Modern Economics Cont. – “The Space Between Two Economies”…

Changing perceptions on modern political economics is perhaps the second most important paradigm shift in 2016 political understanding.  The most important cognitive shift being the professional political class’s use of “the splitter strategy”, and/or professional manipulative intents to elevate two UniParty candidates (Bush and Clinton).

campaign cartoon

The UniParty was successful with defeating Bernie Sanders; however, the UniParty failed in defeating Donald Trump.  The Sanders Team only discovered the scope of the professional DNC betrayal after the primary was over.  The Trump Team succeeded because they were a more ‘in-tune’ audience – with more cynical experiences gained from six previous years of transparent RNC betrayal.

The UniParty political fraud also applies to our political economy. However, just like the election, understanding the deception in modern economics means understanding previous false and promoted assumptions.

Economically speaking, Bernie Sanders supporters, and the various left-wing advocates therein, are correct in stating the greatest financial and economic benefits have been delivered to the top 2% wealthiest people, the Wall Street class per se’.

Factually, while not resenting the wealth, most intellectually honest conservatives admit this is also the current reality.  The wealth disparity in the U.S. has increased substantially over the past two decades.

However, the professional political class would like both sides to continue disunity, argument/disagreement on the outcome, and avoid discussing the root cause.  It is within a comprehensive understanding of the root cause where Americans find unity.

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We’ve already discussed how two entirely divergent economies, a Wall Street economy, and a Main Street economy, were created by exploitation of financial interests and the accompanying legislative priorities.

Regardless of mid-1980’s political motives, the result was the creation of two entirely disconnected economies.  The professional political class merely pandered to the demands of their most influential legislative donors.  Hence, TARP, Bailouts, etc.

Main Street’s economy was/is a more traditional economy, based on “Americanism“.  Wall Street’s economy is purely financial (mostly paper), based on the multinational financial instruments that underline “Globalism“.

This is not to say that all Wall Street engagements or activities are bad, they are not.  Financial instruments and corporate interests have a large place within our traditional economy.  However, global financial instruments may, or may not, have a similar positive influence.

Given the historic rise of global corporatism and massive multinational’s, it’s easy to spot the inherent anti-nationalist sensibility.  Wealth doesn’t spread without a spreader; and  American wealth doesn’t spread, without an American wealth spreader.

So we end up with two economies; which, over time, have grown further and further apart. The wealth disparity between the middle class and the “well off” class, tracks identically with the separation of these two economies. – SEE HERE

The U.S. election of 2016, is the first time in two decades where the Main Street economy has won.  Consequently the U.S. election of 2016 is the first time in three decades where the attention of the DC Legislation may look toward that now increasingly unfamiliar, and ever distant, economic model – Main Street.

The space between our two American economies is a massive chasm now, and as a direct result we are in seriously uncharted economic territory.  I say it is so different, it’s actually an entirely new dimension.

The reason for saying “a new dimension” is simply because the space between the two economies is so large, so substantial, there is no accompanying economic theory to map out what happens within it.   Until an economic balance, economic unity between Wall Street and Main Street, can be achieved -if ever- we will be in this weird new space.

However, just like the election tripwires, and accepting we are in unfamiliar terrain – I have been researching some potential outcomes and establishing “economic tripwires” to watch for.  If triggered there may be much more predictability than most would think.

Many of these new economic tripwires are highly unusual.  Most of them are antithetical to traditional economic theorem or historic ‘cause and effect‘ patterns.  Feedback is very much welcomed and appreciated.

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The first economic tripwire is GDP (Gross Domestic Product).  GDP is, by design and definition, exclusive to a Main Street economy.  [Wall Street doesn’t actually produce anything.]  GDP is the annual value of all economic output; the value of all goods and services produced within the U.S. economy.  Currently the GDP value is around 18 trillion.

