The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the views of the Georgia Institute of Technology or the Georgia Board of Regents.
While last week’s update was quite long, this week’s issue is quite short as there was very little data released this week. But next week will once again be a big one with CPI, PPI, retail sales, housing starts, building permits….there is a lot coming out next week!
Those of you who have been reading this update since last summer will remember a segment called “stupid economic statement of the week.” I haven’t done it since October of last year, mainly because there is always so much data to report. The previous features all focused on Paul Krugman, who, as a political shill is always saying stupid things. However, this week we have two new contestants!
First, please welcome Jared Bernstein, the Chair of the Council of Economic Advisors! It came out this week that during an interview for a film (Finding the Money) he said, “The US government can’t go bankrupt, because we can print our own money.” Really?!? Well, that certainly explains why we are running a $1.8 TRILLION deficit, and have similar deficits forecast out as far as the eye can see!
As if that wasn’t bad enough, he went on to demonstrate (in a video clip that has gone viral) that he has absolutely no idea how our monetary system works. If you have been watching and experiencing our economy over the past few years, seeing this video explains so much, and at the same time, it should terrify you. (The video is worth a watch.)
The film in question is advocating for Modern Monetary Theory (MMT), a “new” macroeconomic idea that says sovereign governments should not be constrained by a lack of revenue when it comes to federal government spending. In other words, since they print their own money and are the monopoly issuers of their currency, they can print as much as they want with no consequence. This is, of course, absurd. The irony here is that Mr. Bernstein is himself a proponent of this foolishness, and in trying to help the makers of the film peddle their tripe, he ended up looking like an idiot and casting a cloud over the whole affair.
It should be noted that while Bernstein claims to be an “economist,” his formal education consists of a Bachelor’s degree in music from the Manhattan School of Music; a Master’s degree in social work from Hunter College; and a Doctor of Social Work in social welfare from Columbia University’s School of Social Work. This is the principal economic advisor to the President of the United States. Luckily for him (and equally unfortunately for people like me) there is no credentialing mechanism for being an “economist.” Pretty much, you want to be an economist, just say you are one. (Some of my “friends” like to point this out to me on a regular basis, even going so far as to give the “economist” title to their pets. With friends like this….)
But remarkably, that may not have been the most stupid economic statement of the week! Please welcome contestant #2, Mr. Bernstein’s boss, President Joe Biden. In a rare interview with CNN this week, Mr. Biden said in regard to inflation, “it was 9 percent when I came into office…9 percent.” What?!? Perhaps we shouldn’t have included his comment in this segment as it is not so much “stupid” as it is delusional.
The chart below shows four of the most common measures of inflation and the green vertical line falls on January 2021…when Mr. Biden took office. In that month, CPI was 1.4%; Core CPI was 1.4%; PCE was 1.6%; and Core PCE was 1.7%. In fact, the only measure of inflation that ever got to 9% was CPI, and that wasn’t until June of 2022…a full 18 months into his administration.
Certainly inflation took off later that year, and there is no doubt that the initial fiscal over-reaction by the Trump administration contributed significantly to that inflation. But that statement, on is face, is undeniably false.
One of those same friends I mentioned above is fond of saying, “we are a nation at war with the truth.” He’s right. People say whatever they want and no one checks them. Everyone wants to have their own “truth.” One of the true statesmen in our history, Senator Daniel Patrick Moynihan, Democrat from New York once opined that “everyone is entitled to his own opinion, but not his own facts.” Going back to our founding, in his defense of the British soldiers involved in the Boston Massacre, John Adams famously said, “facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.” Well, Mr. Adams…apparently we think we can. I can only imagine what Sen. Moynihan or President Adams would think of America today. I doubt they would be proud.
Consumer Credit
I have often said that the spending of the American consumer defies all logic. Inflation is up; real incomes are down; people are working multiple jobs to make ends meet; and credit card interest rates are sky high. Even so, every month we get data on consumer credit, and every month American’s credit card debt grows ever larger as if the bill will never come due.
I realize that one month doesn’t make a trend, but the consumer credit data for March makes me wonder if the consumer has finally hit the wall. Revolving debt was basically flat in March, growing only $152 million. By comparison, in February revolving debt grew $10.7 BILLION.
However, here is the problem with the March credit data….two weeks ago we were told that retail sales in March were the strongest in two years! How do retail sales come in so strong, and yet revolving debt remain flat? Did consumers suddenly decide to start paying in cash? The data here is inconsistent, and I am wondering if we will see significant revision in one or both series over the next few months.
But, if the data is correct, when you look at the level of revolving debt consumers are carrying ($1.3 trillion), and combine that with the fact that the savings rate is nearing an all-time low and dropping while personal interest payments are now more than $500 billion annually, perhaps reality is finally setting in. If so, that doesn’t bode well for second quarter GDP.
Consumer Sentiment
The University of Michigan preliminary release of May consumer sentiment showed that consumers are clearly souring on the economy with respect to both their present situation and their future outlook. Overall, the index tumbled 9.8 points. Consumer feelings about the present situation posted the largest monthly decline (10.2 points) since April 2020 when we shut down the whole economy for COVID! And consumer expectations about the future also plunged 9.5 points. Combined with the total drop off in revolving credit, it appears consumers are concerned about their future and may be putting the brakes on their economic activity.
The drop in sentiment was broad-based across all age, income and education groups. Why are consumers so down on the economy? Because they see inflation re-accelerating. They were told repeatedly by the media that “inflation was beaten.” Just two months ago, consumers expected inflation to be below 3% a year from now. But prices keep rising, and they are once again rising at an increasing rate. Consumers are now concerned that we may have a second wave reminiscent of the 1970s.
And consumers are feeling it! This month’s drop in sentiment was driven by the fact that consumer expectations about inflation a year from now jumped sharply to 3.5%. Other concerns mentioned included high interest rates, which show no sign of coming down anytime soon.
Final Thoughts
As a final reminder, I will be speaking at the LaGrange-Troup County Chamber of Commerce Early Bird Breakfast on May 14th. Coffee and networking will begin at 7:00am followed by breakfast and then the program will start about 7:50am when I will speak for about 25-30 minutes on the economy. The meeting will be held at the Del’avant Event Center which is located at 141 Main Street, LaGrange. Hope to see some of you there.
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