CNBC's Alfred E. Neuman Luncheon Club-----Beyond Clueless

I just heard one of CNBC's cheerleaders admonishing viewers not to worry about China's full-on plunge into currency wars. You see, the US is growing strongly at 2-3% in the second half, jobs just keep on coming, and, besides, the USA is completely "decoupled" from whatever troubles may be brewing abroad.


So this regular CNBC noon time stock picker, channeling the iconic visage above, was buying the dips. In fact, she claimed to be picking up some of those swell consumer stocks that are sure to keep on keeping on.

This is getting downright ludicrous, but it does underscore the corruption of financial thought and discourse that he been engendered by the mad money printers in the Eccles Building. If you assume, as they do, that we are in the midst of some kind of timeless, repeating business cycle that can be deftly managed by the interest rates pegs and buy orders of the Fed's open market desk, then its all just Fed-driven economic incrementalism.

To wit, the FOMC keeps "accommodating" more of an ether called "aggregate demand", which, in turn, leads to rising production, jobs, incomes, profits and stock prices in an endless virtuous circle. That's why the Wall Street touts are always expecting an economic acceleration in the next few quarters and a perpetually rising hockey stick of EPS.

And that's why the hedge fund speculators and robo-traders keep buying the dips. Every quarter must be better than the last because the central bank has the GDP firmly emplaced on an up-escalator.

Except it doesn't. What the Fed is actually doing is pumping monetary nitroglycerin into the money and capital markets. The same thing is being done by central banks all over the world. And this convoy of central bank bubble makers has been at this game almost without respite for the last 20 years.

Back then Alan Greenspan decided to open the monetary sluices and capitulate to the bond vigilantes in 1994, especially after the New York banks almost went down in the Mexican peso crisis. At about the same time, Mr. Deng discovered that Mao had been drastically wrong----that is, he realized that communist party power comes from the end of printing presses, not the barrel of a gun. Taken together these epochal shifts toward a global regime of permanent, massive monetary expansion changed the course of economic and financial history.

The big picture numbers do not lie. The combined balance sheets of the world's central banks exploded, rising from $1.5 trillion to $22 trillion over the next two decades. All of this previously unimaginable high-powered central bank credit, in turn, engendered a planet-wide debt supernova. Total public and private credit market debt outstanding rose from $40 trillion in 1994 to $200 trillion at present.

Nothing so central and so financially potent as cheap debt can go up 5X in less than two decades without transforming the very warp and woof of the system. And this the central banks most definitely accomplished.

In a word, they radically financialized the world economy, falsified all financial asset prices and transformed money and capital markets into unstable gambling casinos that lack the checks and balances that keep speculation and leveraged risk-taking under control.

Stated differently, the financial system is now a one-way escalator that rises ever higher until it finally collapses of its own weight in the face of unexpected shocks or an exhaustion of speculator capacity to believe in tooth fairies and hockey sticks.

Accordingly, the old Keynesian business cycle----while never all it was cracked-up to be----is dead as a door nail. Capitalism's inherent motion towards expansion is now brought to a halt suddenly, unpredictably and capriciously when the central bank driven financial bubbles finally burst.

But its actually worse. Prior to 1994, central bankers were periodically willing----belatedly to be sure----to put on the monetary brakes, or take away the punch bowl, in order to slow an undue expansion of business credit and inflationary pressures.

But after 20 years of financialization that no longer happens. That's mainly because central bankers are petrified of a financial market hissy fit and uncontrolled liquidation by market action of the very bubbles they have enabled.

In addition, their macro-economic models are complete noise machines that are not capable of predicting anything useful. And the only thing useful to forecast in the new financialized world created by the central banks would be the life cycle of bubbles.

But the central bank models are macroeconomic Model Ts. They assume an essentially closed domestic economy---something which disappeared 30 years ago----and a Phillips Curve style bathtub dynamic in which inflation can't happen until the water level reaches the brim of full employment.

Except these relics of John Maynard Keynes' depression era ruminations define inflation right out of existence. That is to say, the world is rife with ripping inflation in financial assets and real estate, and for that matter, anything which can be priced off the bond market cap rate and/or collateralized by leveraged speculators. That includes art, fine wines, luxury watches and all of the other recently christened "asset classes".

But the central bankers claim to see no consumer inflation. So they keep pumping, thereby fueling even more ZIRP-based carry trade speculation, and even more unsustainable, combustible inflation in the financial markets.

In fact, what the central bankers now see is "deflation", but their knee-jerk Keynesian response is backasswards. The kind of deflation roiling the commodity markets and industrial goods, and which is now driving China and other EMs to trash their currencies, is the central bank manufactured kind.

To wit, after two decades of financial repression and falsely suppressed prices for debt and other capital market instruments, the world economy is drastically overbuilt. It is floundering in malinvestment-----a condition which is the death knell for profitability and future capital investment.

This is simply a way of saying that the world is heading into a CapEx Depression, which will ricochet through the capital goods food chain, taking down production, shipments, incomes and hiring in a spiraling crescendo.

At the same time, the system will not be able to clear in a timely manner because it is financially constipated. That is, by keeping money and debt dirt cheap, and using every artifice in the book to support, cheer-lead and levitate equity markets, the central banks are breeding zombies all over the planet.

And these debt zombies will keep producing and selling their goods at variable cost, thereby crushing profits and cash flow. Indeed, they will continue to do so until they have taken down the last drop of available credit from lenders and speculators, which are bloated with the stuff.

