So far, so good.
Things keep happening, more or less as they should.
That is, the US and European economies keep falling apart. And the fixers keep failing to put them back together again.
Just as we expected.
Trying to fix a depression it is not only expensive…. The US government spends $1.60 for every $1 it receives in taxes. This is a recipe for a disaster, not for a recovery.
Worse. It actually prevents a real recovery from happening, by blocking the market’s natural self-healing system
Let us ask you this, dear reader: what’s the cure for a depression?
Answer: a depression!
A depression reduces asset prices, consumer prices, and interest rates. This makes it possible for investors and business people to redirect their efforts on projects that will work. A car wash, for example, may not be a good investment at $100,000. But at $50,000 it might produce good cash-flow.
An investment may not make sense if you have to borrow money at 6% interest. But at 3%…the numbers work.
In an ideal world the price of labor falls too. You may not be willing or able to hire extra workers at $10 an hour. But how about at $5?
Trouble is, the feds interfere with these self-healing trends. Minimum wage laws prevent employers from taking advantage of low-quality labor at low prices. Unemployment compensation keeps workers from discounting their own labor. Zero interest rates and bailouts keep the zombies on their feet. Even in the best of circumstances — that is, in a free market — labor rates tend to be “sticky.” They don’t adjust quickly. With the feds applying so much glue, it’s amazing if they can move at all.
But eventually, a depression works its magic. Prices fall. Investors are wiped out. Businesses go bust. The ‘destruction’ of the capital stock frees up both money and labor for new applications. The ‘creative’ part can begin.
Not this time. The feds have created a darkness without a dawn. The glass is 100% empty. There are plenty of clouds. But no silver linings.
There are now more than 6 Americans competing for every job. A normal recovery would see the US economy adding about 500,000 new jobs a month. Instead, last month it added 120,000 and economists hailed it as a major victory. Of course, it needs to create 150,000 jobs just to stay even with population growth. As it is there are 7 million fewer jobs today than there were in 2007…and the number of unemployed people is growing.
In 2007, just 10% of the unemployed had been jobless for 6 months or more. Today, the total is 40%. And with so little growth in the job market, many of these unemployed people will never work again.
What’s the problem?
Truth is, no one really knows. The simple explanation is that there’s a Great Correction going on. But even before the Great Correction, decent jobs were disappearing. The recession of 2001 was followed by the first “jobless recovery.” But every recession since the 1970s has been succeeded by a weaker and weaker recovery.
The feds don’t really have any idea why this is. Every politician and policy wonk suggests the usual remedies — more education, retraining and infrastructure investment. But there is no evidence that any of these things would really make the job picture much better.
As we explained earlier this year, the education industry has been a money pit. Huge amounts of money have been “invested” both by parents and the feds. It doesn’t seem to have helped the economy very much. True, a college grad is more likely to have a job…but only because he’s taking it away from someone without one.
The unemployment problem is a “tough nut to crack,” says The Financial Times.
Of course, we could fix the jobless problem overnight. But people wouldn’t appreciate it. We would simply remove all subsidies for unemployed people…and all restraints on hiring. Labor prices would fall fast. Within days, we’d have full employment again.
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
Heard on the radio that some economist (Paul Krugman?) said the USA should own up to the fact that it isn’t a “correction” nor a “recession”, but another Great Depression.
Okay then, remove the unemployment insurance and such and take aaway the minimum wage rules and bring on full employment.
But the zombies get to keep their high government wages right?
And while you’re at it, kick out the 13 million illegal foreigners. That alone would create 13 million new jobs for U.S. citizens.
What percentage of the US population know of and read these columns?
If there is no work to be done, no one will be hired to work, regardless of their price.
@TheInvestorsFriend just make all those government agencies that keep zombies employed disappear… None will even notice.
I recall reading a comment (and I’m afraid that I don’t recall the name of the wag)that stated:
“The war cry of all bureaucrats is,”We can too fix Humpty Dumpty! We just need more horses and more men!”
When the great egg goes “SPLAT”,enterprising folks will make omelets.
Full employment never lasts long before the push to unionize raises its head to “fix” things.
With jobs going over sea’s, mostly 2 china, how r american’s suppose 2 find WORK, at any price. I for one am glad that china is stealing company sercerts.
It servers the BUMS right 4 their GREED…….
Today, Ray tells you how to profit from curing cancer.
The US in the midst of an energy revolution, but it hasn't come easily. It's been a long time in the making, and the only reason it's happening is because of technological breakthroughs in oil production. Today, Ray Blanco explains why the next step in this energy revolution is improving seismic technology. Read on...
Social media stocks have been beaten and left for dead since investors started selling in September. But are they poised to take a ride on the current end-of-year rally train? Greg Guenthner explains why, despite looking bruised and bloodied, you shouldn't count out social media just yet. Read on...
Thanks to America's shale boom, there has been plenty of "black gold" unleashed on the market as of late. But as that story progress, there's also a "new gold" that investors may be overlooking... and it is vitally important to the fracking process and the production of new oil wells. Matt Insley explains...
It's interesting to listen to politicians' assessment of the U.S. government. Many believe it's a functional system of "self-government" that gives back as much as citizens are willing to put into it. Of course, as Sheldon Richman explains, U.S. citizens do not actually govern themselves, but are rather ruled by those who suggest they do. Read on...
Former Fed Chairman Alan Greenspan was asked recently on Bloomberg TV and scoffed at Bitcoin.