Everyone is all "boo-ya!" about the most-recent GDP report, which I pointed out in my last article means no, there's not a rate-cutting cycle imminent because there's no economic pressure from the current posture evident in the GDP data.
Can't argue that one folks, but there are plenty of people still trying to sell you things (particularly both stocks and real estate) doing so.
Back a decade or so I used to publish a quarterly report on the Fed Z1, which is arguably the most comprehensive data set on the economy available. It was the poorest-circulated article in my usual cycle, and eventually I gave up on it simply because nobody cared to read and understand what it was explaining. Quite-distressing, really, and especially-so given that it wasn't high-frequency data and thus told you a lot about trends but almost-nothing about the day-to-day life you were experiencing. Perhaps that's why nobody cared; I've never claimed to be much of a psychologist.
One of the key factors that I pointed out in that report is that economy-wide we were crossing into the realm of where taking out new debt on an economy-wide basis was actually producing less than one dollar in GDP for each new dollar of debt. You'd think that is impossible, but it is not because, as I've repeatedly observed, the laws of thermodynamics and, thus entropy, apply to economics and they're not suggestions -- they're immutable facts.
If you want to distill thermodynamics down to three basic sentences you can:
You can't win (you cannot get back more than you put in)
You can't break even (nice try; there is always loss)
You can't avoid playing either (sticking your head in the sand will not evade the consequences)
When someone pops with some "free energy" claim this is your immediate reason to call it fraud, because unless someone has managed a breakthrough that literally gives us a "Star Trek" sort of universe to live in they're either wrong or deliberately misleading you.
Not all debt is bad. If I borrow money to build a factory that produces automobiles, I might well appear to have gotten a free lunch. I didn't; I pulled forward the production of cars but that pulling forward might well be net GDP positive even considering the future hole it leaves in said production (because I already made them) and the cost of taking out the debt, which in a balanced system must always be an actual cost in real terms. That is, it must always cost more to borrow money than the rate of actual inflation in a balanced system. Thus it is always more-expensive, in said balanced system, to borrow to do it now than to save and do it later. For this reason borrowing should only be done if the additional output from doing it now pays for the funds.
Governments have "strongly encouraged" the violation of this basic principle for the last decade or so. This has made it appear that there is a free lunch, but that is false. The laws of thermodynamics tell us so; if you think you were actually "winning" what you were really doing is stealing the value from somewhere else and whether you can identify the other place or not is only material to the people who got robbed. That it happened is economic fact.
Today the US Budget Deficit, as of the end of September 2023 (fiscal year end) is $1.695 trillion. We currently have three months in to the new fiscal year and that amount is $510 billon, which if annualized will be $2.04 trillion dollars. The last GDP report, for the end of 2023 (Q4) is $27.938 trillion so the Federal Government is running a 6% deficit, that is, 6% inflation, on purpose, against the 2023 fiscal year and assuming the spending continues as with the first three months of this fiscal year, a 7.3% inflation rate for 2024. That is the "base rate" of inflation our government is creating.
The GDP advance for the last 12 months off the same data table is 5.79% which is less than the monetary inflation run by the government, meaning that in real terms GDP is fact slightly negative on a trailing basis and on a forward basis it is approximately -1.5%.
This cross-over was exactly what I pointed out was going to happen and is also precisely the "bad side" of the graph in my previous article. This cannot continue to expand indefinitely because if it does it increasingly impoverishes everyone in the economy, with the largest impact falling on those with the least income and capacity to try to out-earn or at least absorb the damage without winding up hungry, in the street or worse.
I will note that this analysis entirely ignores the impact of what someone might do on their own in terms of private borrowing (e.g. running up your credit card, taking out a student loan, a mortgage or similar) and also ignores state borrowing -- this only considers the federal level. All that other alleged "borrowing" in fact pulls forward even more expenditure and expectations.
I do not expect that this will get any more discussion and debate at the political level this time than we did before, and were I to be granted another audience in front of Senate staffers as I was about ten years ago I'm reasonably sure they'd give me the same answer they did then: They all know this, they know it is leading to disaster but if they attempt to address it, particularly in the medical field, they will lose the next election and thus they will not do it.
For those of you who are "bullish" in the short-term you can read charts of course, but in the intermediate (many months and years forward) and longer term you cannot escape mathematics and the laws thereof; they're not laws passed by man and thus cannot be repealed. You can (and we have) ignore them for a while, and even try to evade them, but all you're doing in that regard is making the eventual damage you must absorb worse.
This will probably, once again, be a poorly-circulated article -- but it needs to be said, even if only for the record.