Main Street

Our Seams Are Exposed

By David Stockman  |  October 25, 2018

Markets are calm today.

You could even say they’re buoyant, with the major equity indexes all well in the green. So are CNBC’s scoreboards; and its chyrons are calming blues and mossy neutrals rather than bloody red.

Elsewhere, the yield on the 10-year U.S. Treasury note is flat, and the “fear gauge” is in a holding pattern.

Given what’s going on in and around Imperial Washington, Wall Street’s seeming detachment – eerie as it is – is just fine right now. Indeed, it’s really temporary, this intra-Acela Corridor divergence.

I say that because the S&P 500 Index is, as of this morning, nearly 80 points below its 200-day moving average.

Stay tuned: The carnage up on Wall Street may soon match what was threatened against Imperial Washington yesterday.

Of course, Bubblevision’s politics channels are all over this shit.

It’s the #MAGABomber/#FalseFlag/#SuspiciousPackage Boom of 2018, this terror arrived right on schedule with All Hallows Eve, natch, as well as “The Most Important Midterm Election of This or Any Other Lifetime”…

But we can pause now to consider the longer-term ramifications of a far more consequential separation.

In other words, what about Main Street?

Until the recent selloff, the Nasdaq 100 had risen from 2,050 at its pre-crisis peak in November 2007 to 7,230 in mid-October. That’s a gain of about 200%, even when you adjust for 20% cumulative inflation in the interim.

That’s what was happening on Wall Street, where the Federal Reserve pumped $3.8 trillion of freshly minted cash between 2009 and 2017. This was supposed to fuel a “wealth effects” boom.

And – in a perverse way – it did: The top 1% and 10% – who own 45% and 85% of the stock, respectively – did just fine.

(Or, “They will have done so as long as the greatest financial bubble in modern history lasts…”)

Now, it’s time for some serious contrast.

The story on Main Street is not only weak. It’s egregiously punk once you cut through “incoming” noise to assess trends of the entire cycle.

So, since that same pre-crisis peak 11 years ago, manufacturing output has declined by 3%. Industrial production has gained a mere 2.2%. And total labor hours for the U.S. non-farm economy have increased by only 6%.

Even the cumulative real growth in gross domestic product (GDP), made better by understated inflation, was about 17%. That’s over 11 years.

When real stock prices rise by 33 times more than the aggregate labor hours supplied to the economy, you don’t take victory laps.

You have an epic failure of policy.

You also foster fundamental threats to unbridled, unaccountable power.

Main Street knows it’s been going nowhere for the whole 21st century – even as the select slice that owns most of the financial assets has seen its wealth soar to obscenity…

That’s the Donald won in November 2016.

It wasn’t because he had a coherent economic program. It’s because he embodied resentments, anger, and frustration toward a system self-evidently rigged for the Acela Corridor. That’s the object of the Donald’s relentless, bombastic rage.

Make no mistake: This is a negative feedback loop.

And it’s destructive power grows stronger every day…

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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