Misleading Mainstreet: The Keys to the Phony Recovery

The Dow stayed in the same place yesterday. The correction in the gold market continued, with a $5 loss in the gold price.

The employment news on Friday was better than a poke in the eye with a stick. But how much better? Better enough to justify higher prices on Wall Street? Better enough to sell your gold because you believe that it will be clear sailing from here on out?

Uh…we wouldn’t advise it.

Maybe Main Street has been misled – again – by Wall Street and the feds. Spread around enough hot money and it begins to look like there’s a real recovery going on. Employers – as well as consumers – are duped. Business owners, for example, are likely to think that the recession is over and halt the layoffs.

More likely, Friday’s announcement that unemployment has bottomed out is bogus. A single swallow doesn’t make a spring. Nor does a single month’s worth of jobless numbers tell us much about the underlying trend.

Jobless rates…like other financial numbers…bounce around. One month is insignificant. We’ll have to wait to see what happens next, just like everyone else. But there are probably a million or so more job cuts to come before the bottom is finally reached.

Don’t blame businessmen for being confused. The press reports make it sound like it’s back to business-as-usual. And for the banking industry, it DOES seem as though nothing has changed. They’re lending to cockeyed private equity deals…aiding and abetting speculators in the carry trade…and handing out billions in bonuses. Just like old times.

They’re enjoying the bliss of the spotless mind…that is, the mind that has no memory…no regrets…and no sense.

But something has changed. It’s not the same world that it used to be. We don’t know much, here at The Daily Reckoning mobile headquarters in Johannesburg. But we know this: there is NO WAY that today’s economy is going back to what it was pre-2007. Business as usual? Not at all.

The bubble of the pre-2007 period was pumped up by consumer spending financed by housing debt. Ain’t no way that can happen any time again soon. Housing may or may not have stabilized – at 30% below pre-crash prices. That leaves millions of homeowners underwater…and practically all homeowners with no access to housing credit.

Out in the real economy, where these people live, the picture is bleak. First, one in ten is officially unemployed. Six hundred thousand jobs were lost in the last 3 months, bringing the total to 7.2 million lost since the recession began. And if you add in all the part-time workers…and workers who’ve given up the job search… the total is said to be more like 1 in 5 of the labor force.

Now ask yourself: how can things get back to normal with so many people out of a job?

And many of these jobs will never come back. Many of them were housing-related. And housing will never go back to the bubble pace of 2005-2007. Not in our lifetimes. And then too, many of the service and retail jobs that existed thanks to the revenues of the housing industry have disappeared too. They won’t come back either…not until something comes along that is able to replace the housing income.

It will happen…but not for many years.

In the meantime, we’re in a depression…and in a depression we will stay, until these mistakes and imbalances are worked out.

Bloomberg provides more detail on the real estate mess:

Dec. 4 (Bloomberg) – Drew Schlosser tried for two years to sell his three-bedroom Punta Gorda, Florida, waterfront condominium for less than he owed on its two mortgages. The deal only went through last month when Wells Fargo & Co. agreed to take a $165,000 loss on the loans.

Even after he had an offer of $155,000 for the property, it took five months for the San Francisco-based lender to approve the purchase, a so-called short sale, in which the bank accepts less than the balance owed on a property. Schlosser said earlier offers had fallen through as bidders lost faith the bank would take less than the $320,000 in two mortgages.

“It was just kind of a mess,” said Schlosser, 31, a market research company director living in Estero, Florida. “You really have to get buyers who are patient.”