Better than expected economic data and some encouraging words form Fed Chairman Ben Bernanke sent markets higher in late trading. The ECRI Weekly Leading index improved to 120.9 as the smoothed annualized growth rate gained .2 points to –9.9%, just below the recessionary threshold of –10%. Revised 2nd quarter GDP came in better than expected at +1.6% following downward revisions to private inventories, imports, and non-residential structures, personal consumption expenditures and investment in equipment and software increased.
With the Fed again monetizing debt after being forced to admit that the economic recovery is failing. Mr. Bernanke remains convinced that GDP growth will continue in the 2nd half compliments of consumer and business spending. Well business spending continues to expand, though the rate of expansion has slowed dramatically of late. Consumer spending is doing fine if you look at same store sales data. But that is not the same as aggregate sales. Same store sales are increasing because retailers are aggressively closing under performing stores, hence all the vacant commercial space. Retail sales as per the Census Bureau have increased on average .34% per month this year, an anemic figure if ever there was one. While ahead of the CPI, which has averaged just .03% per month over the same period, real retail sales growth of .31% per month on average is not going to support an economic recovery or employment growth, which is why we have neither.
Mr. Bernanke went on to pledge that the Fed would do what it can to ensure continuation of the economic recovery including another round of quantitative easing, aka the Fed purchase’s its own debt, also known as monetization. Certainly the Fed wants to keep interests rates as low as possible in an attempt to stimulate lending.
While rates are at record lows a grossly over indebted consumer sector in the process of being crucified at the stake through foreclosure and bankruptcy is also in the process of an epiphany that will lead to the shunning of debt for many years to come just like Japan over the last 20-years and the US following the Great Depression of 1929, because it isn’t possible to borrow ones way to prosperity.
In the mean time we seem bound to continue the charade of extend and pretend, which will produce ever larger deficits as the bad debts are steadily transferred from the private sector to the public sector. Just like Japan as our politicians lack the political will to admit that this crises is caused by too much debt and to actually take the hard, painful necessary steps to correct it because they are to busy worrying about their political careers and cozying up to the lobbyists to truly represent the best interests of both the republic and their constituents. With the failure so far of financial reform to prevent this type of crisis from happening again, it is most likely just a matter of time before it does so. They didn’t learn from the LTCM crisis in 1998, nor did they learn from the S&L Crises of late 80’s and early 90’s. So far they haven’t learned from this crisis either. From a logical perspective one of two things is true, either they are just plain dumber than posts or the lobbyists own our elected representatives and have hijacked our democracy for their own selfish ends. Which is by definition fascism.
Hi and welcome to The Profit Motive, I’m your host Caleb Lawrence. Once upon a time in America the media acted as the watchdog of the corporations and the state. In the modern era it’s all about ratings and profits, opinion has been substituted for news and frequently is presented as fact. 