Needless to say, when the unexpected shock finally comes------from the desperate machinations of the suzerains of red capitalism or otherwise----the Alfred E. Neuman brigade will be taken by surprise again. The Wall Street economists and strategists will cry foul ball, and demand that the Fed and all the other central banks get out the fire hoses and ladders.

Indeed, CNBC's clueless noon time host, Scott Wapner, pounded the table again today. What's wrong with these people in Beijing, he fulminated, they need to start slashing interest rates and getting out the big fiscal stimulus bazooka!

Say what?

The Chinese house of cards is faltering owing to massive, panicked capital flight------$800 billion so far in the last few quarters. That's the consequence of the out-of-this-world money pumping and stimulus China has already done. But now that Beijing has flinched and given up on the currency peg, the speculator scramble into a one-way selling stampede will really get moving. And Wapner wants them to print more RMB?

For crying out loud. The Chicoms who run the printing presses at the PBOC have already enabled the most speculator debt bubble in recorded history, taking credit market debt outstanding up by 14X. That is, from $2 trillion to $28 trillion during the last 15 years alone. Does Alfred E. Neuman Jr. really think they can go 20X or 40X without blowing their wild west casino economy sky high?

In any event, the stock market cheerleaders fail to understand that the so-called "incoming data" does not reflect the unfolding of a classic Keynesian business cycle. What is actually happening is that by endlessly deferring interest rate normalization the Fed is body-slamming an ever more dangerous financial bubble into the flanks of an increasingly stagnant main street economy.

This means that the dip-buyers of Wall Street and the talking heads of bubble vision are ignoring the real economic data points which forewarn of a epic collision ahead.

We had some more of those latter kind of warnings this morning. It seems that productivity growth has been even weaker than previously thought. In fact, since the pre-crisis peak in Q4 2007, nonfarm productivity has slumped to a growth trend of just 1.1% per annum.

That's massively more important than a barrel full of the latest readings on short-term consumer or business sentiment (which are just feedback loops from the stock market anyway); or seasonally maladjusted monthly data dumps from the Washington statistical mills.

In fact, productivity is where growth and wealth come from, and we are getting less and less of it. Notwithstanding the massive monetary pumping from the Eccles Building since the financial crisis, we have now had a 50% downshift in the 2.2% growth rate that had prevailed for the prior half-century.

Real Output Per Hour - Click to enlarge

Real Output Per Hour

Here's another thing. If productivity is faltering, then the only other source of growth is labor inputs. And since the BLS was updating its data, it should come as no surprise that there is nothing there to write home about, either.

Well, there is actually a rip-roaring stunner to mention. Namely, total non-farm labor hours during Q2 2015 remained stranded on the long-term flat line. Since Bill Clinton was packing up his mementos at the White House in late 2000, the total gain in actual labor hours used by the US business economy has been just 1.7%.

And, to be clear, that's not per year; that's during virtually the entirety of the 21st century to date!

The above chart reminds once again why the latest Jobs Friday report was such a complete farce and pile of useless statistical garbage. In a world in which work has been atomized and sliced and diced into 15-minute retail and restaurant work schedules, temp jobs and digital economy free lance gigs, what is the possible use of one-man-one-job census counts?

And even that spurious metric comes to us only after the raw data itself has been cycle-trended, seasonally maladjusted and imputed and guesstimated until the bureaucratic cows come home.

So once again, the July establishment survey story was the same old, same old. The only census-type job count in that report which is reasonably comparable over time is what I have categorized as "breadwinner" jobs in construction, manufacturing, energy and mining, the white collar professions, FIRE, distribution and transit, information technology and non-education government.

These tend to be 40 hour per week jobs, and sometime more. They don't represent just some guy on a Vespa delivering pizzas or FedEx packages a few hours per week and reporting to the Census Bureau survey takers that he is "employed".

These kinds of traditional jobs also pay an average of about $50k per year in contrast to a 10-hour per week minimum-wage delivery gig which would generate about $4k of pre-tax wages annually.

Breadwinner Economy Jobs

Breadwinner Economy Jobs

Yes, we still have fewer of those kinds of real breadwinner jobs than when Bill Clinton was packing his bags way back at the turn of the century. But don't expect to hear that from the Alfred E. Neuman Luncheon Club------they think job growth is going just gangbusters.

Here's the thing. We can't get GDP growth without productivity and labor hours, and we're getting precious little of either. And without GDP growth those sell-side hockey sticks don't have a chance of materializing.

Besides, its getting late in the bubble cycle, and now there is a ferocious deflationary gale blowing out of the debt-besotted precincts of the massively mal-invested economies of China and its EM satellite's.

In that context, it wouldn't take much of an unexpected shock from the currency wars and deflationary tidal wave to knock  the US economy flat on its rear-end. After all, as we also learned this AM, business sales are continuing to slump while inventories are surging higher.

Accordingly, the  Atlanta Fed's Q3 "Nowcast" will soon be updated for the picture below on wholesale inventories, and it won't have a "3" handle or even a "2" handle in it.

This all adds up to something that most definitely is not Grandpa Jim Tobin's Keynesian business cycle. Instead, it's a forewarning that the 20-year central bank money printing rampage is coming to an end and that the resulting giant credit bubble is falling inwards.

So buy the dips if you must. But don't rely on the chatter from the Alfred E. Neuman Luncheon Club.

Those folks are truly clueless.

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.

Get Access