Our Ongoing Keynesian Calamity
The ostensible 142,000 jobs created in August, well below the 220,000 jobs economic “experts” expected to be created, was pathetic – as far as Main Street goes. Wall Street? All three major indicators posted nice gains – based on the assumption that the fiscal crack dealer more familiarly known as the Federal Reserve would be forced to continue its loose money, zero interest rate policies (ZIRP) longer than anticipated. Thus, the greatest economic disconnect in the history of the nation proceeds apace. Trust me, I’ve known for a long time that, for far too many Americans, one paragraph on the subject of economics is one paragraph too many. It’s even worse for the youngest two generations of adults. Unless they possess calculators they are simply innumerate. And when basic math is a total stumper, macro-economics is about as comprehensible as Sanskrit.
The ostensible 142,000 jobs created in August, well below the 220,000 jobs economic “experts” expected to be created, was pathetic – as far as Main Street goes. Wall Street? All three major indicators posted nice gains – based on the assumption that the fiscal crack dealer more familiarly known as the Federal Reserve would be forced to continue its loose money, zero interest rate policies (ZIRP) longer than anticipated. Thus, the greatest economic disconnect in the history of the nation proceeds apace.
Trust me, I’ve known for a long time that, for far too many Americans, one paragraph on the subject of economics is one paragraph too many. It’s even worse for the youngest two generations of adults. Unless they possess calculators they are simply innumerate. And when basic math is a total stumper, macro-economics is about as comprehensible as Sanskrit.
So how does one explain what’s going on to people who either don’t want to know, or can’t understand? I suppose a lot of individual Americans are finding out a lot of things for themselves. There’s a boatload of fifty-something’s who, if they’re working at all, have taken a substantial pay cut to remain doing so. There’s a bunch of students coming out of college, strapped with an average of $33,000 in college debt, who are beginning to understand that owning a home is their personal version of the Impossible Dream, even as record numbers of them are living with Mom and Dad. And still others are beginning to realize that the job they thought was a stepping stone to something better is beginning to look more like a mill stone around their necks – which is what happens when people are conned by an Obama administration and a mainstream media touting the number of jobs created, while ignoring the quality of the jobs themselves.
The August stats reinforce that grim reality. As Zero Hedge’s Tyler Durden explains, of the ostensible 142,000 jobs created, “just under half came from the lowest paying jobs possible: education and health; leisure and hospitality; and temp-help. The best paying jobs, finance and information, added a whopping 4K jobs between them. Finally, about that much delayed US manufacturing renaissance: stick a fork in it – in August the number of manufacturing jobs created was exactly 0.”
That’s twice I’ve used the word “ostensible” with regard to the number of jobs created. That’s because the Bureau of Labor Statistics (BLS) calculates the number of jobs using something called a Birth/Death Model of job creation that relies on Performance Enhancing Estimates (P.E.E.s) to fine tune what amount to nothing more that educated guesses about the number of companies “dying” and being “born.” Throw in “seasonal adjustments,” as in the belief that more jobs are created in some season than others, and one beings to realize the word “ostensible” may be far too benign.
Hunter Lewis, co-founder and former CEO of global investment firm Cambridge Associates, LLC, and co-founder of the website AgainstCronyCapitalism.com, seems to think so. “None of the economic statistics we get from the government are reliable,” he contends. “Inflation is understated. Economic growth is overstated. Unemployment is understated.”
Lewis cites a chart provided by Larry Lindsey, who was George W. Bush’s chief economist during the president’s first term, as information that is “about as reliable as we can expect to get.” Reliable, maybe. Depressing, for certain:
US Household Net Worth 2007- 2013
Top 1% Up 1.9%
Next 9 % Up 3.4%
Next 15% Down 0.5%
Next 25% Down 16.7%
Bottom 50% Down 44.2%
Lewis minces no words in his analysis of the the above. “It tells the story of a middle class in the process of being destroyed and of poor people who will never be able to get into it,” he explains. “It is also noteworthy that the nine percent below the top one percent have done best of all. Although a great many government employee households are in the top one percent, a larger number are in the next nine percent.”