For the past six years (post recession) we have been bumping along the bottom of GDP growth evaluation like a fishing weight being dragged, jigged, across the sea floor.  GDP at approximately 2% growth (+/- .05%).   When you factor inflation, our GDP output is actually down over the same time period.

However, since the election there have been “economists” or business interests projecting forward GDP estimates with wild variances.  Some say 3%, others have said up to 7 or 8% is possible.  That’s a 5% spread on opinion.  Think about that.

A five percent variance in GDP projection on a near $20 trillion economy is a trillion dollars.  Put another way – that’s 1,000 x a billion dollar difference in a single year GDP projection amid economists.  Why such a disparity?  ….Because we are in that uncharted territory, the new economic dimension.

My tripwire is set at the upper scale of that projection, in the 7% range, based on a fiscal year (Oct through Sept), not a calendar year.  Because all of the basic essentials for the massive growth are already there, and small amounts of capital can generate massive amounts of GDP output.  The Main Street economic engine has just been sitting on idle; with no-one paying attention to it, or seeing it as a viable model – until now.

♦ The Second Tripwire is the inability of fiscal policy to curb the GDP growth rate.  In my opinion, domestic capital investment will not be impacted by interest rates.  Heck, I doubt there’s much the fed can do monetarily to actually impact GDP.  In this new economic dimension, fed rate increases will only impede the economic engine they are closest to, Wall Street and the global economy.

The Wall Street economy will be impacted by fed policy rate hikes (ironically reversing the historic trend in wealth distribution) but not entirely for the reason most think.  The investment outlook will find global investing less appealing as internationally networked economies begin to shrink, and national economies become more centric and expansive.  Larger financial returns will be available domestically. Ex. watch Brexit.

Another dichotomy: Monetary policy -to include rate hikes- will be unable to stop GDP and the accompanying increasing valuations of the U.S. dollar.

Naturally, this makes exports more costly and imports less costly.

However, our imports and exports have been in an inverse relationship with inflation since the Wall Street economic emphasis began.   We mostly export our consumable goods, and we mostly import our durable goods (see chart for inflation impact on durables and consumables):

economy-1

The Wall Street global economy made us more dependent on imports for cheaper durable goods. Those international companies, importing into the U.S, hold the dollars they receive during the transaction. As the dollar increases in value, their holdings increase.

[*Note on Chart* notice almost everything below 0% inflation is an import, everything above 0% is a domestic product.] Given natural supply flows, a strengthening dollar can flip this inflationary outcome.   From a consumption perspective you’re more likely to hold on to your older TV a year longer, but your cereal will be much cheaper.

This is why you see THIS STORY.

SAN FRANCISCO — The Japanese business mogul Masayoshi Son pledged to President-elect Donald J. Trump nearly two weeks ago that he would invest in the United States and create about 50,000 jobs.

On Monday, Mr. Son’s conglomerate, SoftBank, took what it described as the first step in fulfilling that commitment.

By leading a $1.2 billion investment in OneWeb, which makes satellites for internet access, SoftBank said it was continuing to invest in new technology and supporting job creation in the United States.  (more)

♦ Tripwire Number Three – Another weird dichotomy, Housing Values.   This one is a little tricky because region to region there are multiple variances and possible outcomes.

However, in a general sense, even with expansive GDP and growing wage rate pressure, home values in the aggregate will drop.  Rent prices will also drop.  The reason is odd, yet simple.  Moving forward, investment ownership will be less favored and there is a massive amount of investment capital currently holding real estate.

A weird confluence exists.  Check your local real estate listings you will most likely see many more homes, condos and apartments for sale.  Increased inventory = lower overall prices.  Large, multi-unit building investment, lags approximately 18 months behind most current economic trends.

Institutional and small investors are only just beginning the initial stages of asset relocation in anticipation of a new 2016 tax code.  In essence, since November, most have made profit taking decisions based on Trump’s tax proposal being a reality in tax year 2016.  In addition, interest rate hikes generally have a negative impact on the housing market, and if the GDP starts running hot there will be traditional pressure on the fed to cool it down with rate hikes.

