Unraveling the Illusion of a Strong Economy

The Keynesian GDP Accounts

The robust economy that has been touted for the past few years is nothing more than an illusion. The Keynesian GDP accounts were inflated by deferred spending runoffs that resulted from the unprecedented buildup of household cash during the pandemic lockdowns and stimulus extravaganza orchestrated by Washington.

Household Cash Balances and Ratio to GDP

Household cash balances in relation to GDP stood at 60% in 1985 and remained at 61% or $13.36 trillion just before the pandemic in Q4 2019. However, the lockdowns and stimulus injections caused household cash balances to skyrocket by nearly $5.0 trillion to $18.28 trillion by Q2 2022, or 71.5% of GDP. The excess cash compared to the normal 60% cash balance to GDP ratio was $2.93 trillion.

The True Tale of the Economy

The real story is that $1.68 trillion or 56% of the Q2 2022 excess cash balance has already flowed into the spending stream. This means that during the six quarters between Q2 2022 and Q4 2023, the excess cash balance runoff accounted for nearly 70% of the average GDP gain during the post-lockdown and stimulus-driven recovery.

The Future of the US Economy

At the current runoff rate of excess household cash, the historic 60% to GDP ratio will be reached by the end of 2024. At this point, the US economy will be burdened with over $100 trillion of combined public and private debt, and it will not be characterized as either strong or even resilient.

The Impact of Monetary Central Planning

Monetary central planning has systematically undermined and diminished both productivity growth and labor growth. The current move towards a new round of destructive money-printing is just further proof of this fact. Despite its failure, the harm being imposed on Main Street America by Fed policies continues.

The Assault on the Middle Class

For instance, during the most recent month (January) US home prices were up by 6.0% on a Y/Y basis, a stark reminder of why the Fed’s pro-inflation policies are so insidious. They set up a running battle between asset prices and wages, and the former wins hands down.

Conclusion

At the end of the day, the US economy is not remotely “strong,” as the talking heads blathered about again last Friday. Likewise, the BLS report is once again hardly worth the digital ink it is printed upon. So, a central bank policy based on a monetary politburo fiddling the nation’s massive $28 trillion economy toward undefinable and immeasurable full employment and 2.00% inflation can be described in only one way. To wit, a trainwreck in full flight.

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