Mar 142015
 March 14, 2015  Posted by at 2:58 am Finance Tagged with: , , , , , , , ,

DPC Launch of freighter Howard L. Shaw, Wyandotte, Michigan 1900

I think I should accept that I will never in my life cease to be amazed at the capacity of the human being to spin a story to his/her own preferences, rather than take it simply for what it is. Your run of the mill journalist is even better at this than the average person – which may be why (s)he became a journalist in the first place -, and financial journalists are by far the best spinners among their peers. That’s what I was thinking when I saw another Bloomberg headline that appealed to my more base instincts, which I blame on the fact that it shows a blatant lack of any and all brain activity (well, other than spin, that is).

Here’s what Bloomberg’s Craig Torres and Michelle Jamrisko write: “American Mystery Story: Consumers Aren’t Spending Even In a Booming Job Market”. Yes, it is a great mystery to 95% of journalists and economists. Because they have never learned to even contemplate that perhaps people can be so deep in debt that they have nothing left to spend. Instead, their knowledge base states that if people don’t spend, they must be saving. Those are the sole two options. And so if the US government reports that 863,000 underpaid new waiters have been hired, these waiters have to go out and spend all that underpayment, they must consume. And if they don’t, that becomes The American Mystery Story.

For me, the mystery lies elsewhere. I’m wondering how it ever got to this. How did the capacity for critical thinking disappear from the field of economics? And from journalism?

American Mystery Story: Consumers Aren’t Spending Even In a Booming Job Market

It’s an American mystery story: More people have jobs and extra pocket money from lower gas prices, but they aren’t buying as much as economists expected. The government’s count of how much people shelled out at retailers fell in February for a third consecutive month. Payrolls are up 863,000 over the same period. The chart below shows retail sales and payrolls generally move in the same direction, until now. The divergence could portend lower levels of economic growth if Americans’ usually reliable penchant to spend is less than what it once was.

YoY growth in U.S. retail and food services sales (red) against year-over-year change in non-farm payrolls (blue).
Sources: Bureau of Economic Analysis, Bureau of Labor Statistics

Inevitably, when faced with such a mystery, Bloomberg’s scribblers dig up a household savings graph. Et voilà, problem solved:

“The expenditures that add up to gross domestic product are coming in a lot softer than employment,” said Neil Dutta at Renaissance Macro Research. “Why would retailers be hiring if sales are falling? Why would they be boosting hours if sales are falling and why would they be paying more?” Also, take a look at the household saving rate. It’s gone up as gas prices fell:

And why are all those crazy American waiters hoarding all that cash they, as per economists, just got to have lying around somewhere? You knew it before I said it: it was cold! Crazy cold!

Ben Herzon at Macroeconomic Advisers isn’t that worried yet. As usual, the data is quirky. First, he notes, “it was crazy cold in February.” Aside from stocking up on milk in the snowstorm, staying indoors was probably a more attractive option for most shoppers.

And it gets better. How about this for a whopper?

Herzon notes that lower gas prices also depressed the count in prior months. The government is adding up dollars spent, so fewer dollars to fill a gas tank results in lower sales.

Let’s see. Gas was cheaper, so people spent less on that. And that drove down retail sales. But wasn’t it supposed to drive them up? Wasn’t that the boost the economy was predicted to get? You mean to tell me that lower gas prices actually function to drive spending down? That our newfound platoon of waiters took all that newfound money and spent it on .. nothing at all? Not to worry. March will be much better or “Our story would be wrong…” And how likely is that, right?

That even bleeds into narrower measures of retail sales because grocery stores such as Safeway, Wal-Mart and Sam’s Club also sell gasoline. Herzon is counting on a March rebound. There won’t be the weather to blame anymore, and gas prices have rebounded off their lows of late January and early February. “Payroll employment has been great, and it is generating a lot of labor income that you think would be spent,” Herzon said. “March should be a rebound. Our story would be wrong if it doesn’t happen.”

Halle-bleeping-lujah. Is this creativity on the part of the writer and interviewee, or is it just a knee-jerk reaction? Don’t they understand because they don’t have the appropriate grey matter, or don’t they simply want to?

And Bloomberg takes us from mystery to surprise (I’m guessing that’s one level lower on the What? scale), The surprise is that the US has not lived up to what Bloomberg and its economists had dreamt up all by themselves.

