(International Man)—Even if you put a lot of stock in government manufactured GDP owing to unhinged spending and deficits, which we most definitely do not, it would be wise to be careful about what you are applauding. The allegedly resilient US economy, which is purportedly defying the Fed’s interest raising campaign, isn’t nearly what it’s cracked up to be.
There was a hint of this in Walmart’s Q4 earnings announcement yesterday in which it noted a “choiceful consumer” was spending less per trip and curtailing outlays for discretionary items in favor of low-cost necessities. And that admission was more than evident in the steady deflation of its USA comp store sales trend.
The figures in the chart are in nominal dollars, which declined by more than 50% between Q4 2023 (+8.3%) and Q4 2024 (+4.0%). Admittedly, inflation has been coming down too, as reflected in our trusty 16% trimmed mean CPI. The latter posted at +6.6% on a Y/Y basis in Q4 2023 and +3.8% in Q4 2024.
Still, the math says constant dollar sales have slipped even more than the reported nominal figures. The inflation-adjusted Y/Y gain in Q4 2023 was +1.7% compared to just +0.2% in the period just ended (Q4 2024).
Both figures are on the punk side, but there is “no way, no how” that the core main street consumer, who is a Walmart shopper by necessity, is in the pink of health as the stock peddlers of Wall Street and the “Joe Biden” puppeteers of the White House would have you believe.
Moreover, for want of doubt it should be noted that these marginal real sales gains were not due to the mighty Walmart loosing market share, either. The company reported that its surging eCommerce sales passed the $100 billion mark last year and that consequently Walmart “is gaining share in nearly every category”, according to CFO John Rainey.
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So, the more appropriate question is not why the American consumer has been so resilient, but why the clearly fading consumer has remained in the game even this long.
Actually, however, there is no real mystery about the US economy’s defiance of the long-predicted recession. Nor is the purported stay of execution evidence that the geniuses at the Fed have orchestrated a “soft landing”.
What is happening is that some of the massive amounts of government manufactured GDP which flowed from $6.5 trillion of stimmy spending during the 12 months after March 2020 got temporarily placed in cold storage at household bank accounts. And since then it has been slowly dribbling into the spending stream, thereby bolstering demand stemming from current period production and earnings.
We think a good measure of this delayed “stimmy effect” is captured by the relationship between high-powered consumer spending accounts—checkable deposits and currency—and national income. That ratio had varied between 4.0% and 6.5% during the two decades prior to Q1 2020 but took off like the literal rocket ship shape depicted in the chart below.
As of Q3 2019, these spendable cash balances totaled $938 billion and represented about 4.3% of GDP. But by the peak of the stimmy tsunami in Q3 2022 the figures stood at $4.8 trillion and 18.5% of GDP. In the graph this implicit $4 trillion surge in household cash balances looks like a big middle finger, and well it might be.
Households have told the Fed in so many words that interest rate increases or no, they are sitting pretty on an aberrational $4 trillion cash cushion. They apparently intend, therefore to keep on spending the usual 96% of what they are currently earning, thereby causing the Fed’s vaunted monetary brake to essentially fail.
Household Checkable Deposits and Currency as a % of GDP, 2000 to 2024
Needless to say, this vast lump of household cash didn’t happen owing to a sudden lurch into a high savings modality by American consumers or any other kind of financial immaculate conception. This stuff was figuratively dropped from Washington helicopters in the form of the three Covid relief bills enacted between March 2020 and March 2021, which collectively flooded $6.5 trillion into the US economy.
Moreover, most of that didn’t stem from honest deficit finance in the bond pits, which, in turn, would have curtailed (“crowded out”) investment spending by business on fixed assets or working capital. Instead, during this same period, the Fed printed roughly $5.2 trillion in new credits snatched from thin digital air, amounting to fully 80% of the Federal spending and borrowing bacchanalia.
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In this context, the Commerce Department’s transfer payments numbers leave nothing to the imagination. As show in the graph below, prior to the pandemic the annualized rate of government transfer payment spending was about $3.1 trillion. It had been steadily creeping higher to that level during the previous years and by February 2020 amounted to a not inconsiderable 22.1% of personal consumption expenditures (PCE).
