Reuters is reporting on a stunning financial prediction coming from the Federal Reserve in Atlanta.  Their 2nd Quarter prediction falls in line with many of the “new dimension” economic predictions we have been anticipating.

The Atlanta Fed is predicting 4.3% growth:

NEW YORK (Reuters) – The U.S. economy is on track to grow at a 4.3 percent annualized pace in the second quarter, rebounding from a 0.7 percent increase in the first quarter which was the weakest in three years, the Atlanta Federal Reserve’s GDP Now forecast model showed on Monday.

This is much faster than the latest second-quarter gross domestic product estimate of 2.33 percent from the New York Federal Reserve.  (read more)

There is a disconnect in traditional economic quantification that we have been predicting for well over a year.  It’s the same disconnect currently reflected in the jobs numbers between payrolls and the Fed explained here.  We also outlined additional data two months ago which the federal economists admit they cannot reconcile – Expanded HERE.

For 30+ years U.S. economic political policy has been driven by Wall Street interests. STOP. Main Street, the middle-class and the American worker have suffered. STOP. The successful election of Donald Trump, and the execution of his “main street” economic policy agenda, has sledgehammered the prior economic machine into a full seizure an halt. FULL STOP.

It was Albert Einstein who aptly stated:

“The significant problems we have cannot be solved at the same level of thinking with which we created them.”

The same basic principle applies to those who are trying to understand and evaluate current economic activity yet failing to disengage themselves from their historic economic frames of reference.

Minds who are framed around thirty years of financial political policy, intended to influence the U.S. economy and created by vested interests who were building out the legislative priorities based on Wall Streets’ best interests, will struggle to understand the new landscape which is entirely formulated to benefit Main Street.

The two economic engines are entirely divergent and detached. Time, along with focus only on Wall Street interests, has pushed those two economic engines further apart. The same policies which worked in the immediate past will not work in the immediate future.

The two economic engines are now in reverse level of importance.  Trump economics focuses on Main Street’s economic engine.  The Fed is stuck focusing on the economy through the prism of Wall Street’s economic engine.

We are now in the economic space between both engines. The traditional cause and effect (Fed) is now uncoupled.  The administrators of the economy are perplexed; this is unfamiliar terrain.

• Wage rates will be driven up by inflation in ‘non-measured’ high-turn, domestic  consumable goods: food, fuel, energy.  The Fed does not measure this segment for inflation.

• Inflation, from the perspective of the Fed will appear artificially low because prices on the measured segment will be static: non-domestic durable goods, housing etc.  Durable good prices will remain static, and in the short term fall surreptitiously – seemingly unattached to the larger expanding economy.

Until the two economies gain parity – any fed activity, taken as a consequence to their familiar traditional measurements (interest rates etc.), will have minimal to negligible impact on Main Street.

• Regional areas which benefited from high yield and high rates of return from Wall Street, ie. investment benefactors, will begin economic contraction. The downstream effect on retail and high-end service industries will also be negatively impacted.

• However, industrial areas with affordable housing and infrastructure, which have suffered in the past 20+ years, will see home values increasing as the local economy expands.

National policy (Trump Policy) which benefits Main Street also benefits local economics which are founded in manufacturing, production, and ancillary services.  In essence, the Middle-Class.

Those who benefited from high-yield international investment income will see less income.  Those who live on savings will see a moderate benefit.  However, those living day-to-day and week-to-week on their paychecks will see much more income.  Believe it.

Here’s the Deep Dive:

Traditional economic principles have revolved around the Macro and Micro with interventionist influences driven by GDP (Gross Domestic Product, or total economic output), interest rates, inflation rates and federally controlled monetary policy designed to steer the broad economic outcomes.

Additionally, in large measure, the various data points which underline Macro principles are two dimensional. As the X-Axis goes thus, the Y-Axis responds accordingly… and so it goes…. and so it has historically gone.

Traditional monetary policy has centered upon a belief of cause and effect: (ex.1) If inflation grows, it can be reduced by rising interest rates. Or, (ex.2) as GDP shrinks, it too can be affected by decreases in interest rates to stimulate investment/production etc.

However, against the backdrop of economic Globalism -vs- economic Americanism, CTH is noting the two dimensional economic approach is no longer a relevant model. There is another economic dimension, a third dimension. An undiscovered depth or distance between the “X” and the “Y”.

I believe it is critical to understand this new dimension in order to understand Trump economic principles, and the subsequent “America-First” economy he’s building.

As the distance between the X and Y increases over time, the affect detaches – slowly and almost invisibly. I believe understanding this hidden distance perspective will reconcile many of the current economic contractions. I also predict this third dimension will soon be discovered and will be extremely consequential in the coming decade.

To understand the basic theory, allow me to introduce a visual image to assist comprehension. Think about the two economies, Wall Street (paper or false economy) and Main Street (real or traditional economy) as two parallel roads or tracks. Think of Wall Street as one train engine and Main Street as another.

The Metaphor – Several decades ago, 1980-ish, our two economic engines started out in South Florida with the Wall Street economy on I-95 the East Coast, and the Main Street economy on I-75 the West Coast. The distance between them less than 100 miles.

As each economy heads North, over time the distance between them grows. As they cross the Florida State line Wall Street’s engine (I-95) is now 200 miles from Main Street’s engine (traveling I-75).

