items.
A rise in the prices of items in the
index would raise the index by the weight of
those items, and this was the measure of
inflation.
Changes
were made that reduced the inflation that the
index measured.
One change was to substitute a lower
price alternative when an item in the index rose
in price.
Another was to designate a rise in price
of an item as a quality improvement and not
count it as inflation.
Something similar was done to the producer price
index which is used to deflate nominal GDP in
order to measure real economic growth.
GDP is measured in terms of money, and
some of the growth in the measure is due to
price increases rather than to more output of
goods and services.
In order to have a good estimate of how
much real output has increased, it is necessary
to deflate the nominal measure of GDP by taking
out the price rises.
If inflation is underestimated, then real
GDP will be overestimated. When John Williams of
Shadowstats adjusts the real GDP measure for
what he calculates is a two-percentage point
understatement of annual inflation, there has
been very little economic growth since 2009 when
a recovery allegedly began, and the economy
remains far below its pre-recession level in
2008.
In
other words, the belief that the US has had a
decade long economic recovery is likely to be an
illusion produced by underestimating inflation.
Indeed, every day experience with the
prices of food, clothing, household goods, and
services indicates a higher rate of inflation
than is officially reported.
The low
unemployment rate that is reported is also an
illusion.
The government achieves the low rate by
not counting the unemployed.
The economic and psychological cost of
searching for a job are high.
There are the economic costs of a
presentable appearance and transport to the
interview. For a person without a pay check,
these costs rapidly mount.
The psychological costs of failure to
find a job time after time also mount.
People become discouraged and cease
looking.
The government treats discouraged workers
who cannot find jobs as no longer being in the
work force and omits them from the measure of
unemployment.
John Williams estimates that the real
rate of US unemployment is 20%, not 3.5%
The
decline in the labor force participation rate
supports Williams’ conclusion.
Normally, a booming economy, which is
what 3.5% unemployment represents, would have a
rising labor force participation rate as people
enter the work force to take advantage of the
employment opportunities.
However, during the alleged ten year
boom, the participation rate has fallen, an
indication of poor job opportunities.
The
government measures jobs in two ways: the
payroll jobs report that seeks to measure the
new jobs created each month (which is not a
measure of employment as a person may hold two
or more jobs) and the household survey that
seeks to measure employment. The results are
usually at odds and cannot be reconciled. What
does seem to emerge is that the new jobs
reported are for the most part low productivity,
low value-added, lowly paid jobs. Another
conclusion is that the number of full time jobs
with benefits are declining and the number of
part-time jobs are rising.
A case
could be made that US living standards have
declined since the 1950s when one income was
sufficient to support a family.
The husband took the slings and arrows of
the work experience, and the wife provided
household services such as home cooked
nutritious meals, child care, clean clothes, and
an orderly existence.
Today most households require two earners
to make ends meet and then only barely.
Saving is a declining option.
A Federal Reserve report a couple of
years ago concluded that about half of American
households could not produce $400 cash unless
personal possessions were sold.
As the
Federal Reserve’s low interest rate policy has
not served ordinary Americans or spurred
investment in new plant and equipment, who has
it served? The answer is corporate executives
and shareholders.
As the liquidity supplied by the Federal
Reserve has gone mainly into the prices of
financial assets, it is the owners of these
assets who have benefited from the Federal
Reserve’s policy.
Years ago Congress in its unwisdom capped
the amount of executive pay that could be
deducted as a business expense at one million
dollars unless performance related.
What “performance related” means is a
rise in profits and share price.
Corporate boards and executives achieved
“performance” by reducing labor costs by moving
jobs offshore and by using profits and borrowing
in order to buy back the company’s shares, thus
driving up the price.
In
other words, corporate leaders and owners
benefited by harming the US economy, the careers
and livelihoods of the American work force, and
their own companies.
This is
the reason for the extraordinary worsening of
the income and wealth distribution in the United
States that is polarizing the US into a handful
of mega-rich and a multitude of have-nots.
The
America I grew up in was an opportunity society.
There were ladders of upward mobility
that could be climbed on merit alone without
requiring family status or social and political
connections.
Instate college tuition was low.
Most families could manage it, and the
students of those families that could not afford
the cost worked their way through university
with part time jobs. Student loans were unknown.
That
America is gone.
The few
economists capable of thought wonder about the
high price/earnings ratios of US stocks and the
26,000 Dow Jones when stock buy-backs indicate
that US corporations see no investment
opportunities.
How can stock prices be so high when
corporations see no growth in US consumer income
that would justify investment in the US?
When
President Reagan’s supply-side economic policy
got the Dow Jones up to 1,000 the US still had a
real economy. How can it be that today with
America’s economy hollowed out the Dow Jones is
25 or 26 times higher?
Manipulation plays a role in the answer.
In Reagan’s last year in office, the George H.W.
Bush forces created the Working Group on
Financial Markets, otherwise known as the
“plunge protection team,” the purpose of which
was to prevent a stock market fall that would
deny Bush the Republican nomination and the
presidency as Reagan’s successor.
The Bush people did not want any replay
of October 1987.
The
plunge protection team brought together the
Federal Reserve, Treasury, and Securities and
Exchange Commission in a format that could
intervene in the stock market to prevent a fall.
The easiest way to do this is, when faced with
falling stock prices, to step in and purchase
S&P futures. Hedge funds follow the leader and
the market decline is arrested.
The
Federal Reserve now has the ability to intervene
in any financial market.
Dave Kranzler and I have shown repeatedly
how the Federal Reserve or its proxies intervene
in the gold market to support the value of the
excessively-supplied US dollar by printing naked
gold contracts to drop on the gold futures
market in order to knock down the price of gold.
A rising gold price would show that the dollar
support arrangements that the Federal Reserve
has with other central banks to maintain the
illusion of a strong dollar is a contrived
arrangement rejected by the gold market.
See:
https://www.paulcraigroberts.org/2014/12/22/lawless-manipulation-bullion-markets-public-authorities-paul-craig-roberts-dave-kranzler/
https://www.paulcraigroberts.org/2014/12/01/us-resorts-illegality-protect-failed-policies-paul-craig-roberts-dave-kranzler/
https://www.paulcraigroberts.org/2015/07/27/supply-demand-gold-silver-futures-markets-paul-craig-roberts-dave-kranzler/
What
few, if any, economists and financial market
commentators understand is that today all
markets are rigged by the plunge protection
team.
For at least a decade it has not been
possible to evaluate the financial situation by
relying on traditional thinking and methods.
Rigged markets do not respond in the way
that competitive markets respond.
This is the explanation why companies
that see no investment opportunities for their
profits better than the repurchase of their own
shares can have high price/earnings ratios.
This is the explanation why the market’s
effort to bring stock prices in line with
realistic price/earnings ratios is unsuccessful.
As far
as I can surmise, the Federal Reserve and plunge
protection team can continue to rig the
financial markets for the mega-rich until the US
dollar loses its role as world reserve currency.
Dr. Paul Craig Roberts was Assistant Secretary of
the Treasury for Economic Policy and associate
editor of the Wall Street Journal. He was
columnist for Business Week, Scripps Howard News
Service, and Creators Syndicate. He has had many
university appointments. His internet columns
have attracted a worldwide following. Roberts'
latest books are
The Failure of Laissez Faire
Capitalism and Economic Dissolution of the West,
How America Was Lost,
and
The Neoconservative Threat to
World Order.
The
views expressed in this article are solely those
of the author and do not necessarily reflect the
opinions of Information Clearing House.
