The Establishment Oracles have spoken. The recession is over!
The economy is growing, unemployment rates are shrinking, and thus it's been proven once and for all ... The Omnipotent Government and its Keynesian alchemists, are indeed our economic saviors!
Hallelujah!
It’s The Economy, Stupid
In 2009 and 2010, Democrats passed Keynes-inspired stimulus efforts and pushed through health-care reform over the uniform and frequently shrill opposition of Republicans. The economy stabilized and a recovery began to gain traction. Fast-forward to October 2010. Assuming recent trends continue, the U.S. economy will be in its sixth quarter of GDP growth, and the rancor of the health-care debate will be a distant memory. While not producing nearly enough jobs, the economy will be producing a sufficient number to bring the unemployment rate down. Should the stock market simply move sideways, it'll still be 70 percent higher than its March 2009 nadir. Is this a setup for an electoral wipeout?
There's just one problem though ... the fundamentals still suck!
For starters, unemployment is still sky high with no signs of hiring on the horizon. Yet the talking heads are convinced it's a "jobless recovery," dazzling us with a bunch of gobbledygook about "aggregate demand" and what not. But I've got news for you ... The idea of an economic recovery without job creation, is like a steak dinner without steak.
Unemployment
The "official" unemployment number as reported by the (bogus) U-3 method used by the federal government, shows unemployment for March remaining at 9.7%. But let's not forget the government's census hiring, which are mostly part-time positions. So adjusting for the temporary census hiring, unemployment actually increased to 9.8%.
But wait, there's more!
The Bureau of Labor Statistics' most accurate measure of unemployment is reported by the U-6 method (similar to the method used during the Great Depression), and U-6 shows unemployment rising to 16.9% in March. Ouch! However, according to John Williams' Shadow Government Statistics, real unemployment (everyone not working) is currently at a whopping 21.7%.
Even if you insist on brushing Williams' number off, real unemployment is still in the double-digits. But having been in the money business my entire professional life, I'll take Williams' numbers over the governments any day of the week.
Consumer Spending
The second revelation of the Great Oracles of the Establishment is that consumer spending is on the rise.
Consumer spending up for 5th straight month
Confidence is growing that the economic recovery won't fizzle out. Consumers kept cash registers humming last month at a decent pace, pointing to modest and steady economic gains ahead.
The Commerce Department reported today that consumers boosted their spending by 0.3 percent in February, marking the fifth straight monthly gain.
Nigel Gault, chief U.S. economist at IHS Global Insight, called it "an encouraging sign of consumer revival."
"Households are starting to ease up on their tight grip on their wallets, though it would be nice if they had more money to spend," observed Joel Naroff, president of Naroff Economic Advisors.
Americans' incomes didn't budge.
Hmmm ... "incomes didn't budge." We can talk about that in a minute. Let's take a closer look at the growing "confidence" (animal spirits) that's keeping those "cash registers humming" first.
The term “animal spirits,” popularized by John Maynard Keynes in his 1936 book “The General Theory of Employment, Interest and Money,” is related to consumer or business confidence, but it means more than that. It refers also to the sense of trust we have in each other, our sense of fairness in economic dealings, and our sense of the extent of corruption and bad faith. When animal spirits are on ebb, consumers do not want to spend and businesses do not want to make capital expenditures or hire people.
While it's fun to believe we can all just "think positive" and the money will start rolling in, you and I will stick to reality. Because we know that spending isn't about "confidence." It's about cash.
The evidence does suggest consumers have increased their spending. But can a consumer-led recovery really be on its way? From the article linked above:
High unemployment, sluggish wage gains, hard-to-get credit and record-high home foreclosures are all expected to deter consumers from going on a spending spree -- one of the main reasons why the pace of the recovery will be more subdued than in the past.
With spending outpacing income growth, Americans' savings dipped in February.
In truth, most people are tapped out, their house is either underwater or in foreclosure, their income is at best flat, and there's millions of people more, who are unemployed with no job prospects in sight. So where exactly, is all this spending money coming from?
Unfortunately ... People have once again taken the government's bait. They're out spending money they don't have, on things they can't afford, betting on those "animal spirits."
So what is driving spending?
First is that consumers are drawing down savings to spend. Flat income growth caused consumers to tap into their savings to finance purchases of goods and services.
Second is the cash that is available to those consumers who have ceased paying their mortgage. Since foreclosures are at record levels, and since home owners understand there is no reason to pay their mortgage if they are going to lose their house, this frees up a significant amount of cash for PCE.
Capitalism requires capital! In fact, the only way any economic system can grow is by accumulating capital.
If the economy is to genuinely turn around, the government, businesses and individuals will need to rein in their spending and increase their savings (accumulate capital). But instead, the government's monetary and fiscal policy is designed to take us down the same road we just travelled ... by re-inflating the bubble, hoping people will borrow and spend.
This is why we're not creating the jobs that need to be replaced, especially the jobs lost in the mortgage industry, real estate sales, construction, and home improvement. So long as these people remain unemployed, the economy will continue to decline.
Real Estate
Many will tell you that rising real estate prices will give consumers the boost they need, thus improving the economy.
But the reality is that housing prices are still too high, and thus will to continue to fall. This means the home equity line ATM machines are out of service too.
Foreclosure Rates Jump 35 Percent
A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.
RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. In addition, households facing foreclosure grew 16 percent in the same period and 7 percent from the last three months of 2009.
More homes were taken over by banks and scheduled for a foreclosure sale than in any quarter going back to at least January 2005, when RealtyTrac began reporting the data, the firm said.
"We're right now on pace to see more than 1 million bank repossessions this year," said Rick Sharga, a RealtyTrac senior vice president.
The record foreclosure rates only confirm that housing prices will continue to decline. This is not good at all ... Especially considering we're already on pace to exceed last year’s 140 bank failures!
8 More Bank Failures, Tally Hits 50
U.S. regulators on Friday shuttered eight more banks in Florida, California, Massachusetts, Michigan and Washington, pushing up U.S. bank failures to 50 so far in 2010. This compares to a total number of bank failures of 140 in 2009, 25 in 2008 and only 3 in 2007.
The "Jobless" Recovery
The explanation for stagnant wages is three-fold: 1) the economy is experiencing no real increases in productivity, 2) the ever-growing burden of government intervention is undermining savings and capital accumulation, and 3) the inflationary policies of the Federal Reserve are preventing the economy from cleansing itself of its problems (and reducing the value of the dollars you earn to boot).
The smartest thing people can do right now, is to pay down their debts and save as much money as possible. Nobody can spend their way to financial health, no matter what the the Oracles of the Establishment try to claim. As stated earlier, if the economy is to recover, we have to reduce spending and replenish our savings!
This would allow us to create jobs, increase productivity, increase exports, repay our debts, and rebuild our industrial base. But instead, our government and their Keynesian alchemists insist on printing piles of money (out of thin air) and giving it to people to spend.
The results? ... Great Depression-style double-digit unemployment, stagnant wages, depleted savings, record home foreclosures, massive bank failures, and unsustainable government debt.
Are you still betting on that "jobless" recovery?
