With a Recovery Like This, Who Needs Enemies?

01/26/10 Paris, France – What a recovery! If the economy keeps recovering like this we’ll soon all be busted…

House sales are falling…unemployment is rising…and people are getting poorer!

The Dow rallied a piddly 23 points yesterday. Oil is selling for less than $75 this morning. Stocks are in trouble. As we said yesterday, this could be the beginning of the end for this bear market. We’ve seen the first leg down. We’ve seen the rally. We’re ready for the next big plunge.

Yesterday, the latest numbers on existing house sales for December came out. They were disappointing – nearly 17% lower than the year before.

Unemployment is still rising, as near as we can determine. It is rising for two reasons. Because we are in a depression. And, because the feds are trying to ‘do something about it.’

In this regard, we refer to three different phenomena. They are inter-related…they all show the same thing: an economy going downhill.

First, initial jobless claims surged last week…with 36,000 more claimants.

This also from Bloomberg:

“Employment dropped in 39 US states in December, seven more than in the prior month, indicating job losses were widespread.

“Payrolls in California showed the biggest decline, falling by 38,800 last month, according to figures issued today by the Labor Department in Washington. Texas followed with a 23,900 decline and Ohio was next with a 16,700 drop.

“With the national unemployment rate projected to average 10 percent this year, state budgets may continue to be strained by limited tax revenue and jobless insurance payments. While the pace of firings has eased over the last year, the time it is taking to find a job rose to a record 29.1 weeks in December.

“Employment is ‘still very weak, which is why we think the unemployment rate is going to continue to rise,’ Marisa Di Natale, a director at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. ‘There are some states that are in pretty big trouble, fiscally speaking. 2010 is not going to be a good year.’

“The jobless rate in the US held at 10 percent in December, the Labor Department said on Jan. 8. A jump in the number of discouraged workers leaving the labor market kept the rate from rising…

“Employment in all 50 states dropped in 2009, with Wyoming, Nevada, Michigan and Arizona showing the biggest percentage decreases. The District of Columbia gained jobs, adding 6,200 in the 12 months to December.

“Nevada and West Virginia had the biggest increase in joblessness among states last year, each climbing 4.6 percentage points. Alabama was next with a 4.5-point gain, followed by Michigan’s 4.4-point increase.”

An analysis done by the AP shows that stimulus spending has no effect on employment. The AP looked at counties that got a lot of stimulus money to repair roads and bridges, and those that didn’t. They found no connection between the spending and employment rates.

Even we are a bit surprised. We knew that stimulus spending was a waste of money. But we figured the feds could force a little extra hiring here and there if they really put their minds to it. Apparently not… At least not on the scale of the present stimulus spending program.

Stating the finding a bit more broadly: stimulus spending doesn’t really stimulate at all. In fact, it retards. And then it debilitates…by taking capital out of productive uses and squandering it. Instead of leaving the private sector alone so that it can find new ways to put resources to work, the feds take the resources and waste them in the old-fashioned, unproductive ways. Result: money spent; no stimulus; people poorer.

Second, the Brookings Institution came out with a warning yesterday. It said 30% of the nation was either in poverty already or headed to it. The US is becoming like a ‘developing nation,’ said the report, with 39.1 million people living in poverty.

Many cities have already reached the 30% poverty rate – including Cleveland, Detroit, Youngstown, Buffalo, Syracuse, Dayton and Hartford, Connecticut. But poverty is increasing fastest in the suburbs, says the report.

We add a footnote. About 40 million Americans are also living on food stamps – a new record.

Third, while the feds take money away from productive enterprises and honest savers, they also encourage people NOT to work. How is this possible? Alan Reynolds, writing in The New York Post last month, explained how the feds had probably added two points to the unemployment rate simply by stretching unemployment benefits from the traditional 26 weeks to the current 79 weeks.

“When you subsidize something, you get more of it…” he writes.

That is how the feds operate. They punish success and reward failure. If a man is lucky enough to get a good job and earn a lot of money, the feds tax it away from him. If he fails to find a job, on the other hand, they give him money. The longer he stays unemployed, the more money they give him.

If a banker runs his bank well, he gets nothing but trouble from the feds…paperwork, bureaucracy, pettifogging regulations. But if he runs it badly, he gets billions of dollars worth of bailouts.

If an automaker takes the best business in the world and runs it into the ground, he gets the support of the federal government. If he runs his business well, he gets nothing but headaches.

The feds’ recovery program pays for failure. Naturally, they get a lot of it.

Bill Bonner

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. 

 

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