Week Ending in August 23, 2024

 

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.

Mark Twain said, “There are three kinds of lies: lies, dammed lies, and statistics” … Job growth reduced by 818,000. Over 100 years ago Mark Twain summed up the Bureau of Labor Statistics (BLS) ability to lie, keep lying, and never be held accountable as long as we suffer under incompetence and lack of accountability by the national media and press.

What does it mean – I have been commenting for months that the BLS has been lying to the American people and the press has been silent. It seems that almost every job report that comes out is followed by a nearly impossible downward revision and the media is silent. Now that the Fed had to face reality due to their year-end report, the job growth was reduced by 818,000 for the past year.

Per the report, it is not clear if that is the full reduction that should have been made. It may be far more than 818,000 as job growth estimates from the private sector are closer to 130,000 jobs per month not the 150,000 that came from the report. Worst is that all the reductions have been in the private sector and virtually zero reductions in government, healthcare, and education (nearly all funded by the taxpayer).

For nearly four years we have been hearing about the massive job creation in leisure and manufacturing. Reality, it was nowhere to be found in the report. In fact, it was a negative for both sectors. The 2022 numbers also saw a reduction in jobs from what was reported last August for the 2022 report. In fact, the only year the annual report was not revised down was 2021. This was the first year we benefited from the rebound from COVID.

Zero Hedge provides a great chart depicting the job market under the policies of the Biden/Harris economy. For almost two years, our letter, “What Happened Last Week and What does It Mean” has been screaming about the continued downward revisions to the job reports and lack of reality when compared to the private sector. The labor market is, and was, far weaker than believed by the media and economic pundits. In fact, over 800,000 jobs are missing if we looked at the far more accurate Quarterly Census of Employment and Wages data rather than what the BLS reports. The BLS has been and is woefully inaccurate, and this politically mandated payroll data is not a real representation of reality. Unfortunately for us taxpayers, it is just another example of why Americans are wasting money on a massive, poorly supervised, and unaccountable agency. Here is a look at the chart.

The monthly gains across most of 2023 showed gains of 218K jobs added on average every month. In reality, it was closer to 150K, a 31% decline or nearly 68,000 fewer jobs per month. Now that the facts are out and with almost no media attention, or questions from the media to this administration or its appointed candidate, one should ask themselves, what would the market really look like if it had known that effectively all the payroll “beats” of the past year would be deleted!

$1 trillion in new debt every 100 days…The United States Taxpayer is subsidizing all the missing growth in the private sector in addition to massive government expansion.

What does it mean – According to CNBC and every other agency and media source tracking the growth of our debt, the U.S. debt is growing by $1 trillion every 100 days.

If only we could get the average American to pull their face out of their phone or away from social media for a moment to educate themselves on what this means, we might be able to ward off more of the same and stop kicking the can down the road and hold DC accountable for their inexplicable actions and policies and elect ones that will reduce the size of government.

If this debt went to growing our economy without forcing less than half our population to support the other half and those here illegally, I believe this would not be an issue. Unfortunately, the reality is:

1.    Taxes are up.

2.    Regulations (more government) are stifling growth and costing us all $ billions in higher fees and adding to increasing costs and higher prices.

3.    U.S. border is wide open, and many jobs are going to illegal immigrants and not to Americans citizens.

4.    The value of the dollar is being gutted by your federal government’s policies and in some cases your states.

5.    Inflation is compounding at rates not seen in years.

From September 3, 1783, the end of the Revolutionary War and beginning of our nation to August 22, 2008, our debt went from $0 and a promise to pay our soldiers who freed us from tyranny and taxes to just over $9 trillion in 225 years. Yet, for the last 16 years we have pushed our country closer to socialism and greater government control through policies that started under FDR and Johnsons Great Society and have forced more people on to the welfare rolls and plethora of social programs as a percentage of population than have gotten people off the tit government. Our debt in 16 years is up nearly $26 trillion. That’s some serious inflation combined with insanity from your elected officials.

