By Lance Roberts at the X-factor Report
The market rallied sharply on Friday on the back of announcements that China was cutting its overnight lending rate and Mario Draghi promising to buy more bonds if necessary to ensure the return of inflation.
Here is a question for you:
“Since stocks are supposed to be a reflection of economic growth, then why are stocks rallying on the back of news that clearly show deteriorating economic conditions?”
The reason that stocks are rallying is obvious: Liquidity.
What should be surprising is that despite globally low interest rates, massive liquidity by Central Banks and complete support for the banking system – inflation remains virtually non-existent. Such realities are not going to stop the Eurozone and Japan from doing more but therein lies Einstein’s definition of insanity.
Meanwhile, back in the U.S., the Federal Reserve has stopped their latest rounds of bond buying and are now starting to discuss the immediacy of increasing interest rates. This, of course, is based on the “hopes” that the economy has started to grow organically as headline unemployment rates have fallen to just 5.9%. If such activity were real then both inflation and wage pressures should be rising – they are not.
The Dismal Economy
According to the Congressional Budget Office study that was just released, approximately 60 percent of all U.S. households get more in transfer payments from the government than they pay in taxes.
Roughly 70 percent of all government spending now goes toward dependence-creating programs. From 2009 through 2013, the U.S. government spent an astounding 3.7 trillion dollars on welfare programs. In fact, today, the percentage of the U.S. population that gets money from the federal government grew by an astounding 62 percent between 1988 and 2011.
Recent analysis of U.S. government numbers conducted by Terrence P. Jeffrey, shows that there are 86 million full-time private sector workers in the United States paying taxes to support the government, and nearly 148 million Americans that are receiving benefits from the government each month.
Yet Janet Yellen, and most other mainstream economists suggests that employment is booming in the U.S. Okay, if we assume that this is indeed the case then why, according to the Survey of Income and Program Participation conducted by the U.S. Census, are well over 100 million Americans are enrolled in at least one welfare program run by the federal government. Importantly, that figure does not even include Social Security or Medicare.
(Here are the numbers for Social Security, Medicaid and Medicare: More than 64 million are receiving Social Security benefits, more than 54 million Americans are enrolled in Medicare and more than 70 million Americans are enrolled in Medicaid.)
Furthermore, how do you explain the chart below.
With roughly 45% of the working age population sitting outside the labor force, it should not be surprising that the ratio of social welfare as a percentage of real, inflation-adjusted, disposable personal income is at the highest level EVER on record.
Currently, there are more individuals than ever before in history using student loans and disability claims to make ends meet. (Importantly, notice the spike in claims and loans immediately following the termination of 2-years of unemployment insurance.)
(No, Virginia, student loans are not being used for school. They are cheap and easy loans to get that are being used to for living.)
Here is the problem with disability. In 1968, there were 51 full-time workers for every American on disability. Today, there are just 13 full-time workers for every American on disability.
And while Obama is passing “executive amnesty” which will add another 5-million individuals to the economic fabric, it should be noted that according to a report from the Center for Immigration Studies, 43 percent of all immigrants that have been in the United States for at least 20 years are still on welfare.
While most economists continue to think that wage growth is just around the corner, it is hard to muster strong economic strength when most Americans are not earning enough to support themselves and their families without government assistance. The following are some statistics about wages in the U.S. from a Social Security Administration report that was recently released:
- -39 percent of American workers made less than $20,000 last year.
- -52 percent of American workers made less than $30,000 last year.
- -63 percent of American workers made less than $40,000 last year.
- -72 percent of American workers made less than $50,000 last year.
Despite the fact that 70% of exit polls in the recent mid-term election sighted economic dissatisfaction, and a recent Gallup survey stated that “Unemployment/Jobs” represents the number one concern for U.S. voters, the mainstream media commentators continue to suggest that everything is just fine.
However, therein lies the answer as to why Central Banks globally are drowning the financial system with liquidity, suppressing interest rates and “jawboning” financial markets. The hope and prayer are that eventually a “fire” will ignite, and economic growth and inflation will return allowing for a gradual extraction of support.
The problem is there is scant evidence of any real success to date other than the inflation of assets back to dangerously high levels.