• 1 day Markets Unfazed As Inflation Hits 13-Year High
  • 2 days How the Token Economy is Disrupting Financial Markets
  • 4 days FBI Investigating 100 Types Of Ransomware Attacks
  • 6 days Fed Ends Corporate Credit Emergency Lending Program
  • 8 days AMC Becomes the Latest Winning Meme Stock After GameStop
  • 9 days The Real Reason Your 401k Has Been Lagging
  • 10 days China Lifts Cap On Births, Allows Three Children Per Couple
  • 12 days The Market Is Ripe For Another GameStop Saga
  • 15 days Senate Grills Big Banks Over Pandemic Opportunism
  • 16 days Cannabis Has A Major Cash Problem
  • 17 days Ransomware Netted Criminals $350M In 2020 Alone
  • 18 days Russia Is Taking On Google
  • 19 days Chinese Regulators Deal Another Big Blow To Bitcoin
  • 20 days Ohio Residents Brave Vaccine for Chance To Win $1M
  • 22 days Inflation Is Coming. Are You Prepared?
  • 23 days 3 World-Shaking Trends Investors Need To Watch This Year
  • 23 days Travel Might Get Another Supersonic Disruption
  • 24 days The World Is Running Out Of 6 Key Resources
  • 25 days $15/Hour Minimum Wage Might Happen Naturally
  • 27 days Money-Laundering Binance Probe Report Adds To Bitcoin Woes
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

John Rubino

John Rubino

John Rubino edits DollarCollapse.com and has authored or co-authored five books, including The Money Bubble: What To Do Before It Pops, Clean Money: Picking Winners…

Contact Author

  1. Home
  2. Markets
  3. Other

Bad -- But Better Than What's Coming

Talk about diminished expectations. This morning's estimate of 1.4% Q4 GDP growth is being hailed as a pleasant surprise. Which is odd, considering that for most of the past century a number this low would have been seen as weak enough to require emergency action.

And that's just the headline number. Dig a little deeper and the picture -- at least when viewed through a non-Keynesian lens -- is of a system in crisis. Consider:

Corporate profits are, as today's Bloomberg puts it, sliding.

Sliding Corporate Profits

Meanwhile (also from Bloomberg),

A firm labor market and low inflation encourage households to keep shopping. Today's fourth-quarter growth figure reflected more spending on services, particularly on recreation and transportation. "It's really U.S. consumers who are powering the global economy forward at this point," said Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh.

But if companies are earning less money, how likely is it that they'll step up hiring going forward? Not very. And since today fewer Americans have full time jobs than in 2007 (making the current stellar 4.9% unemployment rate look like a cruel joke) a new round of mass layoffs will make the job market even more dire for anyone hoping to support a family with full-time work.

"If profits remain depressed, the prospects for capex and hiring will come under greater pressure," Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, wrote in a research note.

What are the chances of profits remaining depressed? Pretty good, considering that two of the big growth drivers of the past few years have been student debt and car loans. The former is, as everyone by now knows, at levels that consign a whole generation of kids to life in their parents' basements -- not a recipe for robust consumption.

Car loans, meanwhile, are starting to look like subprime mortgages circa 2006:

Unpaid subprime car loans hit 20-year high

(CNN Money) - Americans with lower credit scores are falling behind on auto payments at an alarming pace.

The rate of seriously delinquent subprime car loans soared above 5% in February, according to Fitch Ratings. That's worse than during the Great Recession and the highest level since 1996.

It's a surprising development given the relative health of the overall economy. Fitch blames it on a dramatic rise in loans with lax borrowing standards that have helped fuel the recent boom in auto sales. More Americans bought new cars last year than ever before and the amount of auto loans soared beyond $1 trillion.

Fitch points out that the subprime end of the market is where there's increased competition to peddle loans. The ratings firm flagged an increase in loans to "borrowers with no FICO scores," lower downpayments, and extended term lending.

Toss in contracting global trade, turmoil in Europe and Latin America, and a grinding multi-month decline in US manufacturing output and the year ahead doesn't look any better. Here's the Atlanta Fed's GDPNow measure of current growth, which shows a huge drop in just the past month:

GDPNow

What does all this mean? Very simply, if you borrow too much money life gets harder and the things that used to work stop working. For a country, lower interest rates no longer induce businesses and individuals to borrow and spend, and government deficits no longer translate directly into more full-time private sector jobs. Growth slows, voters get mad, politics gets crazy, and generally bad times ensue. The only question is why this is a surprise to the people whose choices brought us to the edge of the abyss.

 

Back to homepage

Leave a comment

Leave a comment