And then the stimmy flood swept through the US economy like a tsunami. By April 2020 after the CARES act hit the economy, the transfer payment rate had doubled to $6.3 trillion. After the third stimmy in the form of Biden’s American Rescue Act it surged further to the fantastic rate of $8.1 trillion by March 2021.
At this latter point the rate of stimmy fueled transfer payments amounted to a staggering 52% of the nation’s $15.7 trillion of PCE. In a word, Washington had descended into absolute lunacy.
This conclusion is especially warranted because most of the massive flow of stimmy money was additive to income based spending, not some kind of latter day Keynesian substitute for lost earnings. In fact, personal income less transfer payments (i.e. earned income) had posted at a $15.77 trillion annual rate in February 2020 and had risen—lockdowns and layoffs notwithstanding—to $16.35 trillion or by nearly 4% by March 2021.
In short, households got flooded with so much cash from the combination of normal production and income plus the flood of stimmies that they could not possibly spend it all. And that was even as they loaded up on merchandise goods from Amazon, while their normal venues of spending in the services sector (restaurants, bars, movies, gyms, malls etc,) were locked-down by government order.
Alas, the extra cash went into the above mentioned $4 trillion of cold storage, where it hangs like an economic sword of Damocles over the Fed’s desperate efforts to curtail the inflation Washington unleashed.
Annualized Rate of Government Transfer Payments, January 2019 to March 2021
Needless to say, that which is wholly artificial and wildly aberrant is not sustainable in the longer run. The $4 trillion pile of excess household cash, therefore, is slowly being worked down and by Q3 2023 was already $561 billion or 12% below its peak level of a year earlier.
Moreover, we are talking here not just about spending wherewithal that is being withdrawn from cold storage, but also about the consumer psychology that goes with it. In a word, it is likely that all this unusual cash in the bank has made consumers far less cautious than would normally be the case during a Fed tightening cycle, when debt service costs would be going up sharply and the fear of rising unemployment and loss of income would be in the air.
But as this cash pile steadily erodes, the psychological boost to consumers is likely to diminish steadily and likely in greater proportion than simply the reduction of dollar balances. Cash which is burning a proverbial hole in the pocket, will burn far less brightly as the pocket empties.
At the same time, the current aberrantly low savings rate is likely to be pushed higher as caution returns to the main street economy. In fact, the insanity of $6.5 trillion worth of stimmies flooding into the economy during March 2020 to March 2021 literally mangled normal economic flows and patterns.
Thus, in December 2019, the pre-pandemic savings rate (black line) was 6.4% and it represented $1.051 trillion of dollar savings at an annualized rate. But by April 2020, the sight unseen $2.3 trillion CARES act had literally shot out the lights in the macroecnomy.
The savings rate soared to a never before even approached rate of 32.9%, which amounted to a savings flow of just under $6.0 trillion at an annualized rate. And when the March 2021 stimmy hit, the same wild aberration once again ensued.
Needless to say, that’s where all the extraordinary cash in cold storage originated. The fools in Washington so mindlessly pumped spending stimulus into a semi-shutdown economy that it had no place to go except into the bank.
At some point not too far down the road, however, a great reversal is likely to happen. The ice cube of excess savings will melt as it comes out of cold storage, causing the household sector’s $4 trillion cash cushion to become depleted and the desire for cautionary balances to return to consumer finances. Accordingly, the rock bottom savings rate of 3.7% in December 2023 could readily return to the 6.4% average of 2017 to 20219.
In dollar terms that would take $500 billion out of the PCE stream, even as the spending supplements from household cash balances will have diminished sharply.
We’d like to believe this will happen by October 2024. The puppeteers managing “Joe Biden” deserve the economic comeuppance implicit in their silly boasting about the virtues of Bidenomics.
But even more to the point, the wanna be monetary politburo in the Eccles Building sooner or later will be deprived of its ballyhooed “soft landing”.
And the sooner, the better.
US Household Savings Rate And Savings Level, 2017 to 2023
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Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