Surprise: US Economic Data Have Been the World’s Most Disappointing

It’s not only the just-released University of Michigan consumer confidence report and February retail sales on Thursday that surprised economists and investors with another dose of underwhelming news. Overall, U.S. economic data have been falling short of prognosticators’ expectations by the most in six years. The Bloomberg ECO U.S. Surprise Index, which measures whether data beat or miss forecasts, fell to the lowest since 2009, when the nation was in the deepest recession since the Great Depression. There’s been one notable exception to the gloom, and it’s a big one: payrolls. The economy added 295,000 jobs in February and 1.3 million over four months, a reflection of a healthier labor market in which the unemployment rate has fallen to the lowest in almost seven years.

Most everything else? Blah. This month alone, personal income and spending, manufacturing as measured by the Institute for Supply Management, auto sales, factory orders, and retail sales have all come in a bit weak. Citigroup keeps economic surprise indexes for the world, and its scoreboard shows the U.S. is most disappointing relative to consensus forecasts, with Latin America and Canada next, as of March 12. Emerging markets were supposed to be hurt by falling oil prices but are now delivering positive surprises. U.S. policymakers frequently talk about weakness in Europe and China, though both are exceeding expectations.

In short, Bloomberg and its economists were once again embarrassingly off target. Though they prefer to use different terminology:

And there’s one rub. The surprise shortfall in the U.S. doesn’t necessarily mean the world’s largest economy is in dire straights. It’s just falling short of some perhaps overly elevated expectations.

Perhaps? What do you mean perhaps? US data are the biggest disappointment of all of your numbers. There’s no perhaps about it. Just admit you get it wrong all the time.

Maybe they are mystified because of data like the following, coming from the Fed, no less.

Fed: US Household Net Worth Hits Record $83 Trillion In Q4 2014

Household net worth rose by $1.5 trillion in the fourth quarter of last year to a record $83 trillion, the Federal Reserve said on Thursday. The gains were driven by a surging real estate market. Household real estate holdings rose to their highest level since 2007. Real estate equity levels also hit a 2007 high. Household stock holdings also rose with the broader markets.

Since those 683,000 waiters would only qualify for subprime loans, you can bet that only a few of them profited from this ‘surging real estate market’. Household net worth may have hit a record, but that has nothing to do with the lower rungs of society. Which we can prove by looking at the second part of the piece:

But at the same time, the central bank reported debt was on the rise. Total debt – including households, governments and corporations – rose 4.7% , the most since 2012.

No doubt that this additional debt can be made to show up somewhere as a positive thing. How about: look, consumers feel confident enough to take on more debt again.

Nomura’s Richard Koo elegantly lays bare the global – and American – economic conundrum in just a few words: “When no one is borrowing money, monetary policy is largely useless..”

Why We’re At Risk Of A QE Trap: Koo (CNBC)

The problem with central banks’ massive bond-buying programs is that if consumers and businesses fail to borrow money to stimulate economic growth, the policy is rendered mostly “useless,” one Nomura economist said Friday. The U.S. and U.K. embarked on asset-purchase, or QE programs, following the 2007-2008 global financial crisis. Japan joined the QE club in 2013 and the ECB began its €1 trillion bond-buying stimulus this week. “Both the U.S. and Europe are facing the same problem– which is that we are in a situation where the private sector in any of these economies is not borrowing money at zero interest rates or repairing balance sheets following what happened in the crisis,” Richard Koo, Chief Economist at Nomura, told CNBC on the side lines of the Ambrosetti Spring Workshop in Italy.

“When no one is borrowing money, monetary policy is largely useless,” he added. In the run-up to the launch of QE in the euro zone, loans to the private sector, which are a gauge of economic health, contracted. Data published late last month showed that the volume of loans to private firms and households fell by 0.1% on year in January, compared with a 0.5% drop in December. According to Koo, major central banks are holding reserves far in excess of levels they need because of the monetary stimulus. This has not led to a rise in private sector spending because big economies are struggling with a balance sheet recession – a situation where companies are focused on paying down debt rather than spending or investing – increasing the risk of QE trap.

“In a national economy if someone is saving money, you need someone to borrow money and this is the part that is missing. They [central banks] are pumping money but no one is borrowing, so you get negative interest rates and all sorts of distortions,” Koo said. He added that instead of looking to raise interest rates, the U.S. Federal Reserve should first focus on reducing its balance sheet which stands at over $4 trillion. The Fed, which meets next week, is widely expected to raise rates this year against a backdrop of improving economic data. “They [Fed policy makers] should not rush into a rate rise; they should reduce the balance sheet when people are not worried about inflation,” Koo said.