To be continued…

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This entry was posted in Big Government, Big Stupid Government, Donald Trump, Economy, Election 2016, energy, media bias, Mexico, Predictions. Bookmark the permalink.

193 Responses to Modern Economics Cont. – “The Space Between Two Economies”…

  1. Ledeplorable says:

    I’m concerned that the Fed will simply pull down the economy(with rate hikes) as a way to discredit TRUMP.

    Like

    • notamemberofanyorganizedpolicital says:

      Ain’t gonna work – cause Yellen will be yellin’ not to be put on trial for mass felonies. IMO.

      Liked by 1 person

    • testpointwp says:

      We are in a position where the math is pretty simple but the timing is very tricky.

      If interest rates return to the historical average of around 5%, about $1 trillion is immediately taken out of the economy (interest rate x current national debt). Some of that money will be fed back into our economy but much will also go to foreign investors.

      If Trump can get congress to lower corporate tax rates to repatriate the money held in foreign banks and give corporations the ability to grow, they will not need to borrow as much to fund their growth. Hence interest rates won’t be that big a brake on corporate growth.

      However, if GOPe stalls on the tax breaks for corporations, growth will remain low, and the interest on our huge national debt will suck the wind out of the recovery. Everyone loses.

      If interest rate hikes come after corporate tax reductions, both main street and wall street will benefit.

      Like

      • notamemberofanyorganizedpolicital says:

        I think that’s the plan. RE: “If Trump can get congress to lower corporate tax rates to repatriate the money held in foreign banks and give corporations the ability to grow, they will not need to borrow as much to fund their growth. Hence interest rates won’t be that big a brake on corporate growth.”

        GOPe is gonna find their funders will be demanding they vote for those corporate tax cuts or else.

        Like

    • readygo137 says:

      Not going to happen! The stock market is a good gauge.

      Like

      • was it a good gauge in 1980 when Reagan got elected? It went on to decline over 25%

        Was it a good gauge in 2008 when Obama got elected and it tanked before setting off a historical bull market run that Obama likes to call his own, although its clearly driven by debt growth.

        I expect the fed and its stock “market” to be a weapon used against Trump to try to make his admin fail. we will see..

        Like

  2. Bob Thoms says:

    Your first sentence describes corporate globalism; it is why we need Glass Steagall to return…in some form and meaningful way. Otherwise there will never be an “America First” economy.

    I think GS is an issue that Trump can find deep friends and support within the Democrat Party; it is why Trump will not go after Hillary Clinton or Obama for past grievances. He will need their support (Shumer, Warren, et al) in the future….at least that is what I am hoping.

    Like

  3. Give it time says:

    An incredibly eye opening theory I like it! Feedbavk:

    You must consider demographics. Against this backdrop of two economies you have real world negative demo forces for the next 5-8 years. This is a global trend with with the US being the best of the worst. Look in to Harry Dents research.
    Real estate is strongly and negatively impacted by govt policy and the massive takeover by Wall St. I like your suggestion that Wall Street dumps their inventory but it has been very lucrative. I need a better argument about “why” they would sell.

    Like

    • Tparty says:

      I suggest it will be much more lucrative for banks to provide credit to Main St. at higher interest rates than hold title to ‘zombie’ properties with a decreasing real book value. The value of existing ‘zombie’ stock on FED/PD’s books has been cherry picked leaving stock that is losing real value on Main St.

      I think this idea that real estate must constantly increase in ‘value’ only serves the system and will be thrown out in favor of stable home prices and increasing wages.

      Like

    • notamemberofanyorganizedpolicital says:

      By “Wall Street” I assume you mean all the local, i.e., state and regional banks that have been withholding foreclosed properties off the market – for their own personal enrichment.

