The government’s response to the Coronavirus Pandemic has finally popped the financial bubble that the Federal Reserve has been blowing up since it’s last one popped in 2007. In April alone, manufacturing employment collapsed by 1.33 million jobs. With millions still losing their jobs each week, May’s employment figures will likely be bleak too. However, thanks to the Federal Reserve, there is still plenty of credit being pumped into the markets to keep many manufacturers afloat. And while everyone is excited about a recovery as governments reopen the economy, very few realize that the government’s response to the Pandemic made a horrific economy worse.
Reopening the economy may finally open the flood gates to runaway price inflation. The M2 Money Supply has increased an astonishing $2.6 trillion (17%) since February. And the production of goods and services has collapsed with some estimates of Q2 GDP dropping by 30%. Given that unemployment insurance is currently paying people up to $50,000 annualized not to work, many laid of factory workers may not come back to work at all; the average annual income is just over $47,000 (not including overtime). Fewer employees mean there are fewer goods being produced. And fewer goods combined with a bigger money supply equals higher prices. The only remaining question is when will stagflation make its long awaited comeback.
The basis of my research on American manufacturing is that the consumer price index, (the index in which the Federal Reserve uses to calculate real output) drastically understates price increases and therefore overstate real output. This topic is highly debatable and the CPI data from Shadowstats used in my research has been at the center of this debate. Last year, Devonshire Research Group joined Shadowstats with their report that suggests that the real rate of price inflation has been 7-9% over the last decade. This is 6-7 percentage points higher than the CPI released by the Bureau of Labor Statistics and supports Shadowstats data that suggests prices are rising about 7 percentage points more than the government reports.
– Devin Roundtree
Since the 1980s, abandoned factories like the one above has become a common scene in urban America. And given that half of the goods we buy now comes from countries like China, it certainly feels as though the U.S. is making less and less each year. Yet the government reports that manufacturing output has continued to increase over the years, and the financial and economic community overwhelmingly agrees. Unfortunately, nothing could be further from the truth. Manufacturingcollapse.com provides a comprehensive study that not only proves, but explains America’s decline in manufacturing and it’s pending collapse. Periodic updates will be provided below. Thank you for your interest!
Devin D. Roundtree
M.A. Economics, University of Detroit Mercy
Over the last 8 years, the U.S. has enjoyed the weakest economic recovery in it’s history in part because the economy has failed to recover at all. However thanks to the Federal Reserve, the historically low interest rates on government, corporate, and private debt has blown up a bond bubble that is even bigger than the preceding housing bubble. But rising interest rates will soon remove the facade of economic growth and expose the massive accumulation of debt that cannot mathematically be repaid or sustained under “normal” interest rates. The interest rate on the 10-year Treasury bond surpassed 3% today bringing it to it’s highest level since 2014. Yet more importantly, the the interest rates on 2 and 5-year bonds are already at 2008 highs and climbing. Much of the $13 trillion in federal government debt that has been racked up since 2008 has gone into bonds of 5 years and less.
In other words, the Great Recession that most people thought was in the rear view mirror will make a comeback as rates rise. American manufacturers who rehired workers after the Great Recession will be forced to lay off even more workers this time around. Eventually the Federal Reserve will be compelled to cut interest rates and probably pull out more rounds of quantitative easing (i.e. print money and buy worthless bonds). Yet unlike in the Great Recession, the world is not going to buy up a new flood of U.S. Dollars that will hit the international markets. Our long awaited currency crisis is finally here and Trump’s budget deficits will kick it off. Manufacturers who heavily depend upon foreign supplies will suffer greatly as the Dollar collapses.
For further explanation, please check out the Abstract & Full Report.
I listen to NPR shows like Marketplace almost everyday and while I love their stories, I can’t sit idle. So I wrote them:
“Among the most viable of all economic delusions is the belief that machines on net balance create unemployment. Destroyed a thousand times, it has risen a thousand times out of its own ashes as hardy and vigorous as ever.” – Henry Hazlitt, 1946.
Austrian Economist Henry Hazlitt wrote these words 70 years ago in the chapter “The Curse of Machinery” in his popular book, Economics In One Lesson. Yet his words are unfortunately just as appropriate today. The theory that automation along with “cheap” foreign labor are the primary factors destroying manufacturing jobs in America is simply a fallacy, a myth, and a downright lie. Today’s automation pales in comparison to the increases in productivity that the machines of the Industrial Revolution brought us. Yet manufacturing employment rose sharply during that time. So what happened to manufacturing?
The short answer is that we surrendered the economic freedom that started the Industrial Revolution and created millions of middle class jobs. We used to have gold and silver in our pockets. We used to be free to succeed or fail in life and in business. We used to enjoy the full benefits of the money we earned. But now we play with monopoly money that benefits a few at the expense of many. We do only what the government permits us or encourages us to do (little of which is actually productive). And we work to pay off the government before ourselves.
The manufacturing industry and middle class it gave birth to are victims to the forfeiture of our economic freedoms. And automation and “cheap” foreign labor has nothing to do with their respective declines. The government’s data are wrong; we are not manufacturing more goods with less workers. We are just doing a better job making less with less.
I respect the work that Marketplace and NPR produces, but this perspective has to be presented to the people. Not all economist believe in the Curse of Machinery.