Post 244

A snapshot of what’s going on in the world’s economy.  Financial Ructions and book reviews can be a bit more technical so feel free to skip them.  See disclaimer at the end of this note.

Apologies as there are a lot of numbers in today’s post.


  • A bit of fun with names.
  • Traffic to fast food restaurants is falling.
  • A fair bit of stuff on the potential retirement crisis heading our way.
  • The US national savings rate (personal, corporate, government, foreigners) has been declining since the 1970s.
    • It’s now negative.
    • Spoiler alert: That’s a really bad thing for productivity growth.
    • Guess who the main culprit is.
  • In Financial Ructions:
    • The US stock market is overvalued.
    • Revisiting GDP vs. GDI.
    • The Fed’s preferred inflation measure ticked up in February.
      • But core ticked down.
    • And consumers are not saving enough.
      • How can they when the cost of living has soared over the last four years?


The Name Game

Further to my note in the last post about people pursuing careers related to their name.

  • Obituary here for Brian Robert Law.
    • Guess his career.
  • Thomas Crapper improved upon the functioning of the toilet.
  • Short article ‘here’ on where some names had their origin.
    • A few examples:
      • Baxter: a woman who bakes.
      • Cooper: a barrel maker.
      • Hooper: someone who makes hoops for barrels.
      • Parker: gamekeeper
      • Thatcher: roofer
        • PM: I’m changing my last name to Berger.

Speaking of Which: Fast Food Dining is Slowing

According to Revenue Management Solutions:

  • Traffic to fast food restaurants (also known as QSR or Quick Serve Restaurants):
    • Jan: -4.5%
    • Feb: -2.1%
      • Breakfast: +0.3%
      • Lunch: -3.4%
      • Dinner: -0.2%
  • Prices were up over 4%.
    • A this time last year prices were up over 10%.
  • Delivery is still growing over 10%.


From the National Institute on Retirement Security:

  • Percentage of Americans who believe the US is facing a retirement crisis:
    • 2020: 67%
    • 2024: 79%
  • More than half fear they will not achieve financial security.
  • Three quarters of people say that the disappearance of company pensions makes it more difficult to achieve the American dream.
  • 90% of Americans believe funding should be increased for Social Security to ensure it doesn’t become insolvent in 2034.
    • Of course, many of those now receiving Social Security are not funding it, but still, that’s a high number.

From my post of October 2023:

Endgame Approaching

Each year Social Security payments are adjusted higher for inflation.

  • Over the past 20 years, the payment has gone up each year by an average of 2.6%.

The annual increases effective in January of each year over the last few years have been as follows:

  • 2021: 1.3%
  • 2022: 5.9%
  • 2023: 8.7%
  • 2024 announced: 3.2%
    • The monthly payment will rise to $1,906
    • $22,872 per year.
      • $31,766 in Canadian dollars.
  • 67 million retired and disabled people receive Social Security cheques.
    • For approximately 14% of them, or 9.4 million people, Social Security is pretty much their only form of income.

At the current level of taxes funding Social Security and benefits draining it, the program is expected to be insolvent by 2034.

  • By law, if the fund is insolvent, it will trigger an across the board 23% cut in benefits.
  • To stave off insolvency:
    • Benefits need to fall.
    • Taxes need to rise.
    • The retirement age needs to rise.
    • Or all three.

Lower Savings = Lower Investment = Lower Productivity Growth

US National Savings Rate (FRED) is calculated by adding up the savings of:

  • Consumers
  • Businesses
  • Government (cue laughter)
  • Foreign investment

US national savings rate by decade:

  • Late 1940s: 8.5%
  • 1950s: 10.5%
  • 1960s: 11.5%
  • 1970s: 8.7%
  • 1980s: 5.6%
  • 1990s: 4.5%
  • 2000s: 2.3%
  • 2010s: 2.3%
  • 2020s: 1.0%
  • 2023: -0.3%

PM: I think I see a trend.

  • Personal savings rates have been falling over the years, but it is primarily government deficit spending (see below) that is destroying productivity growth.
  • Note that the national savings rate started to fall in the 1970s i.e. after the US went off the gold standard in 1971.
    • This opened the floodgates in terms of the government spending far more than it collected in taxes.

US Fiscal Deficits: Reckless

A fiscal deficit is when a government spends more money than it collects in taxes.

  • According to the orthodoxy of Keynesian economics (I’m not a Keynesian), deficits were “generally” recommended during economic slowdowns.
    • That is, as people are laid off, governments spend more of taxpayer dollars (from taxes or debt) to help cushion the blow for those who are unemployed etc.
    • When the economy recovers government is supposed to reduce spending (cue laughter)

Key times in history:

  • Great Depression average: 2.9%
  • World War II average: 15.3%
    • Note that spending as a percentage of GDP soared even though GDP also soared during the war years.  See ‘here.’
  • 1946-1980: 0.7%
    • Golden age.
  • 1983 Recession: 5.7%
  • 1984 to 2008 average: 2.3%
    • The great moderation.
  • GFC: 9.8%
  • COVID: 14.7%
  • 2023: 6.2%
    • This in a so-called booming economy.
    • What’s booming is:
      • Government spending
      • The debt burden heaped on the next generation.

Financial Ructions

Note: ‘Financial Ructions’ is optional-to-read for those who are interested in taking a bit of a deeper dive…

David Rosenberg

In a Globe and Mail interview with David Rosenberg:

  • Current PE multiple on the S&P 500: 21x
  • Normalised multiple based on today’s interest rate: 16x
    • Lower by 24%.
    • PM: And that assumes no fall in earnings.

Key Interest Rates

Central banks interest rates:

  • US Federal Reserve: 5.33%
  • Bank of England: 5.25%
  • Bank of Canada: 5.25%
  • Royal Bank of Australia: 4.35%
  • European Central Bank: 4.00%
  • Swiss National Bank: 1.50%
  • Bank of Japan: 0%-0.1%

GDP Going Up, GDI Going Down

A number of people believe that taking the average of GDP and GDI gives a more accurate reflection of what is going on in the economy.

2023 (BEA)

  • Gross Domestic Product (GDP):
    • 2022: 1.9%
    • 2023: 2.5%
  • Gross Domestic Investment (GDI):
    • 2022: 2.1%
    • 2023: 0.5%
  • GDP and GDI average:
    • 2022: 2.0%
    • 2023: 1.5%

PM: At the end of Financial Ructions I’ve reposted from last month on one possible reason that there is such a large difference today between GDP and GDI.

US Inflation

The US (PCE) Personal Consumption Expenditure Price Index:

  • Oct: 2.9%
  • Nov: 2.7%
  • Dec: 2.6%
  • Jan: 2.4%
  • Feb: 2.5%

Core PCE (excluding food and energy):

  • Oct: 3.4%
  • Nov: 3.2%
  • Dec: 2.9%
  • Jan: 2.9%
  • Feb: 2.8%

Savings rate:

  • Nov: 4.0%
  • Dec: 3.9%
  • Jan: 4.1%
  • Feb: 3.6%

Average personal savings rate since 1959: 8.5%

By decade:

  • 1960s: 11.2%
  • 1970s: 12.2%
  • 1980s: 9.8%
  • 1990s: 7.2%
  • 2000s: 4.2%
  • 2010s: 6.2%
  • 2020s: 8.4%
  • 2024: 3.6%
    • Note that during COVID the savings rate went to over 30%.
    • Since the end of 2021: 3.9%
    • PM: People are not saving enough.

PM: A reminder here of the difference between CPI and PCE:

Some of you may have noticed that each month there are two different inflation numbers that are released in the US: CPI and PCE.

  • The Bureau of Labor Statistics or BLS produces CPI (consumer price index).
  • The Bureau of Economic Analysis produces PCE (personal consumption expenditure).

