The secret about economics that nobody wants to tell you is that for the most part, it all boils down to common sense. In other words ...
You don't have to be an economist to understand why the economy isn't going to grow while it continues hemorrhaging jobs.
"But wait" you say, our Overlords have spoken ...
Survey: Economists say recession is over, predict moderate, slow-paced recovery
More than 80 percent of economists believe the recession is over and an expansion has begun, but they expect the recovery will be slow as worries over unemployment and high federal debt persist.
Most of our politicians and pundits are either too afraid to tell Americans the truth, or they're simply too naive to know better. Either way it's a tragedy.
So, for yours and your family's sake, be sure you know the whole story. No one has a crystal ball. Your best bet, is to literally be prepared for anything.
A "Jobless" recovery ...
Those who do cling to the absurd belief that, absent exponential productivity gains, the economy can expand while workers are being laid off will undergo a massive test of their convictions now that it's clear the employment picture is bleak. Today's weaker-than-expected report on non-farm payrolls revealed that employers shed 263,000 jobs in September. The losses propelled the headline unemployment rate to a 26-year high of 9.8%. U6, the Bureau of Labor Statistics' most complete measure of unemployment, has risen to a dismal 17%.
There is no question that the sense of panic has temporarily subsided ... Americans are once again taking the government's bait by spending money they don't have to buy things they can't afford. Evidence of this trend was contained in data released earlier this week which showed that even while income growth was largely stagnant, U.S. consumers showed the biggest month-over-month increase in personal spending in ten years! With the same report showing a 25% drop in the savings rate, the source of the spending money is clear. But depleting savings and increasing borrowing does not a recovery make. (emphasis added)
To really recuperate, the government must allow market forces to restructure our economy. The government and individuals must rein in their spending; we must replenish our stock of savings, allow interest rates to rise, asset prices to adjust to economic reality, insolvent businesses to fail, and wages to reflect productivity. To accomplish these goals, subsidies that distort market forces must be removed and regulations that undermine our competitiveness must be repealed.
If we refuse to allow the economy to experience a real recession, we will never have the benefit of a real recovery. Instead, we get the "jobless recovery," a veneer of apparently positive indicators that merely obscures the underlying rot.
Socialism is A Very Serious Issue. The economic policies executed by our federal government, particularly over the past year, are not simply 'bad policies', they are outright hostile to economic growth and personal wealth.
The Law of Unintended Consequences
A research paper written in March by Carmen Reinhart and Kenneth Rogoff, This Time is Different: A Panoramic View of Eight Centuries of Financial Crises, reveals that credit and business cycles have several things in common, mainly the debasement of money, which, in our current case, is inflation, otherwise known in its initial stages as “easy money.”
During these cycles, easy money is pumped into the system, distorting financial decisions, encouraging the malinvestment of capital, and causing prices to rise. Prices rise faster than their productively useful value. Eventually money is deflated, and prices go back to a price-value equilibrium.
Credit cycles in modern times are created by the central bank: the Fed. These cycles tend to behave the same way, but the asset class differs from cycle to cycle ...
So what went wrong?
A second Great Depression is still possible
The future is fundamentally uncertain, which always makes prediction a rash enterprise. That said there is a good chance the new consensus is wrong. Instead, there are solid grounds for believing the US economy will experience a second dip followed by extended stagnation that will qualify as the second Great Depression. Some indications to this effect are already rolling in with unexpectedly large US job losses in September and the crash in US automobile sales following the end of the “cash-for-clunkers” programme.
[M]ainstream economists, their theoretical models were blind-sided by the crisis and only predict recovery because of the assumptions in the models. According to mainstream theory, it is assumed that full employment is a gravity point to which the economy is pulled back.
Empirical econometric models are equally questionable. They too predict gradual recovery but that is driven by patterns of reversion to trends found in past data. The problem, as investment professionals say, is that “past performance is no guide to future performance”. The economic crisis represents the implosion of the economic paradigm that has ruled US and global growth for the past thirty years. That paradigm was based on consumption fuelled by indebtedness and asset price inflation, and it is done.
There is a simple logic to why the economy will experience a second dip. That logic rests on the economics of deleveraging which inevitably produces a two-step correction. The first step has been worked through, and it triggered a financial crisis that caused the worst recession since the Great Depression. The second step has only just begun.
The economy is bad folks. It's really bad.