      Like

      • Toronto Tonto says:

        Steve Mnuchim bought one of these banks and made a fortune off the troubled assets when the federal government bailed him out. What I’ve seen in CA is banks are buying up single family homes and renting them out. This was once a mom and pop operation, but now with Airbnb, it’s lucrative to rent out furnished homes and apts. Especially with no risk, since the taxpayers will bail you out.

        Like

  4. jeans2nd says:

    I understand the economics here, and the problems, and the only questions I have are answered with a single anser – the unknown unknowns.

    The problem I see is with my area – communications, language, and code, specifically with the millenials. For example, I converse freely and constructively with my Bernie Buddies – the millenial communication guys, the IT/networking guys, and the gamers. I easily convert their language to mine, and explain my terms to them in words they understand.

    To my Bernie Buddies, Reagan means small business, not small government. My Bernie Buddies have no concept of small government. They see nothing wrong with federally funded fiber – fiber optics cable, as done in South Korea. They have no knowledge of the telephony regulations of the 1920s and the breakup of Ma Bell in the 60s. To most people, cable means their TV provider. Cable has an entirely different meaning for us.

    The only economics these kids have are the big government concepts. Somehow we need to get them to understand the words above in words they understand, and see if they have any ideas for the new “America-First” economics. I do not know how to do that – yet.

    Thank you for the explanations above. Think I shall go look for some local economics Bernie Buddies, see what they think.

    Like

    • John Hall says:

      In my mind, there’s a difference between big government for the sake of doing big things, and big government for the sake of big government. We need a big government to do things too big for the private sector, to do things that take a long time to pay off and to do things where it would be difficult for the private sector to capture the benefits. In my mind, those are legitimate reasons for having a big government. But big government for the sake of big government is more an issue of attempting to manage every aspect of society from the top down, i.e., socialism, which operates under the guise of excessive government regulation of businesses for the good of society. In that regard, big government essentially becomes the means to its own end. So maybe a good place to start is that dichotomy: Big government for enterprise OR enterprise for big government.

      Like

      • notamemberofanyorganizedpolicital says:

        Maybe consider substituting “Federal government” in your paragraph for some of the “big government?” We need a Federal government to do some “big tasks” such as national defense and border defense, but it doesn’t have to be “big” like we are used to in order to accomplish those goals.

        Where I live, a local government agency cut key management positions by about 3/4s in the number count of positions.

        Actually they could have probably cut even more and probably improve the operating efficiency even greater therefore. They still are not using modern technology the way it should be used. Many processes are still carried out literally on paper that must go by hand through 6 or more offices………

        Like

    • notamemberofanyorganizedpolicital says:

      Jeans2nd tell them that without “the breakup of Ma Bell in the 60s” there would be no current “communications tech” as they know it. Even government granted monopolies “retard” and destroy tech advancement.

      Tell them that without an “American First” and strong U.S. Military implementation there would have been no “Internet.”

      Maybe those “un-schooled” college graduates need a real education from Ernestine (Lily Tomlin).

      Like

    • Mr. T. says:

      Jeans2nd, the breakup of AT&T/Bell Telephone due to enforcement of anti-trust laws, actually didn’t begin until the ’80’s. It was long overdue. Boomers like myself remember all too well how expensive a home phone was, especially long distance rates. After the breakup, competition took off and what used to cost me over $100 a month for local and long distance phone service back then, now only costs me $10 a month plus tax. For that I get even more with not only unlimited local and long distance, but voice messaging, call waiting, and caller I.D..

      Time for Trump to appoint someone good to the Federal Trade Commission, who is going to break up other monopolies, including the few corporate giants who own most of the main stream media outlets today. It’s long overdue and he’s certainly got his work cut out for him.

      Liked by 1 person

      • notamemberofanyorganizedpolicital says:

        Touche! Break up the monopolies.

        And remember that oligopoly is just a “shared” monopoly by another name – literally.

