The Wile E. Coyote Economy
As youth the Road Runner cartoon show amused us vastly.
The Road Runner character would deceive his murderous pursuer — Wile E. Coyote — over a cliff edge.
Yet this Coyote figure would continue his chase for incredible seconds… disobeying gravity’s iron laws… unaware of his precarious peril.
At this point he’d glance groundward — and receive an updated intelligence report.
Alarmed and stripped of his delusion, he’d succumb to reality and to gravity.
He’d take the inevitable plummet.
May we liken the economy of the United States to Mr. Wile E. Coyote?
We are informed that the economy of the United States bounds along on good, hard earth. It is miles and miles from any cliff.
Thus the president’s White House’s goons inform us that:
President Biden’s agenda has driven the strongest economic recovery America has ever seen, with 13.2 million jobs added, a record number of states with unemployment rates at or below 3% and the national unemployment rate below 4% for the longest stretch in more than 50 years. Economic growth has been strong even as annual inflation has fallen for 12 straight months. At the same time, the president’s Investing in America agenda is already taking hold, with more than $500 billion in new manufacturing and clean energy investments pouring in across the country, while shovels hit the ground rebuilding every state’s infrastructure.
Just so. Yet we hazard the economy of the United States is already over cliff’s edge.
As the deluded Coyote… we believe it is aloft on a false assumption.
It has yet to glance groundward. When it does reality and gravity will perform their pitiless roles.
The economy of the United States will follow the route of Wile E. Coyote — or so we hazard.
The Great Levitation
What presently holds the economy of the United States suspended skyward?
Pandemic-era spending deliriums is the likely answer.
Explains Real Investment Advice’s Mr. Michael Lebowitz:
The economy has marched forward, ignoring higher interest rates and consistent calls for a recession…
Understanding why the economy has done so well is easy. Simply massive stimulus drove consumption…
During the pandemic, the federal government rained money on the public and provided various other forms of financial benefits and relief…
Individuals have primarily used the stimulus-related income from the government to help support their consumption… [which] helped propel the economy…
The fumes of pandemic stimulus and related personal consumption continue to keep the economy running strong despite the increasing headwind of high interest rates.
Thus levitates the economy of the United States — on momentum.
Yet for how much longer? When will it take the groundward glance?
Don’t Look Down!
This Lebowitz fellow believes the answer may be soon:
Personal consumption growth rates are showing signs of fatigue…
The year-over-year growth rate in retail sales is near zero percent. Accounting for inflation, retail sales are falling 2-4% annually. Since the start of the year, retail sales have fallen by half a percent and 2% below where they would be based on the pre-pandemic trend growth…
Consumers… have largely drawn down the stimulus-related excess savings. It appears that savings drawdowns in aggregate will no longer contribute to abovetrend consumption.
And so the gravity-disobeying delusion of economic vigor dangles in peril.
Here is additional evidence that the groundward glance is in prospect — and that the subsequent plummet is in prospect:
Demand for credit continues to weaken. And at the same time, banks are tightening their lending standards. Banks are less likely to extend credit card lines or bump up credit limits. Also, credit card borrowing rates are now over 20%, which means those not paying their balances in full will spend more on interest and, therefore, have less for goods and services.
When will Wile E. Coyote take notice?
We have acquired additional evidence that the groundward glance and the subsequent plummet are in prospect.
This evidence we obtained deep within the channels of the monetary wireworks.
In brief, the nation’s money supply is expanding at a decreasing rate. And this rate decrease exerts a heavy economic gravity.
It can tug an economy clear into recession.
Here we cite Mr. Ryan McMaken of the Mises Institute:
Money supply growth fell again in June, remaining deep in negative territory after turning negative in November 2022 for the first time in 28 years. June’s drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years…
Money supply growth has now been negative for eight months.
That is, the momentum that has held the economy aloft is losing its push.
At some point all momentum will die… and a stall ensues.
Not Since the Great Depression
How severe is the present money growth reduction?
During June 2023, the downturn continued as year-over-year growth in the money supply was at -12.4%
Negative 12.4% — the very angels and saints shriek in horror! More:
That’s up slightly from May’s rate of -13.1%, and was far below June’s 2022’s rate of 5.7%. With negative growth now falling near or below -10% for the third month in a row, money-supply contraction is the largest we’ve seen since the Great Depression.
Since the Great Depression!
Critically: The supply of money need not contract. The mere reduction in its growth rate represents the recessionary gravity:
It should be noted that the money supply does not need to actually contract to signal a recession and the boom-bust cycle. As shown by Ludwig von Mises, recessions are often preceded by a mere slowing in money supply growth.
But the drop into negative territory we’ve seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen. That is generally a red flag for economic growth and employment.
Like I Said, Don’t Look Down
The monetary slowdown has been sufficient to considerably weaken the economy. The Philadelphia Fed’s manufacturing index is in recession territory. The Empire State Manufacturing Survey is, too. The Leading Indicators index keeps looking worse. The yield curve points to recession. Individual bankruptcy filings were up 68% in the first half of the year. Temp jobs were down, year-over-year, which often indicates approaching recession…
These factors all point toward a bubble that is in the process of popping. The situation is unsustainable…
When will Wile E. Coyote finally take the groundward glance?
When will gravity and reality reassert their sovereignty over him?
We do not know. He may dangle yet due to enormous monetary momentum.
As Mr. McMaken himself concedes:
The U.S. economy still faces a very large monetary overhang from the past several years, and this is partly why after 14 months of slowing money supply growth, we are not yet seeing a sizable slowdown in the labor market.
Yet the character is presently over the cliff… airborne… shedding momentum… full of bliss… and ignorance.
Of course… The scene concludes identically on each occasion…
Brian Maher is the Daily Reckoning’s Managing Editor. Before signing on to Agora Financial, he was an independent researcher and writer who covered economics, politics and international affairs. His work has appeared in the Asia Times and other news outlets around the world. He holds a Master’s degree in Defense & Strategic Studies.