<can this keep the top spinning longer then you thought?.>
This has been discussed in places like Contrary Investor, so it's something most of us are aware of. So no, I don't think it keeps things spinning longer than I thought.
Some points about it: the yoy personal income benefit from the tax cut is about over. In 4Q, 2003 wages and salaries reported for withholding to the Treasury was up less than one tenth of one percent (352,253 vs 352,061). In other words in theory, the same number of workers, received the exact same pay. The bogus CPI numbers (EXCLUDING food and energy) was up 1.9% in that period. The tax benefit has been calculated at 4% annualized. So the Fed, Wall Street, and the government would ask us to believe that 1. the exact same worker pool, 2, receiving the exact same wages, 3. receiving a one time boost from the tax cut of 4%, to cover expenses when 4. the CPI is 1.9% higher, which also assumes 5. the consumer doesn't eat and use fuel (not correct as at least 18% of spending is for these items). can 6. continue to spend and borrow at "recovery levels".
So what happens after the last tax refunds, if 1. W&S are flat again, 2. there is no more one time tax refund, and 3. the CPI is still running at 2% (excluding F&E)? And when does the market discount that? And that's the best case.
And what happens if my train wreck scenario plays out? It looks like this: 1. a DECLINE of 2% in wages and salaries. 2. No more tax refunds (deficit is already 1/2 trillion), 3. Inflation in the prices that REAL consumers pay (*)who don't live in Oz or Wonderland (food eaters, and energy users), of 5%, possibly even higher. This would result in a drop of 7% in real personal income for the US as a whole. That by any definition is a train wreck and a depression.
The focus now should totally and exclusively be on wages and salaries, and inflation rates (including food and energy), not residual tax refunds. I'll have an update on post XMAS wages and salaries Tuesday. I can already tell you it won't be flat (it will be down, and will confirm my theory).
(*) Bureau of Labor inflation stats are going to the lab tool header above.
bls.gov |
