Retail sales stagnate, but not unexpectedly(Read article summary)
During bad economic times, everything contracts. Let's stop being surprised by it.
âRetail Sales in US Unexpectedly Stagnate,â says a Bloomberg headline.
Unexpectedly? Guess they donât read The Daily Reckoning. Stagnating sales are what you get in a Great Correction. Weâve been saying so for the last 4 years.
In an expansion, wellâŚeverything expands. Why make it complicated?
In a contractionâŚeverything contracts. What do you expect? Thatâs what itâs all about. Thatâs how it works.
And when you have a consumer economy, what contracts most? Consumer spending, of course. Simple, huh?
And when consumer spending contracts, business sales go down. Eventually profits go down. And eventually investors realize that holding stocks is not going to be profitable. Then, stocks go down too.
And hereâs another Bloomberg headline:
Wholesale Prices in US Are Little Changed as Energy, Vehicle Costs Drop
Surprise, surprise! The feds pump in trillions in cash and credit. Still, they canât get prices to go up significantly
Contractions are deflationary.
Thatâs why we donât expect the price of gold to rise.
And now that Germany and France have gotten together with China and all have agreed that they arenât going to throw poor little Greece off the Euro-BusâŚgold has nothing to do but go down. No crises on the horizon. No inflation either.
So who needs gold?
WellâŚ. We all will. But maybe not just yetâŚ
âGold fulfills the functions for which money is used better than any other type of money,â wrote Lord Rees-Mogg in his introduction to âThe Case for Goldâ â a three volume tome rehearsing the history of the yellow metal.
But if gold is the best money, how come we donât use it rather than dollars?
Lord Rees-Mogg explains: âThe problem for gold is not that it doesnât work, but that it works too wellâŚit imposes limits on human behaviour, and those limits can be resented and rejected. Indeed, it can become impossible for a government to maintain the discipline of goldâŚâ
Limits. There are always limits. You can ignore limits. You can reject limits. You can pretend they donât exist. But you canât ignore the consequences of ignoring the limits.
Right now, the economy is in a major contraction. As long as this phase continues, you only need gold as insurance against a catastrophe. But what would cause a catastrophe? The feds, of course.
In a contraction, the market itself imposes limits. It forces asset prices down. It undermines businesses. And it drives debtors and creditors into bankruptcy.
The feds donât like limits. And they donât like contractions. Especially not when an election is coming up. Maybe theyâll keep their nerve. Maybe they wonât. They could do something reckless and desperateâŚin an effort to overcome natural limits. Thatâs when the merde will really hit the fanâŚ Thatâs when youâll need your gold.
Hereâs an interesting item.
In July, consumer credit rose. This was much applauded and much discussed. Analysts said that the $12 billion increase proved that the credit expansion of the last 60 years was not over. They thought it meant that recovery was just around the corner. Consumers were borrowing again they saidâŚso they must be spending too.
But it turned out it wasnât exactly consumers who were doing the borrowing. It was students. And they werenât borrowing to spend. They were borrowing to pay the high costs of education.
Real consumer credit went down, as expected. Credit card debt, for example, fell some $4 billion.
And guess what else. Many of them will never pay the money back.
Government-backed student loans have risen from less than $100 billion in â08 to about $400 billion today. We donât know why. But we smell a zombie.
The default rate is rising. And we suspect that many âstudentsâ are actually people marking time in universities because they canât find a good job in the outside world.
But itâs so easy to criticize! Give the prez credit. At least heâs trying.
At least, heâs trying to get re-elected, that is.