That’s all you need to know, really. Americans don’t spend, and they don’t borrow. That makes all QE measures useless for the larger economy, and a huge windfall for the upper echelons of society.

You could also say QE is a criminal racket, but I’m pretty sure journalists, economists, central bankers and politicians alike will only admit to stupidity, not to being accomplices in such a racket. Or perhaps not even stupidity; they’ll just claim nobody could have foreseen this, like they always do when they run into room size elephants.

Still, you have to love a piece like the following by Thad Beversdorf:

The Fed Gives A Giant F##k You to Working Class Americans

I was shocked today by the absolute gaul of the Fed releasing a statement about Net Worth in America reaching record levels. Now I get that they are under extreme pressure to sell the story that everything is rainbows and butterflies. But surely they understand that working class Americans are going along with the story because they really don’t have any say in our nation’s policies anymore. That doesn’t mean they want it thrown in their faces that the Fed has spent 6 years now inflating the wealth of the top 10% so much that it actually lifts the total wealth of the nation’s citizens to record highs. The ugly reality is that the bottom 80% of Americans experienced none of that gain. That’s right: a big ole goose egg.

And so when the Fed via its ass pamper boy, Steve Liesman, start banging on about the fact that some sliver of society is being handed extraordinary wealth while the working class has lost 40% of their net worth since 2007, well a big fuck you right back at ya bub! The Fed is very aware that the bottom 80% of Americans own less than 5% of US equity markets. And so the Fed is very aware that its manipulation of stock prices such that it creates immense unearned wealth to those in the markets doesn’t reach the bottom 80%. So why celebrate the results of the stock market price manipulation?? It is embarrassing that our policymakers are either that inconsiderate or that stupid to celebrate such a brutal dislocation between the haves and have nots.

I don’t know what one can even say about the Fed making a celebratory statement like that today. It is somewhat beyond words. And really paints the picture as to how little thought goes into the lives and well being of the bottom 80%. Just to give you something to compare and contrast the situation of the bottom 80% here in the US to counter the Fed’s celebration today. I want you to think about how lucky we are not being in one of the PIIGS nations of Europe. These are the nations that are essentially bankrupt and just hanging on by the kindness of the Troika.

So there it is. While the average net worth of Americans is 4th in the world pulled up by the top 10%, the median net worth of Americans comes in the 19th spot. Yep, behind Spain, Italy and Ireland so 3 of the 5 PIIGS nations. Meaning the bottom 80% in these broke ass barely hanging on nations have more wealth than the bottom 80% of us here in America. So I’d like to ask the Fed, is it that you just hate the working class here in America and thus like to torment them or are you truly that stuck up your own asses that you just cannot see the light?

Rest assured, Thad, the Fed has seen the light. And they don’t actually hate working class America, they just don’t give a flying f#ck about them.

Imagine the founding fathers looking down on all of this. Hell imagine those who fought on the beaches of Normandy looking down at what America has become. Knowing that they sacrificed everything just to hand the nation over to a group of foreign sociopaths. Imagine those men having to see that Americans no longer have any sense of dignity other than to yell loudly that “we are still great”[..]. How incredibly disheartening it would be for those WWII soldiers to see us now.

Plenty of those guys are still alive. So we could ask them. But the gist is clear, and all those who died on those beaches can no longer speak for themselves, so we need to do it for them. Is this the world they died for? Is this the freedom they gave their lives for, the freedom to turn America into a nation of debt slaves?

There is no mystery anywhere to be found in the fact that US retail sales don’t follow the jobs trend. Not if you look at what kind of jobs they are, let alone at all the other made up and manipulated numbers that are being thrown around about the US economy.

The only mystery is why everyone persists in talking about a recovery. That recovery will never come, simply because all 90% of Americans do is pay for the other 10% to get richer. There are many other factors, but that all by itself makes a recovery a mathematical mirage.

Home Forums The American Story Is A Mystery Only to Economists

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    DPC Launch of freighter Howard L. Shaw, Wyandotte, Michigan 1900 I think I should accept that I will never in my life cease to be amazed at the capaci
    [See the full post at: The American Story Is A Mystery Only to Economists]


    Ilargi – brilliant post. Thank you for nailing it down. “I’m wondering how it ever got to this. How did the capacity for critical thinking disappear from the field of economics? And from journalism?” Maybe their grey matter shrunk in all that cold weather? Or maybe they realize their cupboard is bare and they’re saving up what little brain cells they have? If they’re told they must write pieces like this and they’re not holding their noses, they ought to be.

