The U.S. Government is on a roll…Not so much for main street. Total compensation costs for state, local and federal government rises more than 25% faster than the private sector.What does it mean – You wonder why we are in such debt? Private industry workers’ compensation rose 3.9% for the 12-month period ending in June 2024 versus 4.5% for the 12-month period ending in June 2023. Wages and salaries increased 4.1% for the 12-month period ending in June 2024 versus 4.6% for the 12-month period ending in June 2023.Compensation for government employees rose by 4.9% for the 12-month period ending in June 2024 versus 4.9% for the 12-month period ending in June 2023. Wages and salaries increased 5.1% for the 12-month period ending in June 2024 versus 4.7% for the 12-month period ending in June 2023.Private sector benefits increased 3.5% for the 12-month period ending in in June 2024 versus 3.9% for the 12-month period ending in June 2023. Government benefit costs increased 4.8% for the 12-month period ending in June 2024 versus 5.2% for the 12-month period ending in June 2023.Bottom line, total compensation for Government is growing at over 25% faster than the private sector.Manufacturing continues its decline…Manufacturing is down for the fourth straight month and is now down 20 out of 21 months.What does it mean – The July ISM Manufacturing Index checked in at 46.8% versus the estimate of 48.5% in June. The dividing line between expansion and contraction is 50.0%, so the July reading suggests there was a faster pace of contraction in the manufacturing sector last month than expected.The Fed is at it again. And the time is right according to Powell…Modern Monetary Theory: it sure feels like another stepping stone towards State-run capitalism or a European oligarchy. The Federal Reserve is caught red handed. Hoping Modern Monetary Theory will allow them to kick the can down the road a bit longer before reality sets in and the pundits recognize the bait and switch. The problem is will we as citizens fall for more “too big to fail policies” or will we follow “the science”?What does it mean – Remember the term “Modern Monetary Theory” (MMT)? The idea that the government can spend and print money without worrying about deficits. According to the CATO Institute, the core tenets of MMT are that the economy and inflation should be managed through fiscal policy (taxes), not monetary policy, and that government should put the unemployed to work. HMMM sounds like socialism. Like all “Big Government” experiments, this does not seem to be working. While the rate of inflation is slowing, it is still up will over 20% over the last couple of years and is compounding at 2% to 3% on top of the 20% plus.Giving credit where credit is due, the Fed realized the error of its ways and started to clamp down on liquidity and slowed down the printing press. While its balance sheet has ballooned to record levels, it has been taking record amounts of cash off the table.The Feds newest policy of “Abundant Reserve Policy” started in 2008 to manage “too big to fail”. This policy has all but proven Milton Friedman right when he proclaimed that M2 or supply of money is what causes inflation, not interest rate.The Fed is using language to paint a picture that puts lowering interest rates at the top of everyone’s wish list further distorting reality with what they hope will lead to a soft landing. While behind the scenes they have tightened the supply of M2. Lowering rates may help the markets out and make investors feel better in the short run but will do nothing to solve the real problems, Americans face.The Fed believes that they can turn on and off the supply of money and through their latest theory, Abundant Reserve, this dependency on a theory of government control has been tried and tested and historically fails regardless of what you call it. Socialism’s answer to economic pain has never been able to manage demand, production, the job market, or interest rates. It is a fallacy, a flat out lie!! A new name for a policy that further erodes the value of the dollar and puts more power in the hands of the few at the expense of your economic freedom. Modern Monetary Theory working hand in hand with the Fed and dependent on politicians passing laws that further tax and create more dependency on government are bringing us closer to a weaker dollar, higher taxes, higher cost of money and more like European capitalism or state-run capitalism.History has shown that low interest rates do not cause inflation nor do rising interest rates stop inflation on its own. If it did, people would have stopped buying homes and cars in the 1980’s when rates were in the low teens for a home and pushing 15% for a car. If it was low interest rates that caused inflation, we would have seen massive inflation throughout most of this century as our Federal Reserve held interest rates below inflation for most of the last 20 years. When will this administration and the unholy alliance between “Big Banks and Government” fess up and stop denying “the science”?According to First Trust, “over the past year, 82% of all net new jobs have been in government, healthcare, and education.” This has led to massive government debt. The exploding budget deficits have been holding up the economy even though the money supply has recently gone negative as the fed has bought back over $700 billion (what do you think will happen to that $700 billion if they realize they acted too early?). Got to ask yourself, when was the last time a government-controlled economy worked? The ash heap of history is littered with countries that have tried and all have failed. Keep an eye on China. It refuses to learn from history or allow capitalism to truly flourish among its citizens. Currently a small percentage of the Chinese population benefit from the freedom that comes from capitalism. Most are buying real estate in the USA. Even California is a safe haven for those who actually lived under communism.
