(We're approaching DaCliff and DaSmartPeople are staring at DaGrass
in front of our feet and saying "We're doing great!" - CL)
"In short, what we have is a government-ordered depression, not
a macroeconomic recession that is purportedly remediable by a huge dose of
monetary and fiscal stimulus. So the truth is, the Virus Patrol, not the Fed
and Washington’s everything bailout brigade, is in charge of the recovery from
the Q2 disaster, and they are not much interested in letting it happen."
Well, the Virus Patrol sure has done it. In a fit of reckless overkill
they have managed to vaporize six years of economic growth during the last 90
days. And that’s just by the mechanical reckoning of the GDP
accounts, where total output in Q2 weighed in at essentially the same level
as Q4 2014.
The
real damage is far deeper, however, and is reflected in millions of small
businesses permanently destroyed, tens of millions of households wiped-out
financially and the vicious daisy chain of delinquencies, deferrals and
defaults just beginning to rip through the $78 trillion edifice of debt which
entombs the US economy.
Real GDP Level
Of course, most of the Wall
Street talking heads were nonplussed by this morning’s release because, well,
Q2 results are claimed to be ancient history: Reality is purportedly the
“V”-shaped recovery on their spreadsheets, which really can’t fail to happen
because it’s always two quarters out regardless of conditions at the moment.
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So let’s get something straight. What is
happening is an economic catastrophe the likes of which we have never seen
before, even during the Great Depression of the 1930s.
In fact, the worst annual
decline back then was a 14.8% drop
in 1932, while the entire peak-to-trough real GDP decline between 1929 and the
1933 bottom was 30.5%.
So it would be fair to say
that measured at an annualized rate, the idiotic Dr. Fauci and his Virus Patrol
have now delivered a 32.9% GDP plunge,
which single-handedly tops the entire contraction of the Great Depression.
Needless to say, the Q2
result also leaves the recessionary drops since 1950 way back in the dust. Even
the auto industry induced plunge of Q1 1958 didn’t make the double-digit
threshold. It clocked in at a 9.986% annualized
decline or less than one-third of
today’s cliff dive.
What
was especially notable, however, was the vaporization of personal consumption
spending on services, which ordinarily accounts for upwards of 70 percent of total
PCE; and which is also ballyhooed by the paint-by-the-numbers Wall Street
economist as the ballast the keeps GDP moving ever higher.
Not this time!
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Services spending literally fell through the trapdoor, contracting at
a 43.4% annualized rate. That
compares with the 11 recessions since 1950 where real spending on services
never went negative, save for the pinprick decline of -1.6% annualized during
the Q1 2009 bottom of the Great Recession.
By every account, the
economic plunge in the winter of 2008-2009 was the worst since the 1930s, but
today the Commerce Department reported a PCE-services drop that was 28X deeper!
Our
purpose here is not to marshal scary numbers, even as they surely are. Rather,
our point is that what is coursing through the Q2 numbers is not anything that
resembles a normal chain-of-reactions macroeconomic cycle. For instance, where
job losses cascade through to shrinking incomes, thereby causing consumer
confidence and spending wherewithal to diminish and household spending to be
curtailed.
To the contrary, what is depicted below is
essentially economic marshal law. Agencies of the state
commanded airports, restaurants, bars, hair salons, gyms, movies, dentist
offices, theme parks, sporting events etc. to close or operate at drastically
reduced capacity, which meant, in turn, that day-in-and-day out commerce and
economic output vanished instantly.
Stated
differently, this 43% plunge in services spending didn’t happen for the
ordinary reason that people were short on cash. As we show below, personal
income during the quarter – thanks to the massive flow of free stuff from
Washington (aka government transfer payments) – clocked in at a record level!
Consequently,
there will be no rebound in the plunging red line below no matter how much
fiscal and monetary “stimulus” Washington pumps into the main street economy.
The services sector accounts for nearly
66% of total PCE, which, in turn, accounts for 68% of measured GDP. So
the latter will not recover until the Virus Patrol gets its foot off the neck
of what we call the social congregation activities of daily economic life; and
also until it and its MSM collaborationist desist from fanning the false claim
that the Covid is the equivalent of the Black Plague, thereby causing people to
voluntarily quarantine out of misplaced fear.