    I have for a long time now (at least 30 years) been shaking my head at some of the research conclusions that people come up with. It’s as if there isn’t an investigative bone in their bodies, as if they went into the field just because it was there in front of them and not because they wanted to think critically about something or that they actually cared passionately enough about dissecting a topic and going deep. It’s surface fluff, conclusions a grade school class might come up with, and that’s probably being unfair to the class.

    Formerly T-Bear

    Maybe the thesis should be the possible reason the collapse in petrol prices is not showing up in increased spending is because petrol is being bought with debt rather than income, or some factor resembling debt. Debt is just another form of asset as long as debt is being serviced, that is being returned with the agreed interest that covers the cost of not using someone’s savings by that person and the risk factor that those savings are lost either in part or in whole in the utility those savings represent.

    But this would require a story that is not being told, a story missed by mythology except in small pieces scattered over that terrain of presentation of a world view, how the world works. Myths are only a way of teaching, of presenting experience, of explaining complex concepts, of establishing coherency. Real myths are reality based; fantasy also uses myths to stimulate the imagination, sometimes fantasy can better reflect some aspects of nature with less distortion than any other way, more often though, not; the danger being confounding the two forms.

    Beliefs, when not employed in stating incomplete knowledge, are nothing but fantasy. Beliefs are like banners in the wind, showing the direction of that wind and are as fickle as the wind’s orientation is wont to be and only indicating the strength of the wind at only the place the banner is, no where else is exactly the same. All too often beliefs are taken to be measure of qualities measured by other means, like measuring girth by scale, many an erroneous results pursue the assumptions needed.

    Stories too are prone to the caprice of telling and the vagaries of ear of the listener. One such story, about a princess who needed some gold for a long weekend in Ibiza since Margate was becoming all too familiar a getaway place. Her father, the King was saving up for a new castle and couldn’t spare anything just then. The princess had heard about a smallish (that is instead of dwarf to calm the PC crowd) who spun gold out of straw and would do so if any could guess its name. The princess thought long and hard and then some more. Finally she had her answer.


    and had enough to take her friends to Marbella instead. Finis.

    (the above is in recompense for abusing the bandwidth a few posts ago)


    In a world full of inflation and distorted prices many people believe they are rich although they are not. Share prices are treacherous – how many shares bid get the full price if a downswing sets in? Free annual cash-flow after taxes should be a reasonable indicator. Russians at 12% income tax likely do better than Germans at 50% (including church tax). Nations that call themselves “productive” and have high taxes and an efficient tax collection system are likely to show a low median wealth because they squeeze their population like lemons and are less attractive to wealthy residents. That should explain why countries such as Cyprus and Italy show a high level of median wealth although their economy is weak.


    Raleigh: Most journalists are not free to write what they think. Most people have lost track of understanding financial developments after two decades of fabricated statistics in the US and elsewhere, distorted pricing mechanisms and the successive development of various asset bubbles. Confronted with billions and trillions galore even the journalists make the most silly mistakes confusing themselves and their readers.


    Raúl, I couldn’t agree more with the sentiment you express in the first line of this article. My strong suspicion is that so far as journalists are concerned, the newspapers they work for are more concerned with maintaining a good flow of advertising income, so telling it as it is would be considered unhelpful so far as this source of revenue and profit was concerned, as well as their own job security.

    I must say, the Bloomberg article does take your breath away for its shear lack of insight into what is really going on, unlike Richard Koo’s pithy phrase that’s worth repeating

    “When no one is borrowing money, monetary policy is largely useless…”

    If I had my way, this phrase would be tattooed on the forehead of every bau neoliberal economist, politician and business journalist to ensure they could never forget it.


    The article on rising net worth gets my goat. Net worth is only useful as a banker tool for borrowing more money. Net worth does not put food on the table and never will. My father, who was a poor farmer, taught me this when I was a child. Just another example of twisted economic measurement by people who don’t understand reality.


    “I’m wondering how it ever got to this. How did the capacity for critical thinking disappear from the field of economics?”

    Silly! It was BORN that way!


    <b>critical thinking</b>
    My extra cash !!!!! …. what extra cash????

    Gas prices soar above $1.30 despite lagging crude oil
    The average Metro Vancouver price for regular gas of $1.31 as of Monday afternoon   is back to approximatey the same level it was in early October.  Back then, crude oil was above $85 a barrel compared to about $50 now after a slight rebound from its January lows.
    MJ Ervin officials expect a further gradual rise in retail gas prices in the months ahead.

