(International Man)—Even if you put a lot of stock in government manufactured GDP owing to unhinged spending and deficits, which we most definitely do not, it would be wise to be careful about what you are applauding. The allegedly resilient US economy, which is purportedly defying the Fed’s interest raising campaign, isn’t nearly what it’s cracked up to be.
There was a hint of this in Walmart’s Q4 earnings announcement yesterday in which it noted a “choiceful consumer” was spending less per trip and curtailing outlays for discretionary items in favor of low-cost necessities. And that admission was more than evident in the steady deflation of its USA comp store sales trend.
The figures in the chart are in nominal dollars, which declined by more than 50% between Q4 2023 (+8.3%) and Q4 2024 (+4.0%). Admittedly, inflation has been coming down too, as reflected in our trusty 16% trimmed mean CPI. The latter posted at +6.6% on a Y/Y basis in Q4 2023 and +3.8% in Q4 2024.
Still, the math says constant dollar sales have slipped even more than the reported nominal figures. The inflation-adjusted Y/Y gain in Q4 2023 was +1.7% compared to just +0.2% in the period just ended (Q4 2024).
Both figures are on the punk side, but there is “no way, no how” that the core main street consumer, who is a Walmart shopper by necessity, is in the pink of health as the stock peddlers of Wall Street and the “Joe Biden” puppeteers of the White House would have you believe.
Moreover, for want of doubt it should be noted that these marginal real sales gains were not due to the mighty Walmart loosing market share, either. The company reported that its surging eCommerce sales passed the $100 billion mark last year and that consequently Walmart “is gaining share in nearly every category”, according to CFO John Rainey.
So, the more appropriate question is not why the American consumer has been so resilient, but why the clearly fading consumer has remained in the game even this long.
Actually, however, there is no real mystery about the US economy’s defiance of the long-predicted recession. Nor is the purported stay of execution evidence that the geniuses at the Fed have orchestrated a “soft landing”.
What is happening is that some of the massive amounts of government manufactured GDP which flowed from $6.5 trillion of stimmy spending during the 12 months after March 2020 got temporarily placed in cold storage at household bank accounts. And since then it has been slowly dribbling into the spending stream, thereby bolstering demand stemming from current period production and earnings.
We think a good measure of this delayed “stimmy effect” is captured by the relationship between high-powered consumer spending accounts—checkable deposits and currency—and national income. That ratio had varied between 4.0% and 6.5% during the two decades prior to Q1 2020 but took off like the literal rocket ship shape depicted in the chart below.
As of Q3 2019, these spendable cash balances totaled $938 billion and represented about 4.3% of GDP. But by the peak of the stimmy tsunami in Q3 2022 the figures stood at $4.8 trillion and 18.5% of GDP. In the graph this implicit $4 trillion surge in household cash balances looks like a big middle finger, and well it might be.
Households have told the Fed in so many words that interest rate increases or no, they are sitting pretty on an aberrational $4 trillion cash cushion. They apparently intend, therefore to keep on spending the usual 96% of what they are currently earning, thereby causing the Fed’s vaunted monetary brake to essentially fail.
Household Checkable Deposits and Currency as a % of GDP, 2000 to 2024
Needless to say, this vast lump of household cash didn’t happen owing to a sudden lurch into a high savings modality by American consumers or any other kind of financial immaculate conception. This stuff was figuratively dropped from Washington helicopters in the form of the three Covid relief bills enacted between March 2020 and March 2021, which collectively flooded $6.5 trillion into the US economy.
Moreover, most of that didn’t stem from honest deficit finance in the bond pits, which, in turn, would have curtailed (“crowded out”) investment spending by business on fixed assets or working capital. Instead, during this same period, the Fed printed roughly $5.2 trillion in new credits snatched from thin digital air, amounting to fully 80% of the Federal spending and borrowing bacchanalia.
In this context, the Commerce Department’s transfer payments numbers leave nothing to the imagination. As show in the graph below, prior to the pandemic the annualized rate of government transfer payment spending was about $3.1 trillion. It had been steadily creeping higher to that level during the previous years and by February 2020 amounted to a not inconsiderable 22.1% of personal consumption expenditures (PCE).
