If this Economy is So GREAT, Why do I See Warnings ..

Wall Street Bubbles Cartoon, 1901

1901 Cartoon: “Wall Street bubbles – Always the same

American financier J. P. Morgan is depicted as a bull, blowing soap bubbles for eager investors

Conventional Wisdom vs Fundamentals

Conventional Wisdom says that we’re living in a GREAT Economy.

I recognize that the Stock Market went up ~30% last year and the labor market is tightening.

.. but I question the fundamentals.

The Stock Market is not the Economy.

Quantitative Easing Infinity
Logo by: Joseph Carrillo

Are stock prices going up because of economic strength or because of weakness in other areas?

  • weakness in the bond market due to the low Fed Funds rate and
  • weakness in other global economies, whose investors have sent money to the US because their own economies are weak
  • weakness in baby boomer retirement portfolios, where boomers are trying to “catch up” from prior low savings rates
  • expectations that the federal reserve is going to have to monetize the debt and
  • expectations that a “Powell Put” and quantitative easing will keep the party going at least through the election cycle

If the economy is so great, Why do I see the following trends ..

Government

  1. Why does the Federal Government have a $Trillion Dollar Deficit, with future deficits increasing each year as far as the eye can see? In a March 31, 2016, Washington Post interview, the president said he would eliminate yearly deficits and pay off the debt in 8 years.
    • What would happen to the economy if the government wasn’t able to run such large deficits?
    • How would the economy be affected if the Federal Budget had to be cut by $1 Trillion?
  2. Why is the Fed Cutting interest rates, with another cut expected later this year?  The “boom” may continue for a while, but the fundamentals are not healthy.
  3. Why has the Federal Reserve resumed Quantitative Easing (sometimes imprecisely called “printing money“)?
  4. Moody's Credit Ratings Agency
    Moody’s Credit Ratings Agency (logo)

    Why, in a Real Vision Interview, did former European Central Bank Insider Etienne de Marsac talk about the US as the “hot emerging market” with a future US Government Credit Rating Downgrade when describing a December 2019 Moody’s Credit Rating report.

The Public/Labor:

  1. Why can’t ~40% of Americans come up with $400 in an emergency, according to a Federal Reserve Survey?
  2. Why are men’s wages so low and not plausibly going to catch up to productivity gains any time soon?
    • Since 1979, the median male wage has gone down 5% (adjusted for inflation):
      • White male: $14.42 -> 13.70
      • Black male: $10.90 -> 10.63
      • Hispanic male: $11.25 -> $11.00
    • Wages haven’t risen much in the last 40 years, which is why households have needed to increase women’s labor participation rate to keep up with consumption habits.  We’ve seen a little bit of wage movement lately, but we aren’t anywhere near returning to prior capital/labor ratios.
  3. Why is the split between labor and capital so much lower than it was in the 50s and 60s?
    • 65/35 vs 60/40

Corporations

Junk Bonds
Photo by Simon Cunningham
  1. Why is US Corporate debt so poorly rated?  There are now only two AAA Companies — Microsoft and Johnson & Johnson.  Many mainstream companies like McDonald’s, Ford, Kraft, and Verizon are rated just above “Junk Bond” status?
    • In the event of a downturn, many companies will have a rough time recovering (which likely will lead to more layoffs and an inability to borrow and invest)
  2. Part of the reason for this debt downgrade is that there were perverse incentives for companies to borrow money to buy back their stocks
    • Corporations bought their own stock with borrowed money, 1 combined with money from the corporate tax cuts has helped inflate the stock market
    • David Rosenberg says that stock buybacks have broken the correlation between the stock market and the economy and that stocks will continue to rise regardless of fundamentals until corporations stop buying back shares.
      • This is because CEOs’ bonuses depend on meeting a target stock price.
        • It is easier to generate artificial results by borrowing money to buy back shares than it is to increase share price by creating genuine value.

