The Real Economy is Getting Worse

The jobless rate hit a 26-year high of 9.5% last month – and many economists are betting for the jobless rate to hit 10%.

“Of the June total,” reports the Labor Department, “1,235 mass layoffs were reported in the manufacturing sector.”

“All the indicators in the real economy,” said Bill Bonner in his final speech at the Agora Financial Investment Symposium in Vancouver, “are actually getting worse.”

And is it any surprise? What exactly does America make anymore? We have been a nation of consumers for the past decade, spending and borrowing to buy the gee-gaws and gadgets that our friends in the Far East have been so busy producing. But now, consumers are saving…they aren’t buying flat-screen televisions…or new cars…or much of anything for that matter.

And it goes without saying that since the housing bubble has popped, the one sector that was actually producing – the building of residential and commercial real estate – is failing miserably as well.

Caterpillar announced its results for the second quarter too. Profits were down 66%. In other words, while the banks were making money speculating with taxpayer’s money, Caterpillar was trying to make things and selling them to customers. Caterpillar not only makes things; it makes things that help other companies make things. Things with motors…big things…things that make noise and give off exhaust…things you use to dig holes and move dirt…things you need if you’re going to have a real economic recovery. Unfortunately for CAT, these things aren’t selling.

So what does this tell us? Well…it suggests that there is no real economic recovery at all. The real economy is suffering…sinking…and shutting down.

The banks are not earning their money helping Caterpillar expand. They’re making their money not because of a recovery, but because there isn’t one. In other words, they’re profiting from the financial stress of the early stages of a depression. There’s a post-crash bounce…and the government is sending a lot of money their way.

As for a real recovery – forget it. There’s no evidence of it. Unemployment is getting worse. Housing is still going down. Profits are going down. Those aren’t the things that presage a recovery…they herald a deeper, darker depression.

The depression darkens because people are not just being laid off – their jobs are disappearing. They do not get called back to work. Instead, they stay unemployed until they run out of unemployment benefits…and then the statisticians in Washington drop them off the unemployment rolls. Currently, the first batch of those people to reach the end of their benefits came this week. Last we looked, the Pennsylvania legislature was passing a law so they could continue drawing benefits for a few weeks more.

Unemployment, trade, defaults, foreclosures, bankruptcies, prices, manufacturing…you name it and you have to go back to the end of WWII to find similar numbers. Of course, at the end of the war, the wartime economy shut down. Millions of people who have been in uniform…or making tanks and airplanes…were suddenly out of work. Economists thought the economy would go right back into the Great Depression. Instead, it boomed.

But what was normal for so many years is not normal any more. Now, consumers are paying off debt faster than any time since 1952. The government, however, is making up for them. Goldman may no longer be able to push more credit onto the public; but it can push one heckuva lot of debt onto the public sector. Wall Street firms helped households ruin themselves in the Bubble of 2003-2007. Now they’re doing the same for the government, helping the feds raise money on a scale never seen before in human history.

The above is just an excerpt from Bill’s standout essay from this week. You can read it in its entirety here.

Bill also made the final speech at the AF Investment Symposium on Friday. “I’d like to start by thanking all the DR readers here,” he said to the audience, “you have my sympathies. You have to read 1,500 pages a year – and in ten years it’s been 15,000 pages.”

That’s right. The Daily Reckoning recently celebrated a birthday – our little publication turned 10 this month. We celebrated by “roasting” Bill at an intimate gathering at the Pan Pacific Hotel in Vancouver this past Wednesday night.


Addison Wiggin, started working on the DR in the early days of the Internet Age…when they weren’t quite sure how this ‘daily e-mail’ thing would work – but they knew it was something they had to try. Addison fondly recalled that in those days, he and Bill shared a tiny desk in an office in Paris, and every time Bill got up from the desk, he would knock the power cord out of Addison’s computer, erasing all the work he had done that day.


But the DR has come quite a ways since then. We have figured out the ins and outs of Internet publishing (for the most part) and we now have five international versions. Sometimes we are right, and sometimes our forecasts and musings are wrong…but that won’t keep us from publishing these daily reckonings. We hope you enjoy them.

Here’s to ten more years,

Kate Incontrera
The Daily Reckoning

The Daily Reckoning