A quick break from my busy schedule to comment on the current financial meltdown. by Bill Gee
(centrist)
Friday, September 23, 2011
My apologies to my regular readers – my work and school schedules has kept me from writing as much as I’d like. I have more students under my charge than ever, and with the quarter closing at my day job and a mountain of family obligations – well, you get the picture. However, there have been some significant developments in the economic world over the past week that I would like to offer my humble opinion.
Obama’s “Jobs bill”
No one seriously believes that this bill has any chance of passage, so why did he do it? Simply to get Congressional Republicans to go on the record as being against a bill that would supposedly put Americans back to work. The fact that the plan itself is another Keynesian folly is irrelevant to the political points the President hopes to score with independent voters. When your approval ratings are so low that Democrats are finding themselves kicking themselves in the pants for not making Hillary Clinton the nominee for President, any risk seems worthy to boost your ratings. I believe in his heart-of-hearts, he sincerely hopes that the bill won’t pass because the time for Keynesian gimmicks is long gone.
In another disappointing move, Congress rejected a stop-gap spending bill this week, which again threatens another possible Government shut-down on October 1st. The sticking point seems to be subsidies to automakers for making fuel-efficient cars that the bill would cut. What’s at risk is aid to victims of the many natural disasters over the course of this year, plus the day-to-day operations of the government. If that’s a preview of what we can expect in November….
The “Fed Shuffle”
The Fed’s plan to unwind short-term debt for long-term debt has left many economists scratching their heads trying to figure out what the Fed Chairman is trying to accomplish. If you read the disclosure carefully you’ll see that what he’s actually trying to do is to tweak the long-term debt market by making 10, 20 & 30-year bonds more scarce in an effort to encourage banks to take on more risky lending. After all, with 10-year bond yields under 2%, nobody is making any money, but they’re still buying because they’re scared to death that we’re falling into another recession. I have news for you – the double-dip is already upon us and the Greater Depression has already begun.
So what will the Fed’s plan actually accomplish? Not much, really. It is going to take too long for the program to be fully implemented, and when it does, all it will do is guarantee that the Fed’s balance sheet will remain in the Trillions of dollars for decades. (Assuming that the government does not decide to simply write the whole thing off at some future date.)
The European Economy
Here we don’t know much because I’m pretty sure that the mainstream media is intentionally keeping the American public in the dark about what’s actually going on in the Euro Zone. What we do know is that civil unrest is continuing to grow in every country that is on the common currency. What we don’t know is how bad it actually is, or how bad it is going to get. The extreme austerity measures in Greece, Spain and Italy have choked their economies to a near standstill, and we can fully expect the same thing here once extreme austerity comes to us in November.
Not that I’m a huge fan of extreme government intervention in markets, but the fact remains that when an economy has grown dependent on government cash, the sudden break in the cash flow is like suddenly taking away heroin from an addict. We know that the drug is killing the addict, but the effect of taking the drug away without any other treatment is extremely painful, reckless and often kills the patient.
Alas, if you really want to know what’s going on in Europe you’ll probably have to travel there to find out, and even then you may not get a good picture. If we have any readers who are currently living in Greece, Italy or Spain, I respectfully ask them to write a column here so that we can get an idea that hasn’t been filtered by the mainstream media. We’d really like to know.
Economic Indicators
Treasury Yields: Again these hit record lows this week making them essentially worthless as an investment vehicle, yet investors and banks are still buying them as they flee from equities, European sovereign debt and even Commodities! The market is in full-panic mode and when the government is unable to pay its debt or if the dollar collapses into hyperinflation, all that government paper is going to be worthless.
Unemployment: Don’t believe a word of it. If you want to know what the true unemployment rate is in your area, just ask your friends and neighbors. Try this unscientific experiment: At your next social gathering, ask them whether they are currently employed, underemployed, or unemployed, and then ask them to identify at least five members of their own family and provide their employment status as well. Social gatherings tend to gravitate towards a specific ethnic or socioeconomic group, so this experiment will probably just focus on that specific group. Once you have the data on 100 people, take a look at your results. I think you will be surprised at how your numbers are drastically different from the official rates.
The Stock Market: Even though the markets are prone to panic and therefore should be taken with a grain of salt, they are an excellent indicator of the “mood” of the market, and that mood is bleak.
That’s my take on the week’s events in a hastily written column. Feel free to comment.
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Posted By: Walt
Date: September 23, 2011 02:09:30 PM
Good stuff!
Your remarks about the unemployment rate are particularly welcome. I've argued for quite some time now that the official U3 unemployment rate is severely understated. After all, it's nothing more than a survey with a highly biased curve applied to it, about as unscientific as one can get. It also ignores a large number of underemployed and uncounted people who show up in the U6 rate, which is currently around 16.5%. I would fix true unemployment at over 20%, myself. Curious to know what rate you'd pick.
The unemployment rate is as bad as the official inflation rate, which undervalues food, shelter, fuel, etc. while overemphasizing the value of stuff like ipads and smart phones. Even worse, the survey's calculators sample a wide range of prices of items that people buy irregularly but treat them as if they are of proportional value to the economy.
The rest is stuff that makes the high-rollers and jet-setters happy. I guess their theory is that if the six-figure incomes can still afford their morning lattes, then inflation must be low!
