Monday, August 19, 2019

If Kudlow says the economy is fine...then it's time to worry

As the Trump Administration realized they were losing the one item of substance that they might be able to run on in 2020, they sent their economic hacks advisors out to Sunday talk shows to claim “All is well.”

One of those advisors was Larry Kudlow, who showed up on both Fox News and “Meet the Press”, and as usual, Coke-low was cherry-picking and BSing to justify that things were fine.
Well, I'll tell you what. I sure don't see a recession. We had some blockbuster retail sales, consumer numbers towards the back end of last week. Really blockbuster numbers. And in fact, despite a lot of worries with the volatile stock market, most economists on Wall Street towards the end of the week had been marking up their forecasts for the third and fourth quarter. That echoes our view. You know, what we've got here -- consumers are working at higher wages. They are spending at a rapid pace. They're actually saving also while they're spending. That's an ideal situation. So I think actually the second half, the economy's going to be very good in 2019….

Just one theme. We're doing pretty darn well in my judgment. Let's not be afraid of optimism. Let's not be afraid of optimism. It's a sign of our times. And I think there's a very optimistic economy going on out there.
Well sure, the retail sales numbers from last week were decent, up by 0.7% for July. But wage growth isn’t all that great, as real average hourly wages have dropped 3 of the last 5 months, including July.

And I’d like to see who Kudlow is referring to on “economists marking up their forecasts” 3Q and 4Q. Goldman Sachs just knocked down their estimates for Q4 to 1.8%, for example. The only way I could see GDP go “up” this quarter is because prices collapse partly due to the inability to sell products overseas. That usually follows with layoffs due to a lack of profitability, which doesn’t seem like a formula for a strong economy to me.

Show your sources, Lar

Kudlow continued to plead his case to Chuck Todd thusly.
Well, I want to get back to the China thing because there are some positive developments, believe it or not, on that front. But actually, in terms of business spending and business investment spending, which as you know, is a key part of the economy, look, a lot of the slowdown that we've seen in so-called capex, capital investment, is really temporary because oil prices dropped down. And so the big oil patch, fracking, and so forth was not as rapid in the last year. We're down what? $55, $60 a barrel? Which is a good number, I might add. And for consumers, gasoline prices are very low. But the oil, gas, fracking boom has leveled off a wee bit. On the other hand, we're seeing a nice pickup I think in durable goods and manufacturing. And we're also seeing now I think intellectual property, which is scored in GDP, you know, that thing's growing at about a 10, 12% annual rate. Let me come back. The consumer part of this thing, 10% on an annual rate last three months. We're going to get a blockbuster number in the third quarter.
The “intellectual property” item Kudlow rambles about was up 4.7% in q2 and is projected to go up 6.4% for Q3 as it stands today. Plus, IP is a relatively small part of the economy, while the production of goods is 5 times larger. Increases in software development are not going to make up for a recession in manufacturing, a sector that is not “picking up”, as UW’s Menzie Chinn illustrated this weekend (look at the black and red lines in particular).

As for the “consumer”, good luck on that staying strong, as consumer confidence fell hard in August along with the stock market and the 10-year note’s yield. But trying to reverse that flagging confidence is why Kudlow was on TV Sunday, right?

This last part of Kudlow's appearance on Meet the Press, is especially hilarious, and is a great example how Republicans try to shift reality to fit their policies.
…And I must say the president is transforming and rebuilding this economy. He deserves enormous credit. A new policy of lower taxes, and regulation, and energy opening, and trade reform. You know, we didn't quite get to 3%. But, look, Chuck, the first two years of the Obama administration we were just a hair below 3%. We're moving in the same direction. And let's be honest here. We faced severe monetary tightening, seven rate hikes in 2017 and 2018. I don't think all that was necessary. It's a miracle we were able to continue as well as we're doing. And, again, bond rates are falling. 100-basis-point decline. That's good for mortgages. That's good for business. And I think the Federal Reserve is going to now be following through, lower interest rates at the low end, because the bond rates have fallen and that's the way that game usually works. And I think that's going to be a big help.
Maybe those lower interest rates work out if you’ve got a ton of debt, or plan to go into debt. But it sucks if you want to save any money, and if the economy really is as good as Kudlow claims it is, then these rate cuts will only succeed making housing and the stock market even more overpriced than it already is.

It’s also a good insight into the world view of Wall Street dimwits like Kudlow. To them, the “eCONomy” is a confidence game based on stock trading and other casino-like measures that leads to booms and busts, entirely controlled by a few oligarchs. They don’t have a clue about what actually makes an economy sustainable or how everyday Americans try to pay their bills and get by.

The main skill Kudlow and Trump and their ilk have is BSing and keeping the grift going as long as they can. Aaron Blake at the Washington Post ran down how Kudlow has been consistently wrong in the last year over both the ballooning budget deficit and the rate of economic growth.
Back in June 2018, Kudlow saw a declining deficit. “The deficit, which was one of the other criticisms, is coming down — and it’s coming down rapidly,” Kudlow claimed. “Growth solves a lot of problems.”

The problem was that the deficit wasn’t coming down, much less rapidly. So Kudlow clarified to CNBC’s Eamon Javers that he was making a prediction. “I was referring to future deficits,” he said, adding, “I think it will come down in 2018, and the big reductions will come in future years.”

This, yet again, has not come to pass. The deficit rose a full 17 percent in fiscal year 2018, to $779 billion, as projections suggested it was headed toward $1 trillion. That path has continued this year, and, in fact, the rate of growth has increased. So not only did the deficit not “come down in 2018,” but it almost definitely won’t come down in 2019. Any reduction in the deficit appears years away, if it ever happens during Trump’s tenure.

Kudlow also predicted in January 2018 that the GDP would grow to between 3 percent and 4 percent based on the GOP tax cuts. Since then (and including preliminary estimates for the last quarter), it has grown by 2.5 percent.

In April 2018, he said the GDP could hit 5 percent for at least a short period of time. The highest quarterly GDP growth since then was 3.5 percent.
Sure, the stock market has regained some of the losses of last week as Wall Streeters speculate that trade wars and economic instability are settling down for the time being (or they’re covering their shorts). But if Larry Kudlow is saying he sees no recession on the horizon, that tells me you should definitely worry that it’s coming.

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