It is becoming clear there will be no escape velocity for the U.S. economy again in 2014, for the fifth straight year since the nation's financial meltdown, according to David Stockman.
"The Keynesian end game is near," he writes in his
Contra Corner blog.
Stockman, former U.S. budget chief in the Reagan White House, was referring to the late British economist John Maynard Keynes, who famously advocated government intervention to prop up free markets — something the Federal Reserve has done with abandon in recent years.
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Stockman explained that last week's "punk" number on U.S. consumer spending in May put the nail in the budding recovery coffin.
"Not only did American consumers not come bounding out of their winter ice caves as predicted by virtually every 'sell side' economist, the number actually embodied a case of groundhog economics," he said.
Because May consumer spending of $10.9 trillion was about the same as it was in February and was actually below the March level, according to Stockman, it proved the harsh winter weather was not the culprit of the weak 2014 recovery.
"So this is the time to call out the Wall Street amen chorus. Its impudent insistence that the Fed's mad money printing campaign is the magic elixir that will revive the main street economy has gone altogether too far."
Stockman noted that housing starts in April and May were actually below first quarter levels, real fixed business investment has been decelerating for the last few quarters and quarter-to-date global trade data offers no hope of a sudden boom in U.S. exports.
"The truth of the matter is that we are now living on borrowed time. Shortly, we will enter month 61 of the current so-called recovery, meaning that the present cycle is already long in the tooth compared to the 55 months average of 10 cycles since 1949."
There are two headwinds that the "Kool-Aid drinkers" at the federal level are still denying, according to Stockman. The first is the fact that inflation in things that matter is accelerating, and the second is that the American household savings rate is plummeting.
"Why in the world do Keynesians think that an aging population will defer saving for retirement indefinitely? More importantly, why would monetary policy be designed to punish savers with zero deposit rates for seven years running?
"The answer is self-evident. The Wall Street hockey sticks are designed to elicit bullish impulses on main street. Zero interest rates are designed to prop-up risk asset markets — so that the sheep can once again be led to the slaughter," he stated.
After President Barack Obama took office, the government pumped $900 billion in stimulus into the economy, and the Federal Reserve has injected $2 trillion into the markets so far,
Breitbart News reported.
However, inflation-adjusted GDP has grown by only $1.4 trillion during Obama's tenure.
"Real growth in the economy, in other words, has been far less than the government's fiscal and monetary stimulus. Eventually, this stimulus will have to end. If the economy is stalling with the stimulus, what happens when the stimulus is removed?" Breitbart's Mike Flynn asked.
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