Recently, the Conference Board, a nonprofit think tank known for its cutting-edge research, issued its latest Leading Economic Index (LEI) for the United States. The results were disheartening: in December, the LEI experienced its tenth consecutive month of decline.
The LEI is a composite of various economic indicators, such as credit conditions, interest rate spreads, consumer confidence, building permits, and new orders for goods and materials. It is designed to gauge the overall economic climate. Over the past half-year, the LEI has fallen by a significant 4.2 percent—the steepest decline since the onset of the COVID-19 pandemic.
This week, the Bureau of Economic Analysis released its advance estimate for the fourth quarter of U.S. gross domestic product (GDP), revealing a real GDP growth of 2.9 percent at an annualized rate for Q4 2022.
How can GDP appear to grow while the LEI continues to decline?
The likely explanation lies in the significant rise in consumer debt. For instance, credit card debt hit a record high of $866 billion in Q3 2022, representing a year-over-year increase of 19 percent.
Americans are essentially borrowing from their future to sustain their current lifestyle. This façade of economic growth reflected in GDP figures only serves to mask the reality that many are nearing financial ruin.
In essence, the U.S. economy appears to be barreling towards a recession, and the outlook is grim as consumers navigate unprecedented instability.
A World of Chaos
In a centrally planned economy, decisions are not made through voluntary market interactions among individuals but are instead dictated by politicians and bureaucrats via mass interventionist policies.
The elite impose their mandates—’Thou shalt not use gas-burning stoves’ or ‘Thou shalt include corn in your fuel mix.’
These directives, often issued by unelected officials, are enforced through a convoluted system of legislation, penalties, and bureaucratic processes, squeezing the populace at every turn.
A key factor enabling the existence of such sprawling central governance is the monopoly over monetary control granted to central banks. Without the Federal Reserve, the U.S. government’s deep reach would be drastically curtailed.
The Federal Reserve does more than just finance government operations; it actively creates economic turmoil by manipulating the money supply. Inflation of the money supply can generate a false sense of demand, leading businesses and individuals to adjust their strategies based on misleading signals.
However, when the money supply is tightened, this artificial demand vanishes, leading to widespread bankruptcies, job losses, and plummeting asset prices.
Ultimately, these monetary manipulations significantly hinder wage earners from saving, investing, and creating genuine wealth, driving many into speculative behavior as they grapple with uncertainty.
Uncertainty and Instability
In today’s centrally planned economies, people must work, save, and invest with the understanding that government regulations regarding fiat money can change without warning. Interest rates might be kept low one year, only to surge the next.
It’s well-known that policymakers often make decisions driven by political pressures instead of sound economic principles. A prime example is the Smoot-Hawley tariffs of 1930, which exacerbated the Great Depression, or the drastic interest rate hikes by the Fed in 1987 that resulted in a stock market crash.
The rampant inflation beginning in 2021 marked the highest levels seen in 40 years, providing a stark lesson on the inherent instability that plagues centrally planned systems.
As the Fed raises rates in response to recessionary pressures, many businesses and individuals find themselves ill-prepared under the new rules tailored by central planners.
Consider the real estate sector: for years, investors thrived with the Fed’s artificially low interest rates, allowing them to acquire and renovate properties profitably. Now, as inflation and subsequent rate hikes take hold, many face insurmountable challenges as mortgage rates double.
Investors who anticipated low rates are currently caught in a vice, realizing their strategies are no longer viable. Consequently, real estate agents and mortgage professionals may find themselves in for a tough period ahead.
Are You the Collateral Damage of Central Planners?
When the Fed inflates the money supply, asset values—including stocks, bonds, and real estate—inevitably rise. However, when contraction occurs, the fallout is severe: businesses face significant losses, and employees often bear the brunt of these failures.
According to tech job tracker layoffs.fyi, over 200,000 technology jobs have been lost since last year, with more than 67,000 layoffs occurring in early 2023 alone. What’s driving this upheaval?
Tech giants like Meta, Google, Microsoft, and Amazon are realizing that the financial realities they thrived under for the last decade are no more. As the influx of speculative investments shrink, these companies recognize they are overstaffed, with employees contributing less value.
The demand for coding trivial applications may thrive in an environment of cheap credit, but as funding dries up, such roles become unsustainable.
This leads to a broader issue: in a centrally planned economy, individuals are often misled about how to effectively save, invest, and prepare for their financial futures.
Just ask the former programmer who was laid off after two decades at Google, believing they had a stable career ahead.
In truth, many of us might unknowingly be collateral damage in the schemes of central planners. Are you among them?
[Editor’s note: You may be unaware, but you could easily fall victim to the machinations of central planners. One effective way to protect yourself is to enhance your financial standing significantly. While the odds may seem stacked against you, there is a path forward. If you’re interested in learning more, explore my Financial First Aid Kit. Inside, you’ll find essential knowledge for thriving and safeguarding your assets as the global economy faces challenges.]
Sincerely,
MN Gordon
for Economic Prism
Return from Are You the Collateral Damage of Central Planners? to Economic Prism
