Fed Statement: Not Dovish, Not Hawkish----Just Gibberish

Call it 529 words of gibberish and be done!

All of the FOMC's platitudes about the economy "expanding at a solid pace", labor market conditions which have "improved further", household spending which is "rising moderately" and business fixed investment which is "expanding" are not simply untruthful nonsense; they are a smokescreen for the Fed's actual intention. Namely, to keep the Wall Street gamblers in free money in the delusional hope that ever rising stock prices will generate a trickle down of "wealth effects" in the main street economy.

But in equivocating still another time about when they intend to get the Fed's big fat ZIRP thumb off the money  market, the denizens of the Eccles Building have shown their true colors. The FOMC is not really comprised of economists or central bankers. It is simply a groupthink posse of spineless cowards who are petrified of a Wall Street hissy fit-----and are therefore willing to dispense whatever spurious word clouds they judge may be necessary to keep the gamblers hitting the "bid" until the next meeting.

After all, how can it possibly be true that notwithstanding all the "solid" economic advances it crowed about in the opening paragraph, the Fed still intends to maintain zero interest rates through mid-year---or for what will be an out-of-this-world 80 months running? As recently as 10 years ago that incredulous juxtaposition----a solid economy coupled with desperate policy measures----would have been laughed out of court by even the Fed's own economists.

In fact, we don't have a solid economy at all, and the halting advances of recent years have absolutely nothing to do with Fed policy. Instead, the utterly trite macroeconomic commentary contained in its meeting statements is a form of Keynesian ritual incantation based on a delusional conceit. Namely, that left to its own devices the US economy would chronically sink into a recessionary stupor, and that it is only the deft interventions of the central bank which nudge the $18 trillion US economy back onto the path toward full employment and the realization of "potential GDP".

The very opposite is true. The Fed has become a serial bubble machine. Its fantastic bouts of money printing and the resulting destruction of honest price discovery in the financial markets lead to violent boom and bust cycles in the Wall Street casino----of which we have had three since the mid-1990s.

These violent financial swings, in turn, send the main street economy into a corresponding cycle of advance and relapse. These real economy undulations are driven by the artificial stocking and de-stocking of inventory and labor and the artificial bicycling of consumer and business confidence triggered by the Wall Street crashes and reflations.

But here's the thing. The intervals of GDP and jobs "advance" between periodic financial market busts reflect the resilience and regenerative powers of the capitalist market, not the interest rate manipulations and balance sheet machinations of the Fed.

So what the Fed's post-meeting statements describe as policy driven economic "advances" and "improvements" are actually the halting gains that main street workers, businesses and entrepreneurs are able to realize from their own economic efforts. Indeed, the false correlation of natural capitalist recovery with central bank policy intervention has gotten so ritualized and trivialized that yesterday's crowing about economic recovery is nearly identical to the word clouds the FOMC emitted in 2007 and 1999.

Stated differently, there is no natural business cycle that the Fed is improving upon. There is only a destructive and artificial boom-and-bust cycle owing to central bank policy intervention that pumps the main street economy up and down over and over again. Accordingly, the only relevant measure of economic conditions is not the short-run changes which materialize in the recovery rebound after each financial bust, but the trend rate of change over time------something that can best be measured on a peak-to-peak basis.

Forget reported GDP oscillations from quarter-quarter. They measure "spending", not production; and it is the latter which is the true source of sustainable economic growth and rising wealth-----to say nothing of the seasonally maladjusted and everlastingly revised noise that afflicts the quarterly and monthly reports.

By the same token, wage and salary income is the  true marker of national production of goods and services, and is free of the circular logic in the GDP accounts in which "spending", such as personal consumption expenditures (PCE), derived from transfer payments is counted as "growth".

Needless to say, if the $2.7 trillion of current transfer payments are funded with government borrowing, they do not measure growth at all---just the theft of future income to service the debt. And if they are funded with taxes under today's conditions of heavy income and payroll tax burdens, this may well detract, not add, to growth over time owing to the supply side disincentives to workers and entrepreneurs.

So here's the truth, and it has nothing to do with a "solid" economy. During the seven years since the Q3 2007 peak of the Fed's last bubble, total wage and salary income in the US economy has grown by just 15.6% in nominal terms or from $6.4 trillion to $7.4 trillion.

