Welcome to the New Normal 49 comments
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What We See
And What We Don't See
The Statistical Recovery
A Double-Dip Recession?
Welcome to the New Normal
Birthdays, New Orleans, and then the Road Trip from Hell
Unemployment is high and rising. But if the recession is over, won't employment start to rise? The quick answer is no. We look deeper into the Statistical Recovery and find yet more reasons to be concerned about near-term deflation.
This week we consider all things unemployment and ponder the need to create at least 15 million jobs in the next five years to return to a full-employment economy - and the implications for both the US and world economies if we don't. Economic is often about what we can clearly see, and yet it is understanding what we can't see that gives us true insight. We start with a collection of facts that we can see and then begin a thought exercise to find the implications.
What We See
First, the unemployment rate is now officially at 9.7%. We are approaching the official high we last saw at the end of the double-dip1982 recession. In the chart below, notice that unemployment rose throughout 1980 and then began to decline, before rising rapidly as the economy entered the second recession within two years. Also notice the rapid drop in unemployment following that recession, as opposed to the recessions of 1991-92 and 2001-02, which have been characterized as jobless recoveries. Unemployment was as low as 3.8% in 2000 and saw a cycle low of 4.4% in early 2007.
(For the record, all this data is available on the Bureau of Labor Statistics website. There is a treasure trove of data. They are quite open about what they do and how they do it. When I call to ask a question, they are quite helpful. How people interpret the data is not their fault.)
This headline unemployment number (9.7%) is what we see when we read the paper. What we typically don't see is the real number of unemployed. For instance, if you have not actively looked for a job in the last four weeks, even if you would like one, you are not counted as unemployed. You are called a "marginally attached" or "discouraged" worker. Often there are very good reasons for this. You could be sick, dealing with a family emergency, going back to school, or not have transportation.
Right now, about one-third of marginally attached workers actively want jobs but have not bothered to look because they believe there are no jobs in their area, at least not for them. If you add that extra 758,000 to the unemployment data, you get what is called U-4 unemployment, which today is 10.2%. If you count all marginally attached workers the unemployment number is 11% (U-5 unemployment).
And if you add those who are employed part-time for economic reasons (i.e., they can't get full-time jobs) the unemployment number rises to 16.8%. (That is called U-6 unemployment.)
Now, stay with me for the next two tables taken directly from the BLS website. The first is the total number of people in the US civilian work force. Notice how each year the number of potential workers rises. In fact, the number of workers has risen by about 15 million over the last ten years. This is from population growth and from immigration. Also notice that the normal rise did not happen last year. That is because the number of discouraged workers has risen rapidly and, as noted above, they are not counted. We will revisit this point later. But for now, there are 154,577,000 people in the available work force.
Next we look at the tables for the actual level of employment. Here we note that we are down almost 8 million jobs since the onset of this recession, and that there are almost 15 million people unemployed.
Going back to the part-time workers, there are roughly 9 million people who are working part-time because of business conditions, or those are the only jobs they could find. The average work week is at an all-time low of 33 hours. The chart below is from my friend David Rosenberg.
David wrote in a special report Friday:
What does all this mean? It means that when the economy does begin to recover, when we finally get to the other side of the mountain, companies are going to raise their labour input first by lifting the workweek from its record low. Just to get back to the pre-recession level of 33.8 hours would be equivalent to hiring three million workers. And, the record number of people working part-time against their will are going to be pushed back into full-time, which will be great news for them, but not so great news for the 125,000 - 150,000 new entrants into the labour market every month. They won't have it so easy because employers are going to tap their existing under-utilized resources first since that is common sense. Also keep in mind that there are at least four million jobs in retail, financial, construction and manufacturing jobs lost this cycle that are likely not coming back. In fact, the number of unemployed who were let go for permanent reasons as opposed to temporary layoff rose by more than five million this cycle. This compares to the 1.2 million increase in the 2001 tech-led recession and in the 1990-91 housing-led recession (when Ross Perot talked about the sucking sound of jobs into Mexico).
Then there is the matter of average weekly earnings. If you adjust for inflation, workers are making roughly what they did in 1980. The chart is straight from the BLS website.
And What We Don't See
Those are the facts. Now it's time to look at what we don't see, and what you don't read or hear from the mainstream media.
