Why Didn’t the Fed “Just Say No”? – Ep. 149

* So far it's been a pretty light week but what little economic data that has been released is bad, and all of it evidences the recession that nobody wants to acknowledge
* Let's start with the Consumer Credit numbers that came out on Monday. Not only was the number extremely weak, but the revisions to the prior month were even weaker
* The initial report for the growth in consumer credit in December was $21.3 billion
* Now I don't think growth in consumer credit is good; I think it undermines long-term living standards
* The last thing you want to do is borrow money to consume, one of the points I really hammered home in my book, "How an Economy Grows and Why it Crashes"
* If you haven't bought that book, you should get a copy
* Be sure to pick the collector's edition because, in addition to being a really beautiful book, it has two entirely new chapters. If you already have the original one, buy the collector's edition and give the original away to a friend.
* Consumers should not borrow to consume. They should save to consume.
* Businesses should use our savings to invest in capital equipment to grow the economy
* When you consume savings, you undermine long-term economic growth and therefore future consumption is diminished
* The problem is we're living in a bubble, and in order to sustain this bubble economy, consumers have to keep spending
* In this economy, however in order to keep spending they have to keep borrowing because they're certainly not earning, and they don't have any savings
* This has to blow up eventually but right now, it's all about keeping the music going
* Consumer credit was revised down from the originally reported $21.3 billion to just $6.4 billion of growth
* They were looking for January to grow by $16.5 billion, and of course, this also includes student loans, as well as credit cards
* Instead, we got an increase of just $10.5 billion
* Consumer credit growth imploded in December and January
* If there's all this job creation why aren't these newly-employed people spending money?
* This shows you the jobs are going to people who already have part-time jobs, and need to supplement hours and wages
* Also, we got the Small Business Optimism Index, which last month was 93.9, and there was an expectation that it would increase to 94.2, that small businesses would be a little more optimistic, yet it dropped a full point to 92.9 - the lowest level in 2 years
* If that is the case, why are they hiring people?
* The type of hiring that is going on is hiring part time workers to replace full-time workers
* Which brings me to the data that came out today: Wholesale Trade
* Inventories were expected to drop, but they increased by .3%
* And the inventory for December was revised from -.1 to unchanged
* The reason inventories spiked is because sales collapsed
* The inventory to sales ratio just hit a new high, at 1.35
* This is a 7-year high. The last time the inventory to sales ratio was this high was in April of 2009. We were still knee-deep in the Great Recession
* If this recovery even exists, why isn't the merchandise being bought?
* At some point this year, the lone remaining bright spot in this horrible economic landscape - the number of jobs being created - will turn down
* We got more disappointing corporate earnings news this week
* The reason the stock market is moving slightly up is because of the sentiment that the Fed will not raise rates in the near future
* It's not just the stock market - Oil is above $38/barrel
* Also some of the industrial metals have had huge spikes
* And of course, the dollar is going down against other currencies
* The Australian dollar hit an 8- month high
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