As Thursday’s revised gross domestic product number suggests, Main Street knows much more than the Beltway economists about how bad a shape the US is in.
Despite the S&P 500 Index hitting all-time highs almost daily, Americans are voting with their feet.
The eggheads in Washington, from Treasury to the Fed, were all projecting strong growth for the first quarter of 2014 — even after the first read came out saying the “growth” was 0.025 percent, or an annualized 0.1 percent, for the quarter.
And then Thursday’s first revision showed an annualized loss of 1 percent.
Frequently, your local diner owner and your neighborhood bartender, without a college degree between them, can tell you more about the economy than Washington and Wall Street’s “bright lights.”
Unlike the pundits, they know when the orders for steak and shrimp start to give way to meatloaf and tuna salad, and when “the usual” becomes beer instead of whiskey on the rocks.
They know when fewer people are coming through their doors, and they know that means all is not well on Main Street USA.
Thank goodness for bond markets. There’s an adage on Wall Street that the bond market is the smart money, and the bond market nailed this call.
Treasury yields have been falling and falling, and are now at lows not seen since three years ago, the last time that we were supposedly coming out of this economic mudslide with a “green shoots” spring.
The Fed, on the other hand, thoroughly stacked with serial Washington insiders and with not a bona fide business leader in sight, acts as though it doesn’t even realize that it may itself be responsible for this economic contraction.
This economy, with constrictive regulations on bank lending and energy, just can’t get up and grow, despite having interest rates pinned near zero for years.
Financial rehab is a lot like physical therapy: Once you remove the brace (the bond buying and near-zero interest rates), you find out pretty quickly just how sturdy your legs are. Our economic knees are clearly wobbling.
Are there smart people in Washington and on Wall Street? You bet.
But real-world street smarts? Not so much.