The numbers are in. And they are ugly…
Based on preliminary first-quarter data, U.S. GDP (gross domestic product) growth is 0.1%.
That's not much.
But then again what do you expect for $3.4 trillion of Federal Reserve spending to boost the economy?
So the question is, how is it possible that we've got nonexistent economic growth, or worse, negative growth and possibly another recession looming, when the Federal Reserve since September 2008 has spent $3.4 trillion to prime the economic pump?
This could push the whole economy past the brink…
The Ugly Truth on Fed Intervention
First of all, the preliminary GDP number, which is the total output of goods and services produced by labor and property minus imports, will be revised on May 29, 2014.
A majority of economists are already revising their estimates down into negative territory.
The consensus view expects the revised or "second" GDP number will actually show the economy contracted by 0.5% to 1% in the first quarter.
Not that the second quarter is expected to be bad just because of a slow first quarter. In fact, a majority of pundits, including the Federal Reserve itself, are saying because the first quarter was so bad the economy will bounce robustly in the second quarter.
But if they're wrong and the second quarter shows negative growth, that's really bad.
It's bad because two consecutive quarters in a row of negative GDP growth is the definition of a recession.
Why has the Fed intervention failed so miserably in spurring growth? It's an ugly truth but needs to be told.
Since the credit crisis, which spawned the Great Recession, the Federal Reserve has been trying to build a bridge to growth. The truth is they've spent trillions on their bridge efforts, but they can't deliver the destination.
Here's what's frightening: What seems like misguided Federal Reserve policies to stimulate economic growth by printing egregious amounts of money was never a misguided policy of trying to stimulate the economy. It was a massive liquidity and profit-making program designed to first save, then enrich, the nation's biggest banks.
Economic growth was the expected byproduct of the Fed's "trickle-down" banking bonanza.
Why It Didn't Work
The reason we're not seeing that trickle-down growth is because the banks aren't lending as they were expected to.
They aren't lending robustly into the economy because they've had to pay out billions of dollars in fines and legal costs.
That plus their former freewheeling speculative trading gambits with depositor money are being shut down thanks to Dodd-Frank and the Volcker rule, and they are facing their worst free-market enemy, a flattening yield curve.
It's common knowledge that all the nation's too-big-to-fail banks would have all failed if the Fed hadn't bailed them out. Any one of them collapsing, after what happened when Lehman Brothers imploded, would have brought down all of them like a professional bowler throwing a 50-pound ball down an alley with gutter guards.
It's impossible for there to be any economic activity if there are no banks. So, the Fed did what it had to do to save the big banks.
Join the conversation. Click here to jump to comments…
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains.Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.
Some months ago, you recommended acquisition of VXX as protection against a declining market. Where do you stand now on that?