        Like

  5. John Hall says:

    While GDP is a good measure on how well the economy is functioning, how GDP growth is generated is vastly more important in regard to how well the economy will be doing in the future. For example, we could raise the capital gains tax or impose a wealth tax and the GDP will grow, simply because money that was invested in capital stock is now being spent into the economy resulting in an increase demand for goods and services. But that resulting increase in GDP has come at the expense of a decrease in capital stock, which is a decrease in the means of production, which ultimately leads to a decrease in income and wages in the long-term. Drawing on our capital stock is much like drawing on a home equity line—we’ll be doing better in terms of stuff we can buy, but down the road…. There’s a reason why countries with the highest capital stock per worker (national wealth per worker) also have the highest average income per worker, and there’s a reason why countries that attempt to increase the latter by drawing on the former ultimately end up decreasing both.

    Like

    • notamemberofanyorganizedpolicital says:

      TOUCHE! RE: “that resulting increase in GDP has come at the expense of a decrease in capital stock, which is a decrease in the means of production, which ultimately leads to a decrease in income and wages in the long-term”

      And remember folks that was all done DELIBERATELY!!!!!!!!!!!

      Like

      • Lone Elm says:

        Any thoughts on how the historically low velocity of money might support your view of robust GDP growth under the “Main Street” theory? See FRED chart here which shows V2 plummeted under the Obama administration. https://fred.stlouisfed.org/series/M2V

        Like

        • notamemberofanyorganizedpolicital says:

          Well…..if more people (We the People) start having more money to spend, that will boost economic activity and should boost velocity too in the local economies I think.

          Wow! What a drop off the cliff in the Obama “velocity” of money. That goes a long way in explaining why the Fed and Reserve bank kept pumping in Trillions and Trillions of money to their criminal cronie friends – the banks and paper economy speculators.

          I think Sundance might want to explain to people what the phrase “only rich on paper” means since that goes right along with the “fake” paper economy on today’s Wall Street.

          Like

          • pyromancer76 says:

            Excellent comment, John Hall, and I appreciate the thoughts of those who replied. “How GDP growth is generated”. Yes, we can keep our eyes on that ball, too, as we watch the renewal.

            Like

  6. maiingankwe says:

    I will be honest, usually when I read stuff like this it either makes me cross-eyed or puts me to sleep or both. I don’t know how you do it Sundance, but you’ve got me clear eyed when reading this. More than a few times I had to reread sentences just to understand it better and make sure I got it.

    It also had me asking questions too. I really have to find someone in real estate in my area. Our real estate has always been above normal prices, and no matter how bad our economy has gotten whether federal or state, it just never seems to budge in favor of investors or home owners.

    For instance, a home in central Wisconsin would go for anywhere $100,000 to $150,000 less than where I live for the exact same home. It’s mind blowing when it comes to the prices that are asked for in our areas. Yes, our income is higher, but with all of other high costs, I could just never figure out why the prices for land and homes is so over the top.

    In addition, when all the real estate prices dropped in the lower 48, we were never affected. Trust me, I waited and waited. Or is it just the interest rates that drop? I’m missing a few key points.

    I’m not really daft, some people are just smarter in other areas than others. This is not my forte and it never has been.

    Okay Sundance and Treepers, you’ve got me back in the game. It’s kinda nice to have been woken up, and I will do my best to learn. Thank you.

    Like

    • notamemberofanyorganizedpolicital says:

      IMO from what I have seen since 2008, the local banks are artificially propping up the prices by withholding foreclosed properties.

      3 or 4 of us were discussing that in the past month or so on here. One person volunteered that a friend in banking or real estate had confirmed that fact. Especially in the up-scale, higher priced neighborhoods, houses were kept off the market to keep those high prices high.