There is great irony in these numbers. They reveal that, despite the Obama administration and Democrats bewailing income inequality, it is their steadfast determination to expand government and continue embracing Keynesian economic theories that have done more than anything else to exacerbate that inequality. Without getting into the eye-glazing details, understand that this bunch fervently believes that shoveling trillions of dollars into the economy – even if they have to borrow it from foreign countries, or print it out of thin air – is the ultimate solution to all of our economic problems, because it will create a “wealth effect” that in turn will spur the consumer spending necessary to “jump start” the economy.
Six years and $7 trillion later, we’re still waiting for liftoff.
Yet in the context of those tiresome cliches, the following quote makes complete sense. “The (lousy jobs) report is a remarkable disappointment as a headline number, especially after receiving such promising macro data over the summer,” says Todd Schoenberger, president at J. Streicher Asset Management. “Oddly enough, though, this flat figure may still bode well for investor’s portfolios because it should force the Fed to take a breather with its ‘increase-in-interest-rate’ chant, which will push equity valuations higher. The data should help continue the markets upward trajectory today, and throughout the rest of the quarter.”
Translation: Wall Streeters are so completely hooked on low interest rates, aka “cheap money” to keep borrowing costs down, anything maintaining that status quo – including a lousy jobs report – is seen as a good thing. That those same low interest rates are killing Main Street Americans looking for a decent return on their hard-earned savings? Wall Street’s message, in conjunction with the Federal Reserve and the Obama administration, is quite clear: invest in the stock market – or go screw yourself.
What about the massive amount of debt created by all this? Once the economy has been “jump started,” by the trillions of dollars in additional borrowing, aka “Quantitative Easing” when the Fed does it, and “stimulus” when the culprit is the Obama administration, we’ll begin to pay it down. And if you’re familiar with the parlance that accompanies that promise, you know such massive insanity is known by yet another cliche: “kicking the can down the road.”
For younger generations who have already lost the thread here, let me simplify: we’re amassing the largest “bar tab” in the history of mankind. And the only reason we’re still getting beer is because entities like the European Union, China and Japan are running up their own tabs, and we look like less risky drunks by comparison. Why don’t we stop? Because no one wants to deal with the pain of getting “sober,” aka living within our means.
Instead we party on – sort of. I say sort of because there are signs all around us that something fundamental has changed, even as the change is incremental enough to keep the party going. Thus, when the Brookings Institution recently revealed that, beginning in 2009, businesses were going under faster than they were being formed – for the first time in the nation’s history – no one seemed particularly alarmed. Same goes for the European Central Bank’s (ECB) decision to cut its bank deposit rate first to negative 0.1%, followed by last week’s additional cut to negative 0.2%. For those of you who are once again confused, a negative interest rate means that instead of getting some kind of return on one’s bank deposits, one is actually paying to keep money in the bank.
The move is aimed at getting banks to lend money, rather than pay to park it at the ECB. What ECB President Mario Draghi fails to mention is that the demand to borrow money, which is a sure sign that someone believes the future is brighter than the present, is virtually non-existent. It’s also a sure sign that, like the Fed and their zero percent interest policy, these Masters of the Universe – all of whom are conceited enough to believe they can shape the destinies of billions of people – are running out of ideas.
Throw in other stats that bore Americans–such as the 92,269,000 Americans out of the labor force (meaning they don’t show up in the unemployment numbers) record numbers of Americans on welfare, disability and in extreme poverty, an overall poverty rate that broke a 50 year record this year, or the 46.2 million Americans on food stamps – and the party seems to be hitting that point where the revelers are putting on their coats and heading for the exit.
I know I’ve been a bit snarky here. But I’m trying to find ways to sound the alarm at a time when so many Americans seem deaf to common sense and basic math. If you get nothing else from this column, get this: the course we are currently on as a nation is economically unsustainable. And anyone who tells you otherwise is an abject liar. And as I’ve said before, politicians and their media cheerleaders lie unabashedly. Mathematics does not.
In the Sun Also Rises, Ernest Hemingway had a character maned Bill Gorton who asks another character, the formerly affluent affluent Mike Campbell, “how did you go bankrupt?” To me, Campbell’s reply feels like a harbinger of the times. “Two ways…Gradually and then suddenly,” he answered. We already know what the “gradually” part feels like. The “suddenly” part appears when those dedicated to kicking the can down the road – run out of road.
© 2014 The Patriot Post.
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