Over the past several years, I have repeatedly discussed the ongoing detachment between the economic reports versus what was happening in the actual underlying economy. Last year, I wrote:
“Currently, there is little evidence that is supportive of higher overnight lending rates. In fact, the current environment continues to support the idea of a “liquidity trap” that I began discussing in 2013. To wit:
‘…a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels.'”
The importance of a liquidity trap can not be dismissed as the feedback loop of monetary interventions negatively impact growth by misallocated capital to non-productive uses.
Despite mainstream economists hopes that somehow “this time will be different,” the ongoing massaging of economic data through seasonal adjustments to obtain better headlines did not translate into actual prosperity. Of course, “reality” is a cruel mistress and despite ongoing hopes and overstatements, “fantasy” eventually gives way.
The chart below shows the S&P 500 index with recessions and when the National Bureau of Economic Research dated the start of the recession.
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