Click ‘here’ for 29-page explanation, and gets quite complicated but here is a stab at some of the main differences between the two:


  • CPI only considers out-of-pocket expenditures.
  • PCE includes both out-of-pocket and expenditures made on behalf of consumers i.e. not out of their own pocket.
    • Those spending on behalf of consumers would include:
      • Government
      • Non-profit organizations
      • The private sector


  • CPI only measures spending by urban consumers.
  • PCE measures spending by both urban and rural consumers.


  • CPI measures what consumers purchase from businesses.
  • PCE measures what businesses sell to consumers.


  • CPI is a better short-term measure
  • PCE is a better long-term measure.

The Federal Reserve prefers to use PCE when determining monetary policy, but the report says that this does not mean the PCE is a better gauge of inflation.

  • The Fed prefers PCE because it:
    • Reduces substitution bias.
      • This happens because CPI keeps weights in the CPI basket fixed for two years.
      • So if consumers are switching from more expensive apples to less expensive oranges then the weight of the more expensive apples in the CPI should go down as people are buying fewer apples.
      • PM: Seems to me that by reducing the weight of apples CPI would then be understating inflation.  Yes, people are buying fewer of them but only because their price went up.
    • Captures a broader part of the economy.
    • Better reflects methodological changes (whatever that means).

My post from last month:


Gross Domestic Product (GDP) is what policymakers use to measure the strength of the economy.

  • However, GDP can be a misleading measure of the strength of the economy and fosters poor policy responses from politicians and central bankers.
  • GDP is measured in a few ways and one of them is the expenditure method which measures all “final” spending in the economy.
    • It only measures final spending and does not include intermediate spending in order to avoid double-counting.
      • So, for instance, if you baked a loaf of bread and sold it for $3, that $3 would be included in GDP.
      • But the money you spent on things to make the bread such as flour and yeast etc. would not be included.
      • If you had spent $2 on ingredients for that loaf and that $2 was added to the $3 loaf then it would look like the economy produced $5 worth of stuff, but it only produced one loaf worth $3 i.e. the $2 of ingredients are in the loaf.
    • However, the problem with this is that investment that results in intermediate spending and new jobs doesn’t get counted in the GDP number.
      • But spending resulting from mailing out billions of dollars of stimulus cheques does get counted.
      • And so do the salaries of tens of thousands of new government workers who have been added to the payroll over the last few years.
    • Therefore government encourages consumption over investment.
    • Because consumption makes up around two thirds of final spending, many policymakers foolishly believe that spending rather than investment is the fount of economic prosperity.
    • However, the spending is only made possible by first saving and investing and producing stuff.
    • Spending that results from the government taking on debt or printing money to mail out stimulus cheques is simply a redistribution of wealth that has already been created.
      • That redistributed wealth is then consumed instead of invested, which weakens the productive capacity of the economy.

GDI stands for Gross Domestic Income and should be the same as GDP or Gross Domestic Product.

  • The reason is that every time someone spends money it becomes someone else’s income.
  • So, if GDP is a measure of all final spending it must equal all income.
  • And indeed, for decades this was true, except until now.
  • You can see in the above chart that GDP continues to move higher while GDI is flatlining.
  • The divergence started in September 2022.
  • One possible reason for the divergence according to an article on Zero Hedge, is that the Fed used to remit “profits” to the Treasury, but ever since September 2022 the Fed has been losing money.
    • This was the exact date that the two measures started to diverge i.e. GDI started to fall and GDP continued to rise.
    • My understanding is that the Fed’s losses that result from it paying out more interest than it is receiving results in an income to financial institutions which is not getting captured in GDI.
    • This has since been adjusted and is estimated to eliminate half of the difference between the two measures.
    • The article suggests that those same Fed payments will be subtracted from GDP which will bring the two measures closer together.
      • From the article: The bigger change will be seen in the GDP which will now account for (more properly) the costs related to Fed interest rate expenses.

Disclaimer: Note that Paulitical Economy™ should not be considered as investment advice, and I have not verified all of the sources of information.  It is meant for general interest purposes only.  Please consult an advisor if you plan on putting any of your hard-earned capital to work during these turbulent times.

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