There’s too much optimism toward the U.S. economy these days. We are told often that there’s economic growth and prosperity ahead, but is this really the case?
Not too long ago, I had a very in-depth discussion with Michael Lombardi, founder of investment research firm Lombardi Publishing Corporation and the popular financial web site Profit Confidential.
Below is an excerpt from my conversation with Michael Lombardi. It has been lightly edited for clarity and charts were added to offer additional insight:
Moe Zulfiqar: In one of your recent columns, you talked about how 70% of Americans don’t have $1,000 for emergency expenses. What does it say about economic growth in the U.S. economy?
Michael Lombardi: For those who follow the U.S. economy closely, it’s important for them to realize what economic growth actually means. At the very core, it’s when the average Joe American sees his standard of living improve—higher income, better jobs, more savings, bigger house, better car, and more.
If 70% of Americans don’t even have $1,000 for emergency expenses, it’s very hard to believe that the standard of living in the U.S. economy is improving. As a matter of fact, it should scare you.
Moe Zulfiqar: Are there any other data sets that confirm this dire state of the U.S. economy?
Michael Lombardi: There’s a significant amount of data that suggests there’s misery in the U.S. economy, not economic growth. It can’t be stressed enough—you have to look beyond the headline figures. Let me tell you this: the devil resides in the details.
Moe Zulfiqar: What are a few of the statistics you feel investors should look at in detail?
Michael Lombardi: Look at home ownership in the U.S. economy, for one. It’s at its lowest level since the mid-1960s. It has been continuously declining and since 2009, it has taken an absolute nosedive.
You see, in times of economic growth, you would see home ownership increase in the U.S. economy. If home ownership declines continuously, you really have to question the prosperity preached in the mainstream media.
Source: Federal Reserve Bank of St. Louis, last accessed July 28, 2016.
But this isn’t all. Understand that if homeownership is declining, it means fewer and fewer Americans are buying items that are needed to run their households—appliances, furniture, and so on and so forth. It impacts consumption, and consumer spending accounts for a major portion of the U.S. gross domestic product (GDP).
Moe Zulfiqar: We know the Federal Reserve has printed trillions of dollars to bring economic growth to the U.S. economy and that the data is suggesting we haven’t had any. What’s your take on the Fed’s monetary policies?
Michael Lombardi: When the Federal Reserve implemented its first round of quantitative easing (QE), it slightly made sense. It was that or else the financial system would really be in trouble.
What’s mindboggling is that it continued to print. We saw three rounds of QE. As I look at the data, I really have to ask, what did average Americans get out of it? Nothing really. We just saw a massive disparity built up between the rich and the poor in the U.S. economy. This isn’t good and it won’t end well.