Retail sales stagnate, but not unexpectedly
鈥淩etail Sales in US Unexpectedly Stagnate,鈥� says a Bloomberg headline.
Unexpectedly? Guess they don鈥檛 read The Daily Reckoning. Stagnating sales are what you get in a Great Correction. We鈥檝e been saying so for the last 4 years.
In an expansion, well鈥verything expands. Why make it complicated?
In a contraction鈥verything contracts. What do you expect? That鈥檚 what it鈥檚 all about. That鈥檚 how it works.
And when you have a consumer economy, what contracts most? Consumer spending, of course. Simple, huh?
And when consumer spending contracts, business sales go down. Eventually profits go down. And eventually investors realize that holding stocks is not going to be profitable. Then, stocks go down too.
And here鈥檚 another Bloomberg headline:
Wholesale Prices in US Are Little Changed as Energy, Vehicle Costs Drop
Surprise, surprise! The feds pump in trillions in cash and credit. Still, they can鈥檛 get prices to go up significantly
Contractions are deflationary.
That鈥檚 why we don鈥檛 expect the price of gold to rise.
And now that Germany and France have gotten together with China and all have agreed that they aren鈥檛 going to throw poor little Greece off the Euro-Bus鈥old has nothing to do but go down. No crises on the horizon. No inflation either.
So who needs gold?
Well鈥�. We all will. But maybe not just yet鈥�
鈥淕old fulfills the functions for which money is used better than any other type of money,鈥� wrote Lord Rees-Mogg in his introduction to 鈥淭he Case for Gold鈥� 鈥� a three volume tome rehearsing the history of the yellow metal.
But if gold is the best money, how come we don鈥檛 use it rather than dollars?
Lord Rees-Mogg explains: 鈥淭he problem for gold is not that it doesn鈥檛 work, but that it works too well鈥t imposes limits on human behaviour, and those limits can be resented and rejected. Indeed, it can become impossible for a government to maintain the discipline of gold鈥︹��
Ah yes鈥�.
Limits. There are always limits. You can ignore limits. You can reject limits. You can pretend they don鈥檛 exist. But you can鈥檛 ignore the consequences of ignoring the limits.
Right now, the economy is in a major contraction. As long as this phase continues, you only need gold as insurance against a catastrophe. But what would cause a catastrophe? The feds, of course.
In a contraction, the market itself imposes limits. It forces asset prices down. It undermines businesses. And it drives debtors and creditors into bankruptcy.
The feds don鈥檛 like limits. And they don鈥檛 like contractions. Especially not when an election is coming up. Maybe they鈥檒l keep their nerve. Maybe they won鈥檛. They could do something reckless and desperate鈥n an effort to overcome natural limits. That鈥檚 when the merde will really hit the fan鈥� That鈥檚 when you鈥檒l need your gold.
Here鈥檚 an interesting item.
In July, consumer credit rose. This was much applauded and much discussed. Analysts said that the $12 billion increase proved that the credit expansion of the last 60 years was not over. They thought it meant that recovery was just around the corner. Consumers were borrowing again they said鈥o they must be spending too.
But it turned out it wasn鈥檛 exactly consumers who were doing the borrowing. It was students. And they weren鈥檛 borrowing to spend. They were borrowing to pay the high costs of education.
Real consumer credit went down, as expected. Credit card debt, for example, fell some $4 billion.
And guess what else. Many of them will never pay the money back.
Government-backed student loans have risen from less than $100 billion in 鈥�08 to about $400 billion today. We don鈥檛 know why. But we smell a zombie.
The default rate is rising. And we suspect that many 鈥榮tudents鈥� are actually people marking time in universities because they can鈥檛 find a good job in the outside world.
Speaking of which鈥� Senate GOP leader Mitch McConnell describes Obama鈥檚 jobs plan as a 鈥渞e-election plan, not a jobs plan.鈥�
But it鈥檚 so easy to criticize! Give the prez credit. At least he鈥檚 trying.
At least, he鈥檚 trying to get re-elected, that is.
