Federal Reserve

Easy Money Is Exhausting

By David Stockman  |  December 11, 2019

The point is there ain’t no point.

– Cormac McCarthy, No Country for Old Men (2005)

The Federal Reserve is out with its final interest-rate decision of the year. (I’ll leave the debate about the proper end-year for a decade and whether it’s the last decision for one of those, too, to types who twiddle such thumbs. But I, of a farm in the Midwest, do trust the Farmer’s Almanac.)

Do these things matter anymore, really? And I mean all of it: this interest-rate decision, or that Fed Chair… even the Farmer’s Almanac

The absolute insanity of the Fed’s latest easy-money gambit – three rate cuts plus $324 billion of balance-sheet expansion since late July – can’t be gainsaid.

It’s caused this bubble to reach an even more absurd aspect. And it’s thereby guaranteed that, when it does burst, Corporate America will launch another “restructuring” frenzy. They’ll axe unmoved inventories, impaired assets, and redundant workers with malice aforethought.

This is otherwise known as the modern form of “recession” that neither Bubblevision nor the Fedheads will ever see coming. Then again, how could they?

Recessions nowadays are triggered by bubble collapses on Wall Street, not credit crunches on Main Street. That’s “old school”; that’s what happened in your grandfather’s economy. Indeed, they’re embedded in the very fabric of modern policy-induced bubbles.

Our monetary central planners and their moneyed masters are utterly bubble-blind.

What the Fed is actually doing in the name of extending the current crippled expansion is simply hyper-fueling the catalyst for the next financial crisis and its jarring spillover to folks who would simply like nothing more than to make both ends meet.

Our monetary central planners have already done this twice during the last two decades. They turbocharged both the dot-com bubble and the housing bubble in a manner that guaranteed the resulting contraction would be all the more painful.

Of course, it goes without saying that “all the more painful” applies only to Main Street.

Wall Street hovers near highs. The rich are and getting richer.

This time, however, the Fed has outdone itself.

Even as it has inflated the bubble to its finally truly incendiary extent, the real-world economy – on Main Streets in America and abroad – is obviously deflating. The stage is now being set for an extended recession that could go on far longer than ever before.

In the case of the U.S., for instance, the deflation of the broadest measure of economic activity – real final sales – is unmistakable. After peaking at 4.03% growth on a year-over-year basis in the first quarter of 2015, the trend is steadily downward.

Even the tax-cut-induced sugar-high in the third quarter of 2018, when the expansion rate temporarily accelerated to 3.49%, didn’t deflect the Main Street economy from its late-cycle deflation.

In fact, the 2.17% year-over-year growth rate for the third quarter of 2019 was the lowest since early 2014.

That’s not a good look at all when you’re at month No. 126 of a record-long expansion. And that’s in a context where excess debt, rampant speculation, reckless leverage, and sweeping malinvestment have reached unprecedented levels.

Folks, aggregate gross domestic product is a lagging indicator; GDP is the last macro-measure to get the word when the economy is pivoting toward recession. We can’t wait for it.

Also, the signs are already flashing…

Construction spending for November, for another instance, came in 0.8% lower versus the prior month. More significantly, it reflects a descending path that speaks for itself.

Total private construction spending turned negative on a year-over-year basis last November. In October, it was down 1.8% compared to year-ago levels and 7.5% from its February 2018 cyclical peak.

Likewise, the index for non-residential private construction – retail, offices, hospitality – turned negative in May and is now down 5.4% from its prior peak.

And the October figures for industrial production reflected the same late-cycle growth rate deflation, with all major subcomponents in negative territory. Across-the-board changes from October 2018 were:

  • -4.11% for utility output;
  • -2.47% for business equipment production;
  • -2.16% for consumer goods production; and
  • -1.13% for total industrial production including oil and gas drilling which is still slightly positive.

Nor is there much prospect that the vaunted labor market and relentless spending impulse of households will save the day.

As we’ve previously discussed, what counts at this late stage of the cycle is labor hours, not headcounts.

Alas, we’ll have more on that critical subject in the December issue of The Stockman Letter

Suffice to say, any material crack in the stock market and Corporate America’s CEOs and CFOs will perform their appointed catalyst function. They’ll liquidate inventory, assets, and labor.

And they’ll send Main Street the rest of the way to oblivion.


I’ll say it again: This is the most politicized market in history. And the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.

It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.

And it seems as if the whole world has, indeed, gone mad.

Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.

Well, The Stockman Letter is made for times like these. And we’ve updated our design to help us better navigate to not only the safest harbors but also the most promising opportunities.

The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.

The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.

It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.

Please click here to learn more about The Stockman Letter and what comes next…

To common sense,

Revealed: What Really Goes on Behind Closed Doors in D.C.

Former White House Budget Director, David Stockman is stepping forward in his new project, The Stockman Letter to warn everyone about the serious danger facing our country! Click here to find out the… Read More
David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR