Last week’s third-quarter GDP report dropped with the force of a bombshell.
The economy shot up an astounding 33%! The figure represents nothing short of a mind-boggling achievement, especially considering the US’ colossal weight of $20 Trillion.
More specifically, we haven’t seen such quarterly growth since World War II.
And as far as the averages go, we left that figure in the dust, grounded to such a degree that even the best average performance is by far “underperformance”--too small and too distant to be seen.
So, here it is...the V-shaped recovery that everyone has been waiting for.
What Counts is How You Present the Numbers, or Whether You Present the Numbers That Count
Numbers, in their own domain, don’t lie. So we can trust President Trump when he says that our last quarter’s GDP was the highest in American history. It’s probably true.
We can continue viewing our economic prosperity with this image in mind. We should be aware, however, that the inner components of the vast US economy make up too big and too complex a machine to be “captured” by one single image.
Tweak the angle even slightly, or zoom-in the camera for a tight closeup, and you’ll see the flaws on the surface. Flaws indicating that something’s not quite right.
To say it flat out: our economy didn’t grow by 33%. Sorry.
The numbers aren’t “untrue.” That’s not the case at all. It’s just that, well, there are plenty more factors in the mix, and those remain out of sight, out of mind.
Headline GDP is an annualized rate. So, how much did our GDP actually grow? Try less than a fourth of that number--around 7.4%.
On a quarterly basis, 33% is still impressive. But we’re still -3.6% below pre-pandemic levels.
Using another reference point, perhaps a clearer measure, GDP is back to where it was at the height of the 2008 financial crisis.
GDP jumped, but the economy didn’t make it out of the quicksand--meaning, we’re still sinking.
The COVID stimulus-response-- a whopping $7 Trillion of a fiscal and monetary bailout--kept many American households fed, millions of unemployed workers able to pay their bills, and many businesses operating.
It was the major tailwind that kept America spending, investing and saving. That tailwind is no longer blowing, and its forecast remains uncertain.
The Federal Reserve can’t do much more, urging governments to keep priming the fiscal pump, warning of significant downside risks should the liquidity cease.
Meanwhile, the Fed did get it right in stating that the path to recovery rests on one thing: the course of the pandemic.
And as half of all Americans seemingly view COVID-19 as a partly-exaggerated fiction,--a story that politicians made up to tighten their control over individual freedoms--it doesn’t seem likely that a lid will be containing the pandemic any time soon.
COVID-19 may not just “disappear,” as some of our “leaders” would have you believe, but American economic strength is certainly fading. And that’s the Fed’s remarkable vanishing act.
Another thing about the GDP calculation is that it’s always lagging--reported every quarter, and reflecting a quarter period behind.
And as we said at the top of this piece, there are other numbers in the mix indicating real economic forces that remain unseen, at least to the majority of the American public (it’s not that the information is hidden, it's just that most Americans don’t know how to piece it all together).
Take, for instance, the Chicago Fed Economic Activity Index.
This number tracks around 80 data points, summarizing consumption, employment, and production. It tells us we were at --22% through March and April, +4.2% in May, up again +5.9% in June, and each month thereafter, a slow decline, down to +0.3% in September.
Do you see the downward slope?
Look to the Conference Board’s index of leading indicators and you’ll get a similar story.
President Trump knows the economy is fragile. This is a guess, but similar to his recognition of COVID’s risk prior to his (opposite) messaging early on, we’ll just assume that he sees all of this.
Yet, politics is the domain of rhetoric more so than truth. We cynically accept this.
If it weren’t true, then Americans would be much more engaged in economic and policy discussions in a manner that reflects “real” debate (not cheerleading for one side or the other)--an acceptance of the onerous tasks of citizenship.
But for one reason or another, many Americans don’t really (like to) think much about these matters in great detail (and let’s face it...the devil is in the details...or in the idle mind).
Hence, financial headlines--such as the ones touted by mainstream media--are either true or not depending on one’s politics.
Without nuance, no true understanding of what’s really going on can ever manifest itself in anyone.
Other Factors Not Considered
Aside from the obfuscation effect of fiscal stimulus on economic data, there are other more or less transparent effects we await.
For instance, the moratorium on evictions in the US is about to be lifted. With millions of Americans still unemployed, many of whom are unable to keep up with their rent, many tenants will either have to move out or face eviction.
The problem doesn’t end there, as landlords now face the risk of defaulting on their mortgages and loans. Real estate prices may drop significantly, not only bad news for investors and lenders but also to municipalities that benefited from the tax on revenues that once flowed throughout the city.
Back to monetary matters, we don’t know what’s going on between the government and the once-independent Federal Reserve.
Now that we’re under a "Temporary Government in the Sunshine” thanks to HR748, the freedom of information act is suspended until January 1st, 2021.
This suspension allows the Fed and government officials to meet with zero regulatory oversight and public transparency.
We don’t know what government and the Fed are cooking up, and such secrecy is the fertile ground that breeds anything from suspicion to popular conspiracy theory.
Yet given our current environment--where rhetoric prevails over reason--any suspicious interpretation that smacks of conspiracy just might have more than a grain of truth in it. The “new normal” is that anything, at this point, can be true.
For instance, is the Trump administration via the Treasury department aiming to bankrupt the Federal Reserve in order to take it over and reinstate the Gold Standard? As wild as this may sound to the average public, it certainly makes sense, doesn’t it?
Gold and Its International Tier 1 Reckoning
On the topic of gold, Basel III implementation is slated for 2023. According to the Bank of International Settlements, Gold will once again be considered a Tier 1 currency.
Central bank gold purchases have always made evident that the yellow metal was nothing other than the ultimate form of money. If that weren’t the case, there’d be no need for gold reserves.
But international “recognition” of gold as a Tier 1 currency will have as much a “psychological” effect on investors as it has always had an “operational” function in the global economy.
In light of the global QE environment, gold prices are poised for a significant multi-year rise.
At least here in the US, what else of monetary value can offset the collapse in the dollar (and all the purchasing power that goes down the drain with it)?
Right now, the dollar to gold ratio stands over $32,000 per ounce. The Federal Reserve will likely continue printing at this rate until January 1, 2023.
Here’s the big question: When gold becomes a Tier 1 currency, will the price for an ounce of gold be within striking distance of this lofty number?