Government Spending: A Novel Approach to Fixing the Economy

We were talking about faithless shepherds.

Politicians who sold out the American middle class…

Banks who stabbed their clients in the back…

Even the military, pretending to defend the country…it betrays the nation’s most sacred principles…

And here we have two shepherds in front of us. One of them is supposed to look after the whole flock of Americans. The other is supposed to protect their money.

Last night, the President came out with his jobs plan, as expected…and Mr. Bernanke shirked his duty, again.

All and all, it wasn’t a bad day. Two major public figures spoke — a President and a Fed Chief. One shepherd pretended to create jobs. The other pretended to boost the economy. Neither did lasting damage, as near as we can tell.

The Bloomberg report:

Policy makers “are prepared to employ these tools as appropriate to promote a stronger economic recovery in the context of price stability,” Bernanke said today in a speech to economists in Minneapolis.

The Fed chief echoed points from his Aug. 26 speech in Jackson Hole, Wyoming, stopping short of signaling what he believes is the Fed’s best option to aid the economy. He said in previous remarks that the Fed’s measures to bolster growth include lengthening the duration of securities in its $1.65 trillion Treasury portfolio and buying more government bonds.

For his part, the president of the Americans proposed spending more money now…and paying for it later. Hey, that’s a novel approach! But it was neither here nor there. Spending more money is what the feds do anyway. And a few billion more or less isn’t going to make any difference. Except that, since every penny will be borrowed, it will leave the nation that much closer to bankruptcy. The poor lambs are going to get sheared.

So, things are as they should be. God is in his Heaven. The unfaithful shepherds are thick on the ground. And the Great Correction continues unmolested by them.

Stocks sold off yesterday. The Dow was down more than 100 points. Investors were hoping Ben Bernanke would throw them a bone. They were disappointed when he didn’t.

But people are getting used to disappointment. That’s what a Great Correction does. It demolishes hopes of easy money. Everything becomes hard…

Here’s The New York Times with more news:

…When people are anxious, they pull back, which leads to a cycle of hiring freezes and further anxiety that often lasts for months.

The United States appears to have entered some version of the vicious cycle. Most ominously, job growth has slowed to a pace that typically signals the start of a recession.

Over the last 50 years, every time that job growth has been as meager as it has been over the last four months, the economy has been headed toward recession, in a recession or in the immediate aftermath of one. From early 2010 through this spring, by contrast, employment was growing fast enough to make the economy look as if it were in a recovery, albeit a modest one.

“The chances that we are in something that is going to feel like a recession are close to 100 percent,” said Joshua Shapiro of MFR Inc. in New York…

Well, that was a sly way of getting around making an actual prediction. It may or may not be a recession…but it will certainly seem like a recession!

But the truth is, it already seems like a recession to most people. The Washington Post is on the story:

Nearly one in three Americans who grew up middle-class has slipped down the income ladder as an adult, according to a new report by the Pew Charitable Trusts.

Downward mobility is most common among middle-class people who are divorced or separated from their spouses, did not attend college, scored poorly on standardized tests, or used hard drugs, the report says.

“A middle-class upbringing does not guarantee the same status over the course of a lifetime,” the report says.

The study focused on people who were middle-class teenagers in 1979 and who were between 39 and 44 years old in 2004 and 2006. It defines people as middle-class if they fall between the 30th and 70th percentiles in income distribution, which for a family of four is between $32,900 and $64,000 a year in 2010 dollars.

People were deemed downwardly mobile if they fell below the 30th percentile in income, if their income rank was 20 or more percentiles below their parents’ rank, or if they earn at least 20 percent less than their parents. The findings do not cover the difficult times that the nation has endured since 2007.

Pew researchers said the study’s structure did not permit an analysis of whether upward mobility has become more difficult through the years. Nonetheless, some economists point to growing income inequality and widely stagnating wages as evidence that the American Dream is slipping out of reach for many people.

The report found that being married helps people avoid the worst economic outcomes. Women who are divorced, widowed or separated are much more likely to fall down the economic ladder than their married counterparts. For men, the differences are not as dramatic, although married men are more likely than single men to retain their middle- class status as adults.

Bill Bonner
for The Daily Reckoning