We saw above that we are adding about 1.5 million workers to the workplace every year. That means over the next five years we are going to need 7.5 million jobs just to maintain that growth, or about 125,000 a month. That is on the low side of what economists normally estimate, which is around 150,000 per month. If we used the 150,000 estimate, it would mean we need 9 million jobs.
There are at least 1 million (and probably more like 2 million) discouraged workers who would take jobs if the economy got better. You can derive that number by going back to early 2007 and seeing the level of discouraged workers. That means, by the end of 2014 we are going to have 163 million people in the work force (see table above).
Today we have 139.6 million jobs, and that number is likely to slip at least another half million (last month the economy lost 216,000 jobs, with a very suspicious birth-death ratio accounting for a lot of job creation). So let's call it 139 million current jobs.
Let's assume that we would like to get back to a 5% unemployment rate. That would not be stellar, but it would certainly be better than where we are today. Five percent unemployment in late 2014 will mean 8.1 million unemployed. To get to 5% unemployment we will have to create 14 million jobs in the five years from 2010-2014. (163 million in labor pool minus 8 million unemployed is 155 million jobs. We now have 139 million jobs, so the difference is roughly 15 million.) Plus the equivalent of 3 million jobs that Rosenberg estimates, just to get back to an average work week. And maybe the extra 1.5 million a year I mentioned above.
But let's ignore those latter jobs and round it off to 15 million. Let's hope that by the beginning of next year we stop losing jobs. That means that to get back to 5% unemployment within five years we need to see, on average, the creation of 250,000 jobs per month. As an AVERAGE!!!!!
Look at the table below. It is the number of jobs added or lost for the last ten years. Do you see a year that averaged 250,000? No.
If you take the best year, which was 2006, you get an average monthly growth of 232,000. If you average the ten years from 1999, you get average monthly job growth of 50,000. If you take the average job growth from 1989 until now, you get an average of 91,000 a month. If you take the best ten years I could find, which would be 1991-2000, the average is still only 150,000. That is a long way from 250,000.
Want to get back to 4%? Add another 25,000 jobs a month to 2006.
Let's jump forward to next September. We will need at least 1.5 million jobs to take into account growth in the population. Plus another half million jobs that we are likely to lose before we start to grow again. What is the likelihood of average job growth of 160,000 a month? Anyone want to take the "overs" bet?
Go back to 2003, the year after the end of the last recession. A few hundred thousand jobs were created. Why so slow? Because employers gave more time to those who were already employed and to part-time workers. Because of the near-certain loss of jobs for the next few months and the slow recovery, it is a very real possibility that unemployment will still be well over 10% a year from now.
Even with robust growth of 200,000 jobs a month thereafter for the next two years, unemployment will still be close to or over 9%. That would only be an additional 1.8 million jobs (making the most optimistic assumptions) over the new jobs needed for population growth.
A Double-Dip Recession?
And that is before this administration makes the economically suicidal move to raise the top tax rate by 10%. The popular image is that those who pay the highest tax rate are Wall Street execs, bankers, and corporate moguls. The reality is that 75% of them are small business owners, and they are responsible for the large majority of new jobs that are going to be needed, not to mention a large part of consumer spending. If you tax them more you are going to get fewer jobs (as they will have less to invest) and less consumer spending.
A tax increase of the size being contemplated, with unemployment at today's level, will guarantee a double-dip recession, which of course means that unemployment will rise, not fall. Go back and look at that chart on unemployment. Notice the very steep rise in the second recession of the early '80s. That is what we could be facing.
Without getting too political, think about elections in 2010 with unemployment levels still rising. And fast-forward to 2012, with deficits (optimistically) projected to be almost $1 trillion and rising. With a tax increase giving us another recession? Will the bond market provide another $4 trillion? My question is, from where?
There has never been a period of serious inflation in the US without wage inflation. But real incomes are falling, and there is little reason to believe we will see wage pressures within the next few years. The opposite is likely to be the case.
Friday's Wall Street Journal tells us that 5 million people have been unemployed for over 6 months. And the longer you are unemployed, the harder it is to get a job. That means you have to settle for a job with less income than you had before.
The only group to see a rise in employment? Those over the age of 55, as they have to take a job, any job, so they can save for retirement.
The Statistical Recovery
The economy is in the process of bottoming. The year-over-year comparisons are getting easier. We will find that new level of spending and economic activity and grow from there. But it is going to be a while before we get back to full employment. While the numbers may say recovery, it is not going to feel like one.