Stock Market

  1. Investors have been pushed out of safer assets like highly-rated bonds and into stocks because interest rates are so low and Bonds and Certificates of Deposit return less than inflation.
    • My 24-month FDIC-insured Fulton Bank CD was set to roll over for at 0.4% APR.  Inflation is over 1% higher than what a two-year CD pays.
    • Every day I have my money in the bank it is losing purchasing power relative to inflation.
    • Inflation makes it difficult to get a return unless you go into riskier assets like stocks.
  2. Another factor influencing stocks is that baby boomers who haven’t saved enough for retirement are taking extra risk in stocks to try to catch up after their prior low savings rate.
Stock Market
Stock Market Chart by Free SVG

2008 Crisis Response:

In 2008 we had a private debt crisis in the mortgage market (in part) because of the perverse incentives caused by the rating agencies getting paid by the sellers they were grading rather than the buyers of bonds (which was a conflict of interest).  Mortgage Originators like Countrywide sold mortgages to unqualified borrrowers because they knew that they could sell them to investors with a Triple-A rating from a Credit Ratings Agency.  When the bubble was exposed, the Fed’s response and the Congress’s response was to indirectly and directly assume the private debt onto to the Federal Government and Federal Reserve balance sheets.

Here is the increase in debt from 2008-2020

  1. Federal Gov:   $10  -> $22 Trillion
  2. Federal Reserve ~ $1  -> $4 Trillion

Then there is the Corporate Debt: now at $10 Trillion

 

When the Next Recession hits:

  1. When Baby Boomers stop working (and investing) and start to sell to fund living expenses, there will be more people selling than buying, putting downward pressure on stocks.
  2. This demographic pressure, coinciding with a recession will make the recession more difficult to escape.  Financial Advisors sometimes advise investors to have a bond asset allocation of 100 minus your age (with caveats).  Alarmingly, the typical boom has the inverse of this — an inappropriately risky 70% stock allocation.  When the next recession hits, they will suffer major losses, without the ability to use wages to gradually buy back into stocks at the lower prices.  This will be a scarring experience for a generation that has historically take higher risks.  Raoul Pal predicts that burned Boomers will suddenly become the most risk-averse generation in history.
  3. Foreigners have been piling into US Markets, which inflates stock prices because the US is currently one of the few growing markets worldwide.
  4. The Younger (Millenials/GenX) aren’t in a position to buy sufficient amounts of stocks to compensate for the baby boomer’s retirement:
  5. Federal Reserve:
    • The low ~1.5% Fed Funds rate provides the Fed with less headroom to make cuts to support the economy in a downturn.
    • Ben Bernake and others have talked favorably about “Modern Monetary Theory” as a way to implement a “Helicopter Money Drop” to monetize the debt.
    • The Fed has talked about the need to have Fiscal Policy (spending by Congress) to respond to the next crisis.
      • The Fed has talked about setting aside money for Congress to spend so Congress does fiscal stimulus.

Summary

So what am I missing?  I’d love to be wrong about this.

My approach here is to throw out the perspectives I’ve heard and look for feedback.

You can send me an email or comment below:

 

Update:

My friend Bryan pointed me towards the  St. Louis Fed Financial Stress Index, which is currently below zero, but note that the index went from zero to bailouts in only 9 months.  I’m not suggesting we’re going to need bailouts in 9 months, but it’s quite likely that the Fed will have to increase quantitative easing. 

My main point though is that the next recessing will be prolonged due to the fact that the interest rates are already low and corporations, governments, and consumers all have a lot of debt going into the next cycle and demographics are working against growth.

Update 2:

It looks like the current repo market action is not QE, but when QE happens, it is expected to be rolled out in a complicated way that is too technical and boring.

There is a report that Treasury Secretary Mnuchin has money available at Treasury to stimulate the hedge funds’ investment stock market using the repo market.  He has the ability to force the hand of the Fed and there is nothing the Fed can do about it without blowing up the markets.

Hedge funds are levered 12-15 times and there is no growth outside the FANG and buybacks.


  1. whose interest rates were low because of the economy’s weakness and Fed Chairman Powell’s response to the President’s very public twitter complaints about the Fed’s prior 2018 rate increases

What is the Net Worth of the Bottom 50% ?

The President’s remarks at the recent State of the Union aroused my curiosity:

Since my election, the net worth of the bottom half of wage earners has increased by 47 percent — three times faster than the increase for the top 1 percent.

Questions:

This prompted the following questions:

  1. So, what is the average net worth of the bottom 50% of Americans?
  2. How has the average net worth of the bottom 50% changed over time, adjusted for inflation, starting around 1970?
  3. For extra bonus points, can you compare that to data on the top 1%?

Follow-up:

This sounds like it would make a good story for  The Indicator from Planet Money.