As we have discussed – the legislative outcomes, along with the monetary policy therein, follows the economic engine carrying the greatest political influence. Our historic result is monetary policy followed the Wall Street engine.

[…] there had to be a point where the value of the second economy (Wall Street) surpassed the value of the first economy (Main Street).

Investments, and the bets therein, needed to expand outside of the USA. hence, globalist investing.

However, a second more consequential aspect happened simultaneously. The politicians became more valuable to the Wall Street team than the Main Street team; and Wall Street had deeper pockets because their economy was now larger.

As a consequence Wall Street started funding political candidates and asking for legislation that benefited their interests.

When Main Street was purchasing the legislative influence the outcomes were beneficial to Main Street, and by direct attachment those outcomes also benefited the average American inside the real economy.

When Wall Street began purchasing the legislative influence, the outcomes therein became beneficial to Wall Street. Those benefits are detached from improving the livelihoods of main street Americans because the benefits are “global” needs. Global financial interests, investment interests, are now the primary filter through which the DC legislative outcomes are considered.

There is a natural disconnect. (more)

Here is an example of the resulting inflationary impact as felt by consumers:

♦ TWO ECONOMIES – Time is the important measurement.  Time continues to pass as each economy heads North.

Economic Globalism expands. Wall Street’s false (paper) economy becomes the far greater economy. Federal fiscal policy follows and fuels the larger economy. In turn the Wall Street benefactors pay back the politicians.  K-Street lobbyists pay for policy.

Economic Nationalism shrinks. Main Street’s real (traditional) economy shrinks. Domestic manufacturing drops. Jobs are off-shored. Main Street companies try to offset the shrinking economy with increased productivity (the fuel). Wages stagnate.

Now it’s 1990 – The Wall Street economic engine (traveling I-95) reaches Northern North Carolina. However, it’s now 500 miles away from Main Street’s engine (traveling I-75). The Appalachian range is the geographic wedge creating the natural divide (a metaphor for ‘trickle down’).

By the time the decade of 2000 arrives – Wall Street’s well fueled engine, and the accompanying DC legislative attention, influence and monetary policy, has reached Philadelphia.

However, Main Street’s engine is in Ohio (they’re now 700 miles apart) and almost out of fuel; there simply is no more productivity to squeeze.

From that moment in time, and from that geographic location, all forward travel is now only going to push the two economies further apart. I-95 now heads North East, and I-75 heads due North through Michigan. The distance between these engines is going to grow much more significantly now with each passing mile/month….

However, and this is a key reference point, if you are judging their advancing progress from a globalist vessel (filled with traditional academic economists and analysts who occupy the Federal Reserve) in the mid-Atlantic, both economies (both engines) would seem to be essentially in the same place based on their latitude.

From a two-dimensional linear perspective the FED cannot tell the distance between Wall Street and Main Street.

It is within this distance between the two economies, which grew over time, where a new economic dimension has been created and is not getting attention. It is critical to understand the detachment.

Within this three dimensional detachment you understand why Near-Zero interest rates no longer drive an expansion of the GDP. The Main Street economic engine is just too far away to gain any substantive benefit.

Despite their domestic origin in NY/DC, traditional fiscal policies (over time) have focused exclusively on the Wall Street, Globalist economy. The Wall Street Economic engine was simply seen as the only economy that would survive. The Main Street engine was viewed by DC, and those who assemble the legislative priorities therein, as a dying engine, lacking fuel, and destined to be service driven only….

Within the new 3rd economic dimension, the distance between Wall Street and Main Street economic engines, you will find the data to reconcile years of odd economic detachment.

Here’s where it gets really interesting. Understanding the distance between the real Main Street economic engine and the false Wall Street economic engine will help all of us to understand the scope of an upcoming economic lag; which, rather remarkably I would add, is a very interesting dynamic.

Donald Trump wins the election.

President Trump begins putting into effect his policy.

Think about these engines doing a turn about and beginning a rapid reverse. GDP can, and in my opinion, will, expand quickly. However, any interest rate hikes (fiscal policy) intended to cool down that expansion -fearful of inflation- will take a long time to traverse the divide.

Additionally, inflation on durable goods will be insignificant – even as international trade agreements are renegotiated. Why? Simply because the originating nations of those products are going to go through the same type of economic detachment described above.

Those global manufacturing economies will first respond to any increases in export costs (tariffs etc.), by driving their own productivity higher as an initial manufacturing cost offset, in the same manner American workers went through in the past two decades. The manufacturing enterprise and the financial sector remain focused on the pricing.

♦ Inflation on imported durable goods sold in America, while necessary, will ultimately be minimal during this initial period; and expand more significantly as time progresses and off-shored manufacturing finds less and less ways to be productive. Over time, durable good prices will increase – but it will come much later.

♦ Inflation on domestic consumable goods ‘may‘ indeed rise at a faster pace. However, it can be expected that U.S. wage rates will respond faster, naturally faster, than any fiscal policy because inflation on fast-turn consumable goods is now re-coupled to the ability of wage rates to afford them.

The fiscal policy impact lag, caused by the distance between federal fiscal action and the domestic Main Street economy, will now work in our favor. That is, in favor of the middle-class.

Within the aforementioned distance between “X” and “Y”, a result of three decades traveled by two divergent economic engines, is our new economic dimension….

“We support reinstating a modern version of the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment,” said the platform released by the Republican National Committee. (link)