    Vancouver Historical Gas Price Charts Provided by

    “The Fed is very aware that the bottom 80% of Americans own less than 5% of US equity markets.”
    NOW, tell me about that herd that will go over the cliff. Who is manipulating the market for what percentage of the population?
    The market was/is rigged for the people, by the people who are in it.
    Those with the biggest say about the rules are those that are affected the most.

    “Rest assured, That, the Fed has seen the light. And they don’t actually hate working class America, they just don’t give a flying f#ck about them.”

    “That recovery will never come, simply because all 90% of Americans do is pay for the other 10% to get richer.”

    NOW, tell me again, who is getting a “free lunch”? Is it those getting poorer? OR Is it those getting richer?

    <b>critical thinking</b>


    The PTB have spent the last ten years doing everything they can to convince us it’s raining, while pissing on our leg. As soon as the sleeping 80% figures it out, they’ll change the rules of the game so they can continue the wealth extraction. I agree the only mystery is that the patients haven’t figured out the weight loss is due to the abundance of leeches. By the time they do, our friendly government will find a patsy (China, Russia, Iran…) to blame the collapse on, will reconfigure the con, and will get on with another hundred years of enjoying being a “john”.


    By the way. GREAT ARTICLE! I am new to the site, but look forward to more of the same.


    Nobodies borrowing say the journalists? Via Doug Noland’s Credit Bubble Bulletin.

    “The Federal Reserve released its Q4 Z.1 “flow of funds” report Thursday. Total Non-Financial Debt (NFD) expanded at a seasonally-adjusted and annualized (SAAR) rate of $1.938 TN, the strongest growth since Q4 2012. Total Business borrowings expanded SAAR $845bn, up from Q3’s SAAR $581bn to the highest level since Q1 2008. Federal government borrowed at SAAR $700bn, down from Q3’s SAAR $913bn. Total Household borrowings increased SAAR $361bn, little changed from Q3.

    For all of 2014, NFD expanded $1.701 TN, up from 2013’s $1.463 TN. With 2014 federal borrowings ($667bn) about half the 2012 level, 2014 NFD growth somewhat lagged 2012’s $1.828 TN. Yet 2014 Household borrowings of $376bn were up significantly from 2013’s $197bn to the highest level since 2007 ($913bn). Total 2014 Business borrowings of $672bn were up from 2013’s $546bn to the strongest growth since 2007 ($1.116 TN).

    On a percentage basis, NFD expanded 4.3% in 2014, up from 2013’s 3.8%. Business debt growth accelerated to 7.2% from 2013’s 5.0%. Although mortgage debt growth remained below 1%, total Household borrowings increased 2.9%. Outstanding State & Local borrowings contracted 0.5% in 2014. ”

    It has been a mainstream meme that outstanding credit is shrinking, the deleveraging meme, or growing very slowly. Always be careful when adopting MSM memes. What they mean, or would mean if they thought about it, is that credit isn’t expanding fast enough. Of course they wouldn’t know why it needs to grow faster exactly but they feel it must because that’s what the Fed and financial world say.

    It all gets back to the biggest stupidity of the world of Economics. Outright hostility or quiet burial of any discussion of what money is. It’s debt of course so everyone wants more debt because everyone thinks we need more money. That much debt can’t and won’t be repaid cannot be considered or even conceived of so the end game has arrived. Let central banks buy all the debt that can’t be repaid and forget about it. Forget in other words that no asset backs the money making it worthless. But never mind it makes no difference. As long as everyone accepts the money why does it matter if it represents no store of value.

    All of us interested or obsessed with debt have to consider the possibility that we could be wrong for a much longer time about its collapse and thus monetary collapse. Money is always an abstraction, even gold money. Money has become a profound abstraction but one that virtually everyone accepts. That my friends is our reality.

    Ken Barrows

    No one is going to enjoy anything around today for 100 years. Although the MSM may be telling us that US oil production will rise indefinitely, the Bakken tells a different story. Click the Bakken link. Production is down in January 2015 from December 2014 (production was up Dec 2013 to Jan 2014). There were only 57 additional wells. If the Bakken is representative of US oil production, this glut will disappear soon enough unless the USA wants to import more oil.

    John Day

    Can it be that we have now entered the future we borrowed so much from?

    Oh, Shit!

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