“President” Joe Biden described the US economy as, “Strong as hell,” in a recent sound bite. No one except his most ardent supporters, a vanishingly small number in reality, believes that.

He and they point to statistics, “internals” in Biden-speaks, that point to why the US is better off than everyone else. Well, yes, we may be better than everyone else, that doesn’t however mean the economy is “strong as hell.”

It just means it is the most attractive horse at the glue factory, to invoke more Biden-esque rhetoric.

Honestly, I was waiting for a Corn Pop reference, but Fox cut away too quickly.

The headline numbers — jobs, U-3 unemployment, etc. — don’t tell the whole story. If anything they tell a story directly opposite of what they normally would. Why? Math.

U-3 unemployment measures people still in the workforce looking for work, defined by those applying for unemployment. I don’t know about you but we’ve all heard the stories of record job openings. This also means the economy is supposed to be strong.

But then why are real wages negative? Why are they not only lagging inflation but slowing rapidly in nominal terms while headline (and massively understated) inflation is rising.

Taken together these statistics give you a clearer picture of the labor market in the US.

Low wage jobs and job openings remain high as the supply of low and medium skilled workers remains tight. Anyone who wants a job as a waitress, register jockey, customer service folks, etc. can have one. These are the people most likely, by the way, to file for unemployment.

In fact, these are the people unemployment insurance is suppose to target to help them through the job transition.

But when layoffs, which are concentrated in the higher paying jobs and those jobs are literally retired, then those folks 1) don’t file for unemployment and 2) contribute heavily towards real median household wages dropping.

Someone making $100k as a middle manager or department chief isn’t filing for unemployment because, more often than not, they don’t even qualify for benefits. So, again they won’t show up in the normal headline statistics.

In previous recessions when the credit cycle was virtuous and it could be pumped up again by central bank largesse of one form or another, it was always cut the little guy who is easily replaced and hold onto the best mid and upper professionals to keep the company operating smoothly.

Now we have the opposite problem. Companies are top heavy and bottom light.

I can’t throw a stick and not hit a basic business with a help wanted sign out for entry-level jobs in my area of Florida. And Florida’s economy is booming!

My favorite local restaurant had to shut down on Monday’s after COVID last year because, “We can’t find anyone to work. Sorry.” Then they shut down DINNER and were only open until 2pm all week. Slowly they are resuming normal hours. Last night I was pleasantly surprised that Wed-Fri are now normal dinner hours.

This is a nothing fancy, southern burger/ribs and fries joint. But they were able to survive.

But the reality is that the Fed’s restrictive monetary policy is having the desired effect of contracting credit-based asset prices, causing deflation there — housing, Class A office space, used car prices, etc. That, in turn, is putting extreme pressure on leveraged assets based on those things and those entities invested in those leveraged products.

LQD and HYG are down hard this year. HYG is the 3rd worst, year-to-date, in redemptions, $-6.8 Billion. LQD is up $3.1 Billion in AUM. Clearly, looking at this list of ETF in and out flows the shift is out of high risk and into low risk assets, including banks.

The market is clearly signaling it needs higher returns from debt in this environment. As prices on US Treasuries come down they are being bought up all across the yield curve. S&P 500 net flows? Positive. Russell 2000? Negative.

Dividend stock flows, positive. Industrials and Europe, negative.

In response to Biden’s idiocy and reports from Bloomberg that economists’ predictions of the US falling into a recession next year rose to 100%, I was contacted by Sputnik News again to provide some commentary on the matter.

As always, for the sake of full disclosure and clarity here are my full comments and Sputnik’s questions. I hope you find them helpful:

Biden has repeatedly said the US will avoid recession and that any downturn would be “very slight” – why has the President ignored the real situation so far?

Because “Biden” is desperately trying to massage the message coming into the mid-term elections in three weeks.  That he and his staff are still trying to convince people of this at this late date tells you they’ve seen the polling and it is terrible.

All of the main issues the Democrats have tried to persuade voters on – abortion, Ukraine, gun control, January 6th – have failed to resonate.  They rank as the lowest concerns among Americans coming into the election.

Trying to jawbone the economy is a signal they know they are going to lose and want to pivot after the vote to blaming it on the Republicans.  Standard issue American politics.

How much of a blow could such a forecast be ahead of the November midterms?

Not much at this point.  People’s minds are made up.  The only question is how much overt cheating will be done in crucial races to limit the damage.  The Democrats nearly lost control over the New York caucus in 2020 they are on track to lose those seats they won through vote harvesting weeks after election night. 

The president has focused on strong job growth – to what extent can his campaigning help Democrats retain their House and Senate majorities in elections?

Strong job growth?  Really?  With 18 straight months of real wages not keeping pace with inflation?  The Democrats’ core voters are the upper end of the wage-earning scale.  This is a low unemployment situation like we’ve never seen in the US.  There’s a glut of minimum wage job openings and employers paying good money for basic jobs while professional jobs are getting axed by the tens of thousands.

And, oh by the way, those people don’t apply for and in make cases don’t qualify for unemployment benefits.  So, low U-3 unemployment is a result of dislocations in the workforce that are abnormal.

No one is going to thank Joe Biden for giving them access to the fry cook job at the local Wendy’s when they used to run a factory. 

A separate Bloomberg survey of 42 economists predicts the probability of a recession over the next 12 months now stands at 60 percent, up from 50 percent a month earlier. What has changed? Do you believe the recession is inevitable?

Recession is already here.  We’ve had 2 straight quarters of negative GDP growth, which has been their metric for an economic downturn for almost three generations.  Playing word games is nothing more than electioneering.

The Fed is not bluffing about raising interest rates.  The global economy is unbalanced and unsustainable thanks to 14 years of central bank largesse fueling credit bubbles the world over which are now popping.

And the Fed knows this, understands this and also understands that the way out of the current mess is through it not by avoiding it again with more monetary heroin.  This heroin is like the fentanyl crisis here in the US, damaging to us while others prosper.  The offshore dollar markets are the ones who are screaming for a Fed bailout, not the US corporates.

They’ll scream in a while, but not today.  You only need to look at who is angry to know who is getting crushed by the Fed’s defending the US dollar through tight monetary policy. 

The Fed is engineering a controlled demolition of leveraged credit markets.  This is the only path out of complete and utter global economic collapse.  They have the tools, the incentives, and the fiscal room right now to make that happen. 

Talk to me in two years and I’ll likely have a different answer.

If the US does in fact fall into recession, what effect will it have on the international economic situation?  

I feel that with the Fed acting the way it is that they are clawing back capital sent overseas to support globalism through the hyper-financialization of capital markets.  Risk is not assessed through interest rates properly anymore based on the quality of the investment rather on the expectation of central bank policy.

I believe strongly that Jay Powell, the FOMC board and the Fed’s backers on Wall St. understand this and that it is time to reverse what we’ve become used to.  With most of the Global South working to de-dollarize their trade, the Fed has no choice but to do this. 

That doesn’t mean they aren’t going to make it as painful as possible in the process.  Of course, they are. But, at the same time there are many who are truly over-leveraged here without the Fed and the US liquefying their capital markets, and I’m thinking specifically Europe and the UK.

The “Biden” administration realizes now that the American public is with the Fed if it means a return to sound fiscal policy, a return to cultural norms and the end of the Democrats’ woke craziness.

That will be the GOP’s sell after the mid-terms.  GOP leadership will be dragged kicking and screaming into finally embracing America First six years after electing Trump.  And the rest of the world better brace for a very hard landing for everyone over the next few years.

Join my Patreon if you are good at math