There is a sign of hope. Prior to COVID we had one period that only saw our debt go from $19.9 trillion to $22 trillion in 4 years. From 2016 to 2020 the government increased its debt by $2.2 Trillion. V’s an average of $7.93 trillion every 4 years and growing faster under this administration and policies that expand government and limit your economic freedom. Makes you wonder what those policies are and why are we continuing the ones that have more than tripled our debt over the last 16 years? Hmmm.

Over the last 50 years we have seen policy destroy the value of the dollar, creation of families, and make our world less safe. Here are a couple of great visuals of what State-run capitalism (social programs and less competition) really costs. And what it will cost this year.

 

 

 

California, you just can’t make this up!!!… Lawmakers in California have pushed forward a bill that prioritizes illegal aliens over veterans and hardworking citizens by offering them zero down payment loans through the state’s first-time homebuyer program for up to 20% of the value of the home or maxed out at $150,000.

What does it mean – AB 1840, which already passed the Assembly and now faces a floor vote in the Senate, would prevent the state’s California Dream for All Shared Appreciation Loans program from denying individuals on the basis of their immigration status. This program allows applicants to secure “loans” of up to 20% of the home’s purchase price — or, about what a typical down payment is — with zero down payment on this state loan, and no payments.

What it really means is that California would rather take resources away from its citizens and reward those that the very first thing they do is break our laws. It means that you will not only have to compete with the federal and state government as they house more and more illegal aliens and the State of CA as we now have over 32% of the homeless in this nation and our state has spent billions on building or retrofitting buildings to house them, provide food, and illegal drugs to make sure they are “truly” cared for in the CA nanny state utopia.

I wonder if CA legislators and Governor have thought what this will do to home prices? Are they too ignorant to realize that more free money will further cause inflation and will specifically target housing further eroding the American dream of home ownership for American Citizens? Or do they just not care and will do anything to keep their power and indoctrinate a new class of citizens enslaved and held hostage by government handouts?

Home ownership in CA is already at the worse levels in history due to the terrible policy that has led to the last housing crisis brought on by equal lending acts and other government funded policies driving up the cost of ownership. Do they not realize that sellers will jack the prices by 20% or up by $150,000 to maximize the free money illegal aliens will get from you, the taxpayer? What about the future ability for those folks to pay higher property taxes on homes that are now far more expensive than the buyer can afford. What will the opportunity cost be on infrastructure. Our roads are already the worst in the nation, schools reflect the moral decay in Sacramento and DC, and private healthcare has been almost completely gutted due to government policies. It resembles that of a third world nation. Just check out an emergency room in Los Angeles, San Francisco or any large city in CA. Add the $150,000 and the $25,000 that Vice President Kamala Harris wants to give and that is $175,000 to illegals and $25,000 to citizens. First of all, they are illegal. Second, as a citizen, this should make your blood boil. How is someone who is here illegally and not allowed to work in the USA going to pay the additional property taxes of nearly $2500 per year on a home that costs $175,000 more than normal due to stupid policies? Good luck getting that from folks that got in without any skin in the game, do not follow the rule of law, and are absolutely playing the system promoted by extortionists and thugs in Sacramento and DC.

I guess we now know where Vice President Harris got her idea of giving new home buyers $25,000 to put down on a new home. California leads the way in insanity. But don’t worry it’s not inflationary and won’t hurt the taxpayer. This is further proof that government is not the solution but the disease and cancer that metastasizes into self-destruction.

How about we go back to promoting, fostering, and rewarding the pursuit of life, liberty, and the pursuit of one’s happiness through a life of independence and self-determination and follow our constitution so that this nation, The United States of America, remains a nation of the people by the people for the people.

Let’s roll America!!

Doug De Groote, CFP®, MBA, CTC
Managing Director

De Groote Financial Group, LLC is a federally registered investment adviser that maintains a principal office in the State of California. The information contained in this message is confidential, protected from disclosure and may be legally privileged. If the reader of this message is not the intended recipient or an employee or agent responsible for delivering this message to the intended recipient, you are hereby notified that any disclosure, distribution, copying, or any action taken or action omitted in reliance on it, is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by replying to this message and destroy the material in its entirety, whether in electronic or hard copy format.