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Paper Printing Prosperity

Tuesday, May 19, 2009

Paper Printing Prosperity Defined
Posted by TraderMark at 1:45 PM TweetThis

I've been using a self coined term, Paper Printing Prosperity, for what the U.S. is "enjoying" now... basically its similar to the "rebate check prosperity" we enjoyed a year ago at this time when a quick hit of nearly $200B was tossed into the economy to cover up the degradation happening under the surface. Only this time we are making the Bush rebate look like child's play. As I've noted in multiple pieces we literally are running a parallel economy of backstops, Fed programs and federal stimulus alongside our own real economy of $13-$14 Trillion. [Mar 31, 2009: Financial Rescue Pledges Now $12.8 Trillion] We've reached the point where the federal government, which is essentially just another word for taxpayer money, is now the #1 revenue source for states [May 5, 2009: Federal Aid Surpasses Sales Taxes as Top Revenue Generator for States] I could go on, but I'll spare you - we've detailed the myriad programs in excruciating detail over the past 2 years.

Even before this implosion America has "solved" many of its problems by "kicking the can down the road" - this was the genesis of the housing bust; Alan Greenspan did not want the natural economic cycle to play out - Americans can't handle a recession, or as a blessed people should not be subject to one... so he flooded the world with 1% Fed fund rates and dollars came from the heavens. But once the dollars are out - you have no control where they go ... these bid up houses, they bid up commodities... we call that "prosperity" as "asset price inflation" is substituted for actual productive progress. But many in the country only look at one side of the bargain - the results side. The cost side is for "someone else" to worry about... or not to be thought of at all. The best way to describe it is to charge something on a credit card, and take it home ... look at the product and smile in glee at what you've acquired. Then rip up the credit card statement when it comes in... and go look at the item again, and smile once more at how wonderful it is. It came "free" - that's American prosperity in the paper printing era. Kick the Can. We see it in Social Security, in Medicare, in all these bailouts... and we clap like seals because hey... as long as our assets go up, who needs to have a savings rate? Who needs productive work? Heck, who needs jobs? More money (from the trees) solves it all. Pay for it? That's for grandkids to worry about. But simply it's better not to think about it at all, it might cause stress. Just enjoy the just rewards we 'earned'.

So coming full circle, I saw this article and until it was worded in this way one does not realize how egregious the paper printing prosperity is. Read these stats from Jim Grant (of Grant's Interest Rate Observer) to realize what a phony baloney "recovery" we're enjoying. As I've been saying Ben Bernanke's best case scenario is pushing us into stagflation [Apr 15, 2009: Federal Reserve Historian Allan Meltzer says Ben Bernanke Will Bring Us 1970s Type Inflation] ... which should be very enjoyable for the peasant class as their wages rise even slower than the pace of the 2000s decade [Apr 30, 2009: First Quarter Labor Costs Rise Least on Record]. Heck, I've been talking about stagflation since 2007; as does Greenspan - eventually people will demand higher rates from us for our drug (credit) addiction [Dec 17, 2007: Greenspan Jumping on my Stagflation Thesis] Sadly, I think "powers that be" believe they are doing the right thing and as long as they can keep juggling balls until some Asian inspired global recovery happens, this is "victory". The costs will be borne by someone else so why not take on all these obligations? Make the Romans happy with our gladiator games to distract them from reality! We're all winners here....just make sure to rip up the credit card statement.

  • In a recent issue of Grant's Interest Rate Observer, Jim Grant charted the stimulus money (both monetary policy and government spending) as a percentage of gross domestic product for this downturn, compared with the previous 13 recessions.
  • In those earlier recessions, if you added all the percentages, the cumulative monetary stimuli constituted about 6 percentage points, while thus far in this recession, the stimuli have clocked in at 18%.
  • Add in the 11.9% (of GDP) supplied by the government and you get 29.9% for the combined stimuli. That's compared with a total of 39.3 percentage points for the prior 13 recessions.

So to break that down in English, in this one recession we've thrown 30% of GDP of various 'stimuli', versus the previous 13 recession COMBINED 39%.

  • When the current recession is compared with the Great Depression, we find the relative amount of stimuli is almost four times as high today as during the 1930s collapse, even though GDP has dropped only 1.8% versus 27% back then.
  • This rally could indicate that times are getting better -- or just that massive liquidity is leaking into the stock market and that the real economy is going to see more inflation.

That folks, is paper printing prosperity. I see gas is $2.49 locally so I assume California must be quickly approaching $3.00. Joy to the (Main) streets and the American consumer... as long as asset prices are increasing all must be right in the world. As the folks who lived in the latter 70s and early 80s will tell you.