Of
course, you don’t have to listen to Dr. Fauci and the Scarf Lady for long –
yes, they have not yet been locked up in padded cells where they belong – to
realize that the Virus Patrol is on a once-in-a lifetime power trip.
In ultra-busy body/Nanny State fashion they
are virtually regimenting the comings and goings of a $20 trillion economy –
even as they keep the US economy on indefinite idle waiting for the vaccines
and antivirals from their allies in Big Pharma and the Gates Complex to ride to
the (mandatory) rescue.
Annualized Change In Personal
Consumption Expenditures, Services, 1950-2020
We
don’t expect the Virus Patrol to be put out of business any time soon because
the Donald is too confused and weak to shut them down.
Moreover,
if he keeps shooting himself in the kneecaps via tweets like today’s
“lets-postpone-the-election” numbskullery, he will guarantee an even worse
scenario: Namely, that while Sleepy Joe is being oxygenated and propped-up
behind the Resolute Desk for daily Oval Office photo ops, the left-wing health
Nazis who surround him will really go to town on Lockdown Nation.
Nor is that any kind of
unhinged trashing of the camarilla of out-and-out statists who will form the
core of the Biden Administration. The fact is, the Donald’s malpacticing
doctors, the MSM and the Blue State mayors and governors have now unleashed a
full-on public hysteria that is self-fueling.
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It is
now transforming ordinary sheeples into obedient and unquestioning
brown-shirts. Even in the purportedly enlightened, socialist republic of Aspen,
where we are sheltering for the duration, we see them “mask-up” even with no
one in sight, while pumping strenuously up the mountain side on a fat-tired
bike.
On
manifestation of the Covid-Hysteria is the soaring level of “testing” going on
as people either try to get a hall pass in order to return to work or just
plain run to the nearest testing station every time the media sends off new
alarm bells.
During April, for instance,
which was the very worst month of the contagion in terms of serious illnesses
and deaths, 5.2 million new tests were reported or 175,000 per day.
By contrast, in July to date
(thru the 29th), there have been 21.5 million new
tests reported or an average of 745,000 per
day.
In a
population that has been thoroughly exposed to the virus after five months, it
is a given that with the number of tests soaring, the number of positive cases
will rise proportionately. But that’s a misdirection because the real issue is
the true medical severity of the new cases, and that has dropped precipitously.
The death rate has dropped
from 1,800 per day in April to 780 in July; and whereas 15-20% of new cases
were being hospitalized in most states during April, that figure has now fallen
to 2-4%.
That
is, after the Grim Reaper’s original romp through the most vulnerable
populations – especially the nursing homes and long-term care facilities in
March/April – the preponderant share of the remaining populations being
infected and testing positive appear to have stronger immune defenses, and are
mainly either asymptomatic or treating and recovering at home in the normal
flu-season manner.
So on
the facts, the Hysteria should be dying out, but, alas, the facts are of small
moment in the context of a runaway public hysteria that is being turbocharged
by a severely aggravated anti-Trump partisanship that has no modern precedent,
or any at all.
We
are constantly reminded that there are less than 100 days until the election,
but probably of even more salience is that the next flu season will be arriving
even sooner in October. And it won’t matter whether the obvious herd immunities
building up against the SARS-Cov-2 cause the next flu season to be unusually
mild or not.
That’s
because the Virus Patrol will be at shrill alert for the “second wave” in the
run-up to October, keeping the suffocated economy evident in today’s GDP report
on its back foot for the balance of the year, at least. That means the
ballyhooed V is now surely dead-as-a-door nail.
In this context, it needs be recalled that the services sector of the
US economy is bearing the brunt of the Lockdown orders, but that it now counts
for fully $8.7 trillion or 45% of GDP. That compares to a mere 26% back in the days of America’s industrial
might in the mid-1950s.
In
the big picture context, therefore, national policy – especially at the Eccles
Building – caused the off-shoring and hollowing-out of the US industrial
economy over the last three decades. In turn, that has left main street
especially vulnerable to a state-orchestrated attack on its new services sector
center of gravity such as outpatient surgery clinics, Pilates studios and tapas
bars.
Again,
an economic marshal law attack on the new epicenter of the US economy means
that the issue is not traditional stimulus, but clearing the decks and clearing
the air of the Virus Patrol orders and Covid-Hysteria, which was the real
culprit behind the Q2 GDP disaster.
Nominal GDP (light brown)
Versus Service Sector PCE (dark brown), 1955-2020
Perhaps nowhere is the impact of economic
marshal law more evident, ironically, than in the health care sub-sector of the
services economy.
The former, of course, has
been the workhorse of US GDP growth for decades. However, after peaking at
$2.50 trillion in Q4 2019, it weighed in at just $1.89 trillion in Q2 2020.
That’s a $608 billion decline,
reflecting an astounding -24% contraction.
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And
this is supposed to be the worst medical crisis to hit America since the
Spanish Flu of 1918!
But, actually, the
government’s data mill is telling an absolutely opposite, nay crazy, story.
Namely, that the single largest sector of the US economy plunged at a 61.6% annualized rate in Q2 – meaning that the
figure gives the notion of being “off the charts” of history an altogether new
definition.
Needless
to say, health care spending is not now and never has been amenable to
Washington’s vaunted stimulus machines. The overwhelming share of spending is
government funded directly through Medicare/Medicaid et al or through the $300
billion per year tax shelter for employer health plans; and whether public or
private, consumer health payments are overwhelming made by third-parties,
thereby further limiting the efficacy of the cheap money from the Fed and free
money from Uncle Sam.
The
plunging red line below, therefore, is the doing of the Virus Patrol and its
orders to shutdown most so-called discretionary health care services, such as
cancer screenings? So until it is put out of business and the public
Covid-Hysteria is substantially abated, the rebound of the health services
sector is likely to the contained and protracted.
In
short, what we have is a government-ordered depression, not a macroeconomic
recession that is purportedly remediable by a huge dose of monetary and fiscal
stimulus. So the truth is, the Virus Patrol, not the Fed and Washington’s
everything bailout brigade, is in charge of the recovery from the Q2 disaster,
and they are not much interested in letting it happen.
To
take another salient example, the go-to strategy of the Virus Patrol has been
to shutdown large scale public gatherings entirely, but that’s obviously the
venue of the recreation sector.
So it
is not surprising that the PCE spending rate for this sector has given
“cliff-diving” a run for its money. Compared to the $590 billion annualized
rate of spending in Q4 2019, the current quarter clocked in at just $272
trillion.
The amounted to a 53.4% decline from Q4 and an out-of-this-world
contraction of 61% annualized in the current quarter. Or alternatively,
recreation spending in Lockdown Nation during Q2 reverted to the level first
crossed in Q2 2002.
That’s
18 year’s worth of growth gone in a virtual economic heartbeat.
Of
course, there was one thing that was way up in Q2 – transfer payments and
personal income. And every dime of the massive increase in transfer payments
shown below was borrowed by Uncle Sam and monetized by the Fed.
Yet
the only thing it accomplished was to further balloon the public debt because
the current depression does not flow from the want of means or desire to spend:
It’s the product of economic marshal law ordered up by the Virus Patrol.
Still, it is worth noting
that wage and salary income (brown line) was down by $680 billion at an annual rate in Q2, while
the Washington spending machine boosted transfer payments at a $2.4 trillion annual rate, or by nearly four times more!
Once
upon a time, that would have been considered insane overkill, and at least
caused Republicans to screech at the top of their lungs about fiscal
profligacy.
Alas,
as they put up their $1.2 trillion Everything Bailout 5.0 against the House
Dems’ $3.3 trillion alternative in the days just ahead, the chart below will be
nowhere seen in the porkers’ lounges of Capitol Hill.
Change From Prior Quarter In
Billions: Transfer Payments (purple line) Versus Wages and Salaries (brown
line)
PEAK TRUMP, IMPENDING CRISES, ESSENTIAL INFO & ACTION
Reprinted with permission
from David Stockman’s Contra Corner.
Former
Congressman David A. Stockman was Reagan's OMB director, which he wrote about
in his best-selling book, The Triumph of Politics. His latest books
are The Great Deformation: The Corruption of Capitalism in
America and Peak Trump: The Undrainable Swamp And The Fantasy Of MAGA.
He's the editor and publisher of the new David Stockman's Contra Corner. He was
an original partner in the Blackstone Group, and reads LRC the first thing
every morning.
Copyright © David Stockman
