The storm has raged for three consecutive days. Winds howl, thunder crashes, and the rain slashes sideways across the Atlantic. A dense fog blankets the surroundings. Even the freshly planted trees are bent by the gusts; they’ll need support—staked and secured like sailors weathering a fierce squall.
The gloomy atmosphere is oddly satisfying. Usually, in the afternoons, we spend a couple of hours outdoors to get what doctors refer to as ‘exercise’ and what our working-class friends call ‘work.’ Currently, we’re constructing a stone base for a greenhouse, repurposing stones from a dilapidated farmhouse alongside vinyl windows salvaged from homes recently renovated. The biggest cost lies in the roofing. We could opt for polycarbonate sheets, which would be less expensive and simpler to install, but double-glazed glass offers a much better look and durability that will outlast our enjoyment.
So, the stonework has been postponed. Yesterday was spent cozying up to the fire with tea, watching the relentless downpour and the rhythmic sway of the treetops.
This downtime allowed us to ponder—a risky endeavor in any weather—particularly about how the post-1971 artificial dollar has distorted the entire economy, making it nearly impossible to decipher. Every sales figure seems disguised, profits show up under aliases, and even the most straightforward trends are fabricated. As we’ll discover, inflation itself isn’t quite what it appears to be. Like the vinyl windows—practical but not genuine. (More on that tomorrow.)
To start, here’s some positive news from Charlie Bilello:
Americans now own over $60 trillion in stocks & mutual funds, more than 3x higher than a decade ago.
And additional good updates from Chosun LBO:
The Wall Street Journal (WSJ), citing data from financial information firm FactSet on the 24th, reported that S&P 500 companies’ third-quarter net profits are expected to rise approximately 30% year-over-year. This estimate combines actual results from companies that have already reported and forecasts from those yet to announce.
The strong performance of NVIDIA and Micron is driven by surging demand for AI semiconductors, particularly memory chips. Suppliers have been able to command higher prices, significantly boosting profits.
Consider this: a boost in a carpenter’s sales may happen if a plumber invests in a new worktable. Similarly, the plumber’s income might climb when a butcher installs new equipment. And the butcher… well, you get the point. Companies can raise revenue and profits by selling tools and facilities to each other. It’s a cycle, like a village of laundresses washing each other’s clothes.
However, the true source of profit growth comes from selling goods and services to end consumers—not just inter-business transactions. Payments for plant and equipment are just business costs exchanged internally. Firms can trade these expenses, but only to the extent that consumer sales profits justify them. Building a new auto showroom means you have to actually sell vehicles. Even if you sell a fleet to a nearby delivery company, eventually those vehicles must be bought by consumers.
Consumers, unfortunately, don’t have the luxury of the federal government’s infinite balance sheets. Their spending power is limited and stretched to the edge. Charlie Bilello explains:
Real average hourly earnings have now declined on a YoY basis for six consecutive months, falling 0.7% over the past year. The stock market may be near record highs, but that doesn’t mean everyone is participating equally in the gains. Nearly 1 in 5 American families fell behind on debt payments in 2025, the highest share since 2010.
Moreover, there’s little expectation that consumer incomes will rise anytime soon. The Committee for a Responsible Federal Budget reports:
Social Security is Now Less Than Six Years from Insolvency
The Social Security retirement trust fund is now less than six years from insolvency, according to CRFB’s Insolvency Countdown Clock. Without action from policymakers, beneficiaries will face a deep and abrupt 22% benefit cut when the retirement fund is exhausted in late 2032. That is when today’s 61-year-olds will reach their normal retirement age and when today’s youngest retirees turn 68.
Since consumers can’t easily boost their spending, the only way businesses can grow sales and profits is by taking market share from rivals. Some will gain; others will lose. However, the overall profit pool can’t expand beyond certain limits. So, where could extra profits come from?
Take the truck driving sector: roughly 3.5 million drivers each earning about $51,000 annually. Then arrives AI-powered self-driving trucks, pushing drivers out of work.
Is this bad news? Not really. Trucking companies save substantially. Consumers benefit from cheaper shipping, which translates to lower prices for goods. Both shippers and buyers gain purchasing power.
But here’s the catch: as trucking costs decline, firms compete by reducing freight rates, pushing profit margins back to pre-AI levels.
Doesn’t that mean everyone’s wealth increases? Actually, no. When prosperity is shared evenly, no one truly appears richer. People care about tangible wealth they can display. Although today’s citizens are wealthier in many respects than Louis XIV, no one parades around boasting about it. Enhanced productivity improves all lives but doesn’t land everyone on the Forbes wealth list.
Now, revisiting the headlines: investors hold $60 trillion, triple the amount from 2016. But do they genuinely ‘own more’? Or is this another illusion?
Back in 2016, the Dow was about 19,000 and GDP approximately $19 trillion—roughly one unit of stocks equaled one unit of output. Presently, the Dow trades at 52,000 with GDP near $32 trillion. Investors feel richer, but each Dow unit now represents one unit of GDP plus an extra 0.6 units of output that never materializes—a form of phantom GDP no one enjoys.
Meanwhile, these firms report profit growth of a staggering 30%.
But how can profits surge six times faster than GDP in an economy lumbering forward at a nominal 5% growth rate, burdened by over $100 trillion in combined public and private debt? Where is the additional money coming from? Consumers are maxed out. The ‘profits’ must be plucked from other businesses, each borrowing and spending in hopes of future sales.
But who’s buying? The truck drivers who’ve lost their jobs?
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