- the source for market opinions


January 2, 2019 | What We Learned From 2018…

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

BALTIMORE, MARYLAND – Yesterday, we awoke to the sound of sirens.

After a week at the family farm, we had come back to the city for New Year’s Eve. But hardly had the new year begun when the echoes of the old year filled the streets and alleyways.

Over the holidays, a mental defective had firebombed nine cars near our house in Baltimore. And this morning, the bums are still sleeping at the church entrance next door. One of them has turned the whole area into a dump, with trash and rags strewn all over the steps.

“Yes, it looks like 2019 is going to be a lot like 2018,” said one of the children.


Where We Come From

But before we get to where we are going, let us back up to look at where we come from.

What happened in 2018? We went around the table on New Year’s Eve and asked what everyone had achieved in the 12 months just passed.

“We put a roof on one barn and a foundation under another,” we volunteered. We had just spent the holidays working on the family farm, shoring up an old barn with concrete and cinder blocks; the dirt was still under our fingernails and the work still fresh in our mind.

It was little to show for a whole year, but at least it was something real and durable.

But what about the wider world? Are our foundations more solid? What did we learn?

The headline events are easy to recall. “It if bleeds, it leads,” say the old newspaper editors.

Mr. Trump, waving his saber wildly, made the headlines every day. North Korea, China, Canada, his own staff… trade wars… porn stars… shyster lawyers… Trump charged like Cardigan at Balaclava – with great gusto, but little reconnaissance. And like Cardigan, he survived and became a hero to his fans.

But for all the sound and fury, what did it accomplish? Where did it take us? Are we better off?


Follow the Money

Our beat here at the Diary is money. So we will skip the culture wars, nominee confirmations, and foreign policy initiatives. Let’s just follow the money.

And what we notice immediately is that the last decade (save the final three months) was a great time to be rich. The Fed pumped up your stocks, bonds, real estate, and collectibles… And then, Donald J. Trump added a tax cut.

Even after the selloff at the end of the year, the typical stock owner was still two to three times richer than he was in 2009.

But his luck seemed to be running out. By the end of 2018, he was losing money and ended the year down about 6%.

In keeping with the loony zeitgeist of the year, the stock of WWE (pro wraslin’) tripled during the first nine months of 2018. But the typical fan didn’t own the stock; he didn’t have a stock portfolio.

He had only his time to sell – by the hour, the day, the week, or the month.

And his time became less valuable. In March 2009, he could have worked for 40 hours and used the money to buy the entire S&P 500. Now, he’ll have to work three times as long – 127 hours – to buy the same collection of stocks.

And even over the last 12 months, his time took a body slam. According to the Bureau of Labor Statistics, the average working stiff earned $26.71 per hour on January 1, 2018. Today, he earns $27.35 – 64 cents more, or a 2.4% increase.

But the inflation rate for 2018 was about 2.5%. That means he actually lost 2 cents per hour during the last 12 months.

That would account for a savings rate that has dropped to the lowest level in 12 years – 2.4%. A lower savings rate, of course, means that people have less to save… or are drawing down previous savings.

Either way, it is what people do when they are losing ground.


Ugly Bubble

Overall, real wealth (very roughly measured by GDP) grew at about 3% in the U.S. last year – totaling some $600 billion worth of additional output.

But at the same time, debt grew faster. The federal deficit alone was $833 billion (and is already programmed to go to $1 trillion this year). Altogether, corporate, government, and household debt grew by $1.9 trillion – or more than three times as much as the output that must support it.

The 2018 economy was heralded, nevertheless… by the press, Wall Street, and the president… as a great achievement.

Mr. Trump quickly forgot all about the “big, fat, ugly bubble” that he claimed Barack Obama had created. Now, it was HIS big, fat, ugly bubble… and it was beautiful.

Unemployment went down to levels not seen since the 1950s. GDP growth even pushed up into the 3-4% range for a couple of quarters – just as it had under Barack Obama.

Trouble was, it was still a big, fat, ugly bubble… and Mr. Trump made it even bigger, even fatter, and even uglier by adding more lard.

The idea was that cutting taxes for the rich would cause the economy to grow faster and wealthier.

And it would have worked if the feds had cut spending too.

This would have released real resources that the feds were wasting on assorted boondoggles to be put to work shoring up businesses and improving output.

Alas, that part of the message wouldn’t fit into the tweet. Instead, the feds increased spending and increased the debt.

And, as we’ve mentioned before, if you could get rich by borrowing and spending – or by simply “printing” money – there would be a lot more rich people on God’s green ball.

And so it came to pass that in 2018, the Fed continued to lend money at below the rate of consumer price inflation (effectively giving it away)… and Washington continued to spend money it didn’t have on things it didn’t need.

The rich lost money on Wall Street. The poor lost money as the Main Street economy stumbled. The year came to a close, and we were all, collectively, older and poorer. But no wiser.

What’s ahead for 2019? Tune in tomorrow…




STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

January 2nd, 2019

Posted In: Bill Bonner's Diary

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.