Sorry guys and dolls.
The new Fed Z1 is out, and it makes clear exactly what’s going on when it comes to the broader economy.
This isn’t a market timing call, but it is an inevitable recognition of reality call – and it will come.
Note that the Federal (and to a lesser extent the State) governments have replaced credit expansion in the broader economy but it is not working anyway, as total outstanding credit continues to shrink. That is, the Q3 contraction “on balance” was not a statistical one-quarter fluke.
As of the 4th Quarter of 2009 there is no evidence of recovery in the broader economy’s credit growth; to the contrary, it continues to shrink despite the government’s attempts to halt it.
Here’s some more detailed color on this:
Find the rising economic activity, as measured by the debt load in the system. Hmmm… let’s see, a little bit in State, down everywhere else, except….. The Federal Government!
The Federal Government went from $5.122 trillion to $7.805 trillion in 24 months. That’s $2.68 trillion dollars in 24 months, or almost exactly ten percent of GDP in net Federal borrow-and-spend to prop up consumption and output.
How long can this continue?
The economy operates on credit folks. Every category of net final private demand and economic activity is contracting. ALL OF THEM. The Federal Government is engaged in a furious game of “blow up the doll” while one of its fingers is cut off and the air leaks out faster than they put it in! This is shown by the top graph, which reveals that even with the Federal Government’s machinations total economic activity as measured by credit outstanding continues to decrease.
Folks, there’s no recovery. Not through Q4 2009 anyway. The Fed Z1 does not lie and the destruction in the financial space continues at breakneck speed, despite the idiots who think that buying stock in these companies is a good idea.
Best-a-luck folks if you’re listening to ToutTV – there’s a “use by” date on this nonsense, and if you find yourself on the wrong end of it you will not like the consequences.