That amounts to a paltry annual growth rate of 2.2% per year. And when you factor out inflation (even using Uncle Sam's GDP deflator which significantly under-measures the true cost of living), there is virtually nothing left. In fact, the annual rate of real wage and salary gain during the last seven years has been just 0.5%.

Moreover, that limpid gain represents a sharp deterioration from the comparable trend of previous boom-and-bust cycles, meaning that economic performance is getting worse over time, notwithstanding the Fed's all out embrace of massive money printing. Thus, during the seven years after the 2000-2001 dotcom bust, US wage and salary income grew by double the rate cited above. That is, nominal incomes earned by employed Americans rose by 4.1% per year; and when you adjust for inflation, the gain was actually triple the most recent period, rising by 1.5% annually.

Go back to the seven year gain after the 1990-1991 bust and the contrast is even more striking. Compared to the aggregate gain of 15.6% during 2007-2014, the seven year gain back then was 44%!  Again, back out the GDP deflator and the pick-up in real wage and salary income was 3.1% annually.

Folks, that's 5X greater than the "solid" advance that the pettifoggers at the Fed were crowing about yesterday. And this unassailable evidence that our monetary politburo is actually undermining the American economy, not helping it, can be seen in almost any honest trend level comparison you can make.

Take the Fed's spurious claim that labor markets have "improved further".  No they haven't.

Labor markets have not even recovered to where they were before the 2008 crash. At least after the dotcom crash in 2000, there was a small gain in full-time "breadwinner" jobs in the US economy. But as shown below, as of December 2014 there were still 2.5 million fewer breadwinner jobs in the US economy than there were in late 2007.

Breadwinner Economy Jobs - Click to enlarge

Breadwinner Economy Jobs - Click to enlarge

In fact, even on a headline basis there are only about 2 million more jobs reported by the BLS than at the last peak. That amounts to just 24k jobs per month or only a tiny fraction of the 150,000 per month growth of the labor force.

Again, this represents a sharply deteriorating trends. During the 7-years after the 2000 peak, the BLS reported a gain of 5 million jobs; and after the 1990 peak, the 7-year gain was more than 12 million nonfarm payroll additions.

Moreover, even the paltry net jobs gain since the 2007 peak has been overwhelmingly in part-time jobs in bars, restaurants, retail emporiums and temp agencies. But the "jobs" in the category shown below average only 26 hours per week and pay rates average less than $14 per hour. Accordingly, they generate less than $20,000 of earned income per year or only 40% of the average wage in the breadwinner category.

This is "further improvement"? No, it is rank sophistry and deliberately misleading propaganda.

Part Time Economy Jobs- Click to enlarge

Part Time Economy Jobs- Click to enlarge

Finally, consider consumption spending growth----notwithstanding the fact that the obsessive focus on this by the Fed and Wall Street stock promoters is really just a Keynesian shibboleth. The American economy desperately needs a much higher rate of private savings and productive investment if real wealth and living standards are to rise in the future.

But as described more fully in this morning's post called "Bubble Finance At Work: A Tale of Two Economies", even the growth in PCE that has actually occurred since the last peak has been overwhelming focused at the very top of the income ladder. Specifically, 30% of all the gain in consumption spending during the present so-called recovery has been concentrated among the top 5% of households.

In fact, through the most recent year available (2012) real consumption spending among the bottom 95% of American households (or about 115 million) was still 1% below the prior peak.  In other words, the overwhelming share of consumption gains have come from the small fraction of households which own upwards of 85% of financial assets.

Needless to say, that is not a measure of household spending that is "rising moderately". Instead, it is evidence of the vast shift of income and wealth to the top of the ladder that has resulted from the Fed's Wall Street coddling policies. And its not even a sustainable gain in consumption spending at all---- just a feedback loop from the Fed's third bubble this century, and consumption spending which will swiftly shutdown when the Fed's latest and greatest financial bubble finally bursts.

So call all the Fed's crowing about the US economy's alleged "solid" advance exactly what it is. That is to say, Keynesian gibberish designed to disguise its craven capitulation to the Wall Street casino.

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