And then the stimmy flood swept through the US economy like a tsunami. By April 2020 after the CARES act hit the economy, the transfer payment rate had doubled to $6.3 trillion. After the third stimmy in the form of Biden’s American Rescue Act it surged further to the fantastic rate of $8.1 trillion by March 2021.
At this latter point the rate of stimmy fueled transfer payments amounted to a staggering 52% of the nation’s $15.7 trillion of PCE. In a word, Washington had descended into absolute lunacy.
This conclusion is especially warranted because most of the massive flow of stimmy money was additive to income based spending, not some kind of latter day Keynesian substitute for lost earnings. In fact, personal income less transfer payments (i.e. earned income) had posted at a $15.77 trillion annual rate in February 2020 and had risen—lockdowns and layoffs notwithstanding—to $16.35 trillion or by nearly 4% by March 2021.
In short, households got flooded with so much cash from the combination of normal production and income plus the flood of stimmies that they could not possibly spend it all. And that was even as they loaded up on merchandise goods from Amazon, while their normal venues of spending in the services sector (restaurants, bars, movies, gyms, malls etc,) were locked-down by government order.
Alas, the extra cash went into the above mentioned $4 trillion of cold storage, where it hangs like an economic sword of Damocles over the Fed’s desperate efforts to curtail the inflation Washington unleashed.
Annualized Rate of Government Transfer Payments, January 2019 to March 2021
Needless to say, that which is wholly artificial and wildly aberrant is not sustainable in the longer run. The $4 trillion pile of excess household cash, therefore, is slowly being worked down and by Q3 2023 was already $561 billion or 12% below its peak level of a year earlier.
Moreover, we are talking here not just about spending wherewithal that is being withdrawn from cold storage, but also about the consumer psychology that goes with it. In a word, it is likely that all this unusual cash in the bank has made consumers far less cautious than would normally be the case during a Fed tightening cycle, when debt service costs would be going up sharply and the fear of rising unemployment and loss of income would be in the air.
But as this cash pile steadily erodes, the psychological boost to consumers is likely to diminish steadily and likely in greater proportion than simply the reduction of dollar balances. Cash which is burning a proverbial hole in the pocket, will burn far less brightly as the pocket empties.
At the same time, the current aberrantly low savings rate is likely to be pushed higher as caution returns to the main street economy. In fact, the insanity of $6.5 trillion worth of stimmies flooding into the economy during March 2020 to March 2021 literally mangled normal economic flows and patterns.
Thus, in December 2019, the pre-pandemic savings rate (black line) was 6.4% and it represented $1.051 trillion of dollar savings at an annualized rate. But by April 2020, the sight unseen $2.3 trillion CARES act had literally shot out the lights in the macroecnomy.
The savings rate soared to a never before even approached rate of 32.9%, which amounted to a savings flow of just under $6.0 trillion at an annualized rate. And when the March 2021 stimmy hit, the same wild aberration once again ensued.
Needless to say, that’s where all the extraordinary cash in cold storage originated. The fools in Washington so mindlessly pumped spending stimulus into a semi-shutdown economy that it had no place to go except into the bank.
At some point not too far down the road, however, a great reversal is likely to happen. The ice cube of excess savings will melt as it comes out of cold storage, causing the household sector’s $4 trillion cash cushion to become depleted and the desire for cautionary balances to return to consumer finances. Accordingly, the rock bottom savings rate of 3.7% in December 2023 could readily return to the 6.4% average of 2017 to 20219.
In dollar terms that would take $500 billion out of the PCE stream, even as the spending supplements from household cash balances will have diminished sharply.
We’d like to believe this will happen by October 2024. The puppeteers managing “Joe Biden” deserve the economic comeuppance implicit in their silly boasting about the virtues of Bidenomics.
But even more to the point, the wanna be monetary politburo in the Eccles Building sooner or later will be deprived of its ballyhooed “soft landing”.
And the sooner, the better.
US Household Savings Rate And Savings Level, 2017 to 2023
Editor’s Note: The truth is, we’re on the cusp of an economic crisis that could eclipse anything we’ve seen before. And most people won’t be prepared for what’s coming.
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Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.