      That also makes the banks’ “assets” on the bank’s balance sheet falsely over-inflated at fake higher values, because the banks aren’t eating crow…excuse me…aren’t eating the “write-down value losses” on those properties they have loans on. In short, the banks at every level are “Cooking their Books.”

      Just believe your eyes and ears for what you observe that isn’t coming from the Lie-stream MSM.

      Like

      • Living here in Las Vegas I have seen how the banks learned to not flood the market with foreclosures driving down the prices (as they initially did) and instead, release a small percentage of them onto the market so as to keep prices high.

        Liked by 1 person

  7. GOUSAAMER114 says:

    Thought provoking article, Sundance. I really enjoyed it. One error. In the paragraph on the second tripwire, it should say ‘monetary’ policy, not ‘fiscal’ policy. It should be: “The Second Tripwire is the inability of MONETARY policy to curb the GDP growth rate.”

    Like

  8. Finalage says:

    I think there needs to be a distinction between real interest rates and the Fed funds rate. Increasing real interest rates is good for the economy. Increasing the Fed funds rate is bad for the economy in that the Fed is not allowing money to flow into a growing economy.

    This could be a long discussion but to get to the point, I think in a Main Street focused economy, higher real interest rates will prove to be a good thing because the economy will shift from consumption based to production based. It will be an economy where savings will drive lending and not the Federal reserve. The Federal Reserve will be a bystander in such an economy and the Fed funds rate will return to being a tool to try to smooth out a recession, rather than a crutch to sustain an economy.

    In a producer, savings driven economy higher interest rates means more risk free income for workers, higher income growth, and more affordable housing. Inflation will be kept under control across the board and consumer buying power will increase due to higher production and a stronger dollar due to higher interest rates.

    Higher interest rates does not mean high interest rates! Rates have been kept artificial low at historically low levels. Higher interest rates will mean interest rates in the low single digits.

    Trump tax cuts, repeal of Obamacare, investment in the military and infrastructure, renegotiation of trade terms and deregulation agenda will unleash tremendous growth. It will more importantly reform the economy from a consumption based one to a savings/production economy.

    Like

  9. MIKE says:

    great article and it gives me hope that they can’t do as much intentional damage to a Trump economy, hopefully synonymous with a growing main street economy, by trying their globalist tricks. We just might have the right man at the right time, if we can keep him. There are a lot of nefarious financiers who stand to lose when the status quo is disturbed. We may have drawn the ‘bank error in your favor’ card out of the community chest.

    Like

  10. TrustyHaste says:

    Sundance, this article is what I love about this site. Economics explained. Or at least US recent economics. Since I have already digested the first installment, this one is easier to understand. I have more hope now and I understand why. I like to re-read and read the links over and over. But, the appeal of Trump for me, is that it is Real. I never watched the tv shows he was on. I knew of him, mostly from Spy magazine that my lefty boyfriend in college subscribed to. (not proud) But, even so, a real worker like me, sees a worker in anyone no matter what the “class” and sees a lazy bum in anyone, even if well dressed (John Kerry, Obama)

    Liked by 1 person

  11. pyromancer76 says:

    Sundance, since economics is such a difficult subject for so many (and too many economists obfuscate), I hope you will keep links to these articles in your upcoming explanations — as you usually do. With these links, I hope you add a brief synopsis for each one. Repetition, repetition, repetition. We all need it regarding this basic-to-life subject matter. And we might be enticed to return to read again — and again. Thanks for your ideas and publications.

    Like

  12. SD, here’s an interesting interview with Prof. Robert Shiller (Econ professor & Nobel Laureate) regarding the Trump effect phenomenon on markets. His expertise is particularly in housing, and he makes a brief point about possible downward pressure on future home prices if some of Trump’s tax plans are enacted. There’s a few other interesting points here and there. What’s particularly interesting, however, is how dumfounded the man is regarding Trump. This fact plays into your point regarding the “uncharted territory” we are now in economically-speaking with an incoming Trump pro-Main Street economic team.

    Like

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