What is a Post-Jesus Christian?

Post-Jesus Christian

 

Post-Jesus Christians are “Christians” who have decided to postpone following Jesus’s teaching until Jesus returns and ushers in 1000 years of peace.

Post-Jesus Christians hold that Jesus’s teachings do not need to be followed in our present era if they are a hindrance to obtaining the power they fear they need to help usher in the Kingdom of God.

Post-Jesus Christians (privately) hold that Jesus’s teachings are a nice thing to follow when dealing with the in-group of their fellow PJCs but may be disregarded when dealing with non-PJC neighbors.

Prophecy: What God Can Do For You

Post-Jesus Christians talk a lot about about prophecy, and unlike the Biblical Prophets, when they do, they punch down, rather than up:

You will know them by their fruit, because they only have one key message – God is going to “enlarge your tent” and “expand your influence“, he’s going to “give you great favor” and “bless you mightily”.

Later Craig Greenfield writes:

In Biblical times, there were two types of prophets.

  1. Firstly, there were those who feasted at the King’s table because they had been co-opted to speak well of evil leaders (1 Kings 18:19). They were always bringing these smarmy words of favor and influence and prosperity to the king. And the king lapped it up. Like a sucka.
  2. Secondly, there were those who were exiled to the caves, or beheaded (like John the Baptist) because they spoke out about the injustice or immorality of their leaders (1 Kings 18:4). The king didn’t like them very much. He tried to have them knee-capped.

An Inversion of Ben Franklin’s Morality

While many Post-Jesus Christians appeal to a historical “Christian Nation” , Post-Jesus Christians appear to be an inversion of founding father Ben Franklin, who in historian John Fea’s description, wanted to discard Jesus’s Divinity but retain and celebrate his ethical teachings.

Examples:

So what does this look like in practice?

Below are public quotations from prominent Court Evangelicals.  These quotations are less extreme that I would expect to hear in private.  A friend of mine speaks to supporters in private.  He reports that they would (privately) celebrate the stuffing of election ballots in favor of their preferred candidate as a righteous act.

1) Court Evangelical: Anti-Sermon on the Mount


John Fea wrote about a conversation he had with Rob Schenck  for the “Schenck Talks Bonhoeffer” podcast @ 19:27.  Here’s a quote from Schenck talking about a conversation he had with a prominent evangelical at the Trump Inaugural Prayer Service:

I must tell you something of a confession here. I was present at the Trump Inaugural Prayer Service held at the National Cathedral — not the smaller one held  at  Saint John’s Episcopal church across from the white house, but the one following the inauguration at the National Cathedral and I saw one of the notable Evangelicals that you’ve named in in our conversation. One of them, I won’t say which and we had it short exchange and I, I suggested to him that we needed to recalibrate our moral compass and that one way to do that might be to return to The Sermon on the Mount as a reference point. And he very quickly barked back at me. “We don’t have time for that. We have serious work to do.”

2) Jerry Falwell Jr:  Anti-Turn the other cheek

John Fea writes:

We have blogged about Liberty University’s Falkirk Center before.  The more I learn about this center the more I am convinced that it does not represent the teachings of Christianity.   Recently someone on Twitter pointed out this paragraph in the Falkirk Center mission statement:

Bemoaning the rise of leftism is no longer enough, and turning the other cheek in our personal relationships with our neighbors as Jesus taught while abdicating our responsibilities on the cultural battlefield is no longer sufficient. There is too much at stake in the battle for the soul of our nation. Bold, unapologetic action and initiative is needed, which is why we just launched the Falkirk Center, a think tank dedicated to restoring and defending American ideals and Judeo-Christian values in all aspects of life.

John Fea’s Update:

Several smart people have suggested that I may have misread Liberty University’s statement.  They have said that the Falkirk Center was not denying that Jesus’s call to “turn the other cheek” is “insufficient” for individuals.  Instead, the Falkirk Center is saying that we should not “abdicate” (the key word here) our responsibilities to engage on the “culture battlefield.”

I think this is a fair criticism, and I indeed may have misread the statement.  For that I am sorry.  But I don’t think I want to back away too strongly from what I wrote above.  While several have correctly pointed out that Liberty University is not saying Jesus’s command to “turn the other cheek” is “insufficient” for individual Christians, the Falkirk Center does seem to be suggesting that it is “insufficient” for culture engagement.

