If you believe President Trump’s Twitter, the U.S. currently has the best economy in the history of ever.
To use another favorite Trump phrase — That’s fake news!
Yes, superficially, things look at least decent. But if you dig a little deeper, not so much. In fact, economic growth over the last two years, as measured by GDP, was basically the same as it was during the best two years of the Obama administration.
And the economic growth under both administrations is all smoke an mirrors. As Trump accurately told us during the campaign, it’s a “big, fat, ugly bubble” inflated by the Federal Reserve.
Consider the Q2 GDP number that came out recently. The economy supposedly grew by 2.1 percent, despite a decline in business investment, decreasing imports and falling corporate profits.
So, what drove the growth?
The entire economy is nothing but a house of cards built on a shaky foundation of spending and debt.
Most of the GDP growth last quarter came from consumer spending, which is being funded by credit cards. Americans have run up record levels of consumer debt. They currently owe well over $1 trillion in credit card debt alone.
And while Trump might not be getting the monetary stimulus he wants from the Fed, the government is giving him plenty of fiscal stimulus. Federal spending was up 5 percent in Q2. Non-defense spending was up a whopping 15.9 percent. The last time government spending grew that much in a single quarter was 21 years ago. The U.S. endured two recessions in that timespan – including the Great Recession.
In other words, government spending rose last quarter by more than it did in any quarter during either of those recessions.
So, the economy isn’t great. It’s a house of cards built by the Federal Reserve on a shaky table of debt. This is precisely why the Fed is going to have to keep cutting interest rates. It has to sustain the borrowing or the whole thing is going to fall down. Look – the whole thing is going to fall down. The only question is how long will the Fed be able to keep it standing?
When people talk about the economy, they generally focus on government policies such as taxation and regulation. While government policies do have an impact on the direction of the economy, this analysis completely ignores the biggest player on the stage — the Federal Reserve. If you want to understand the economy, you’ve got to understand the Fed. I have written an article that gives a good, succinct overview of the Fed-driven business cycle. You can read it HERE.