Do Single People Read the Bible Differently? *

In this article, I’m going to attempt to persuade you that no one really interprets the Bible literally.  Rather, we weigh different parts of the Bible against one another, looking for the reading that seems most persuasive.  As part of this process, a person’s background can affect one’s biblical interpretation, making people of different backgrounds better able to see each other’s blind spots.  These claims may seem obvious to some and sacrilegious to others.

I’ll start, by revisiting one of the most commonly read parables in the Bible — the Parable of the “Prodigal Son”.

How Americans Interpret the Parable of the Prodigal Son  Differently

If you were to ask a North American Christian why the Prodigal Son returned, you would get a variety of answers, but one of the more common responses I’ve heard is that the Prodigal Son squandered his money on prostitutes and chose to return to his father once his money ran out.  In fact, the allegation about the prostitutes that we remember is not explicitly part of the story’s original narrative, (Luke 15:13) but rather it is an accusation made by the older son when the younger son returns (Luke 15:30).  It is the older son’s accusation that is stuck in our memories.

How Others Interpret the Parable of the Prodigal Son

By contrast, if you were to ask Christians from another part of the world, particularly a place that has experience with famine, you would find that a greater number of them would mention the word “famine” in their answer. (Luke 15:14)

How Experience Affects How We Read

The story of the Prodigal Son illustrates how our own experience shapes how we read the Bible and what we remember.  North Americans below the age of 80 do not have direct experience with famine and so our memories don’t connect to this part of the story as strongly as do the older son’s allegations of sexual immorality.

For North Americans, “Sexual Immorality” is a more familiar concept than famine; we focus on it more easily; and it imprints itself more strongly in our memories.

Who Are You in the Parable of the Prodigal Son?

Some of you may be familiar with the Bible Study practice of empathizing with the different characters in a Bible story.  In this story, we might ask:

  • Have you ever felt like a prodigal son?
  • Do you sometimes feel like the older son; or if you have children,
  • Do you identify with the role of the Father?

The Bible includes many rich stories that contain insight from a multitude of perspectives and if we want to experience the Gospel most fully, we should consciously try to empathize with each of the characters in a parable.

How Does Being Single Change One’s Focus? *

As a second example of how who we are shapes how we read the bible, consider the case of 1 Corinthians 7, which the NIV Translation titles “Concerning Married Life”. Christians who are single are less likely to quickly scan over Pauls’s writings regarding singleness, much as many Americans scan over the famine in the story of the “Prodigal Son”.  I put an asterisk in the above paragraph heading because by “Single” I specifically meant to describe not just people who haven’t yet married, but people who are single and who are open to the possibility of remaining single.  These people are more likely to read the Bible with a mind receptive to Paul’s message on singleness.  On the other hand, singles who aspire to marriage or who have internalized society’s marriage norms are less likely to pick up on Paul’s instructions.

What Would Paul Have Us Do Regarding Marriage and Sexuality?

In 1 Corinthians 7, Paul responds to a request from the church at Corinth concerning the subject of sexuality and marriage with a recommendation coupled with a series of concessions meant for those who fall short of the goal.

Most people who are marriage-minded focus on the concessions, but Paul is clear in saying that he wishes that all the unmarried and widowed believers would remained unmarried, as he is (1 Corinthians 7:8).  In the next verse, Paul gives the concession that if believers are not practicing self-control they should marry.  “For it is better to marry than to burn with passion.”

Grandfathered into this arrangement are all those currently married.  Paul grants that married couples should remain married, but he advises the widowed not to remarry.

What Reason Does Paul Give for his Recommendation?

Paul does not always give rationales for all his recommendations, but in chapter 7 he gives several, though I doubt many people can recall his most significant reason.

Some readers will pick up on verse 28:

But those who marry will face many troubles in this life, and I want to spare you this.

Some marriage-minded readers might also cite verses 29-31, arguing that Paul thought the end of the world was coming soon, and that if he’d have known that the world would continue for over 1,000 years, he would have approved of marriage out of a need for children.  But notice that once you suggest the possibility that Paul was wrong about the timing, you are speaking against the ideal of literal inerrancy and you lose the ability to apply this interpretive mode to Paul’s other writings.

No, Paul’s claim in 1 Corinthians 7:32-35 goes straight to the core of the “First Commandment”:

32 I would like you to be free from concern. An unmarried man is concerned about the Lord’s affairs—how he can please the Lord. 33 But a married man is concerned about the affairs of this world—how he can please his wife— 34 and his interests are divided. An unmarried woman or virgin is concerned about the Lord’s affairs: Her aim is to be devoted to the Lord in both body and spirit. But a married woman is concerned about the affairs of this world—how she can please her husband. 35 I am saying this for your own good, not to restrict you, but that you may live in a right way in undivided devotion to the Lord.

That’s quite a charge against married people — that in choosing marriage, they are choosing to divide their love for God— as forbidden by the first commandment: (Mark 12:28-34)

28 One of the teachers of the law came and heard them debating. Noticing that Jesus had given them a good answer, he asked him, “Of all the commandments, which is the most important?”
29 “The most important one,” answered Jesus, “is this: ‘Hear, O Israel: The Lord our God, the Lord is one.[a] 30 Love the Lord your God with all your heart and with all your soul and with all your mind and with all your strength.’[b] 31 The second is this: ‘Love your neighbor as yourself.’[c] There is no commandment greater than these.”

Now if you are a marriage-minded person, like most of society, this interpretation of the seventh chapter of 1 Corinthians is likely going to face a lot of resistance in your mind, even though you will recognize that marriage may compete with other worthy goals.  If you are particularly practical, you might ask how we are supposed to continue to procreate as a species if all the “best” people stay single.  More philosophically, you might critique Paul for assuming an economy of scarcity, saying something like:

Is there is only a finite amount of love to go around?  If I have a child, will it really mean less love for my spouse and less love for God?

Because a plain and literal interpretation likely challenges at least one of your beliefs, you will likely consider alternatives to the plain literal version I just described.

I talked through an early version of this article with a father of eight and he did not undergo an immediate change of mind, phoning his unmarried children to discourage them from marrying.  I have yet to meet even one parent who says to their child: “Don’t marry.  I want no grandchildren”,  out of a desire for their child’s undivided devotion to the Lord. Yet that appears to be the position Paul advocates if you take a plain and literal interpetation.  You may find some other bible verse to negate what Paul is saying here, or may make some other explanation, but your eventual stance on this will be to choose some reason/s not to take Paul seriously or literally.

Our Actions Reveal Our Beliefs

Sometimes when we talk about literal biblical interpretation, we use examples that have a bearing on how we interpret other parts of the bible, but not much effect on our everyday lives.  For example:

“Did the creation happen in 6 literal 24-hour days”?

This question affects how we read the Bible, and what we may think about various scientific theories, but this is mostly a hypothetical question compared to the question of whether marriage is an ideal, rather than a concession.

I’d like to suggest that we can know more about what we really believe by keeping track of what we actually do, rather than by our assent to intellectual positions that have little bearing on our lives.  And we can’t faithfully believe in Paul’s recommendation that it is better to stay single, while encouraging all of our children, friends, and grandchildren to get married.

Weighing the Evidence

Now some of you may say: It’s just one chapter of the Bible, and there are many other parts of the Bible that support the traditional view of marriage, and marginalize Paul.  As they say in law, “the preponderance of evidence” speaks in favor of marriage. That is a valid position, and one I myself favor.  I wrote this article to raise your awareness that you weigh the scripture through various factors, rather than read the bible literally; and that people of different perspectives can help us see things that are in our blind spots.

All Truth is God’s Truth #

Once we acknowledge that it is not always wise to employ simple biblical literalism, we may choose to supplement our understanding with other modes of knowing including science, reason, and experience.  I don’t have the space or wisdom to articulate how that all gets worked out, but I am reminded of St Augustine’s quote, which is often paraphrased “All Truth is God’s Truth“: 1

A person who is a good and true Christian should realize that truth belongs to his Lord, wherever it is found, gathering and acknowledging it even in pagan literature.

About the Next Article

In the next article, I’m going to argue that, if you read the Bible literally, there are two views of sacrifice in the Old Testament:

  1. The conventional view that God commanded the Israelites to make sacrifices to Him.
  2. The view of the Psalmists, Hosea, and Jeremiah that God did not desire or command the Israelites to make sacrifices.

  1. Source: “On Christian Teaching“, by Saint Augustine (of Hippo)