Let's review quickly what I have written about the last four weeks. We have enormous excess capacity - capacity utilization is about 68%. Banks are cutting back on their loans, and consumers and businesses are borrowing less. Housing is likely to be in a funk for at least two years. We are deleveraging, which is causing the velocity of money to slow.
All of this is very deflationary. Will the Fed print enough money to reflate the economy? You better hope so. Will we have to deal with it later? Of course. We have no good choices. We are in for a long five years, at the least. Yes, there will be opportunities, and new industries will be created. But it won't happen overnight.
Welcome to the New Normal.
Birthdays, New Orleans, and then the Road Trip from Hell
Next weekend I celebrate my 60th birthday, and family and friends from around the world are flying in. We are going to party for at least 2-3 days. All I can say is, I have a very eclectic group of friends and it is going to be fun for all of us. If I write a letter, it will be earlier in the week.
I will be in New Orleans the following weekend, then start a 17-day trip with only a few nights in my bed, and every day a plane or new city. Although I enjoy traveling and meeting people, this may be a little much, though I must say I am looking forward to Argentina, Brazil, and Uruguay. It has been awhile since I have been south.
I stopped by to visit my #2 daughter (Melissa) last night. She works in a local watering hole while going to school. It is quite popular and is usually quite crowded. Last evening it was untypically quiet.
I asked, "What's up?" The manager and Melissa began talking about how slow things were getting, about how friends who were regulars had lost their jobs and had to move back in with parents. With few exceptions, it is slower than a few years ago everywhere I go. A recent Gallop poll said 71% of people are cutting back and 90% are watching what they are spending. 33% said their companies are cutting back on hiring.
Every poll or survey I see shows businesses deciding to cut back. Talking with my kids (the six who are young and in the work force), it is a rather difficult time. But then I think that I had to enter the workforce in 1975, not a very good year or decade. And we all made it, if not very easily. We lived very modestly (to say the least) for those first years.
And so it goes. Each generation has to learn how to deal with adversity and the problems of starting out. Many of those in my generation are now trying to figure out how to deal with a retirement that does not look nearly as comfortable as it did a few years ago.
I still hope we can muddle through.
Your 'glad to get to 60' analyst.
Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC and InvestorsInsight Publishing, Inc. (InvestorsInsight) may or may not have investments in any funds, programs or companies cited above.
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This article has 49 comments:
The workweek, in my opinion, is part coincident and part leading. That tiny "V" in the graph is my justification of a POSSIBLE end to the recession. Does growth continue? Its not what anyone wants to hear, but it's too early to tell. With three months more data either that V will sharpen and the market rally will continue, or, as happened in 2002-2003, it did not sustain an uptrend along with GDP. It takes about 3 months of data to spot a convincing chart trend since, as you can see, the chart is very noisy. It could uptick next week, stay flat, or--I hope not, contract. These measures are bullish, neutral, and bearish respectively and adjust monthly. The markets, however, don't follow them as closely as they should.
If, as I do, you spend several hours looking at BLS data series, you will grow to follow closely Mauldin, Hansen, and Lounsbury's work on this. They are top contribs with good reason. You are wise, in my opinion, to study their work and include it in your investing analysis ALONG with other macro and technical reports. FWIW, I have one (only) Insta, and that is every month by month BLS U3 unemployment number from mid-2009 going back to the earliest data. I view it as the most politically important macro number next year. Don't believe it? Ask George HW Bush why he lost to Clinton, and why every politician will have this on their radar.
The only jobs I see increasing in number are bill collectors and anyone in the mental health field and associated pharma. Well, add handguns to that list.
It is a welcome change to see a discussion of the structure of employment (unemployment) from the bottom up. Actually counting jobs that will be needed to arrive at a "new normal" is much better than just assuming a job recovery will follow one of the patterns from a previous recession.
Where will the jobs come from? I have read some speculations that they will come from new energy technologies. That could be true, but to have employment return to anything like 5% unemployment, we also need to find some productive things to do with that energy. That is where the rubber will meet the road and I don't think the taps are even in the rubber trees yet.
Of course, we can return to 5% unemployment even if employment does not increase. Just keep shrinking the officially measured labor force and the unemployment roles and we get there. If you have 15 million unemployed out of a labor force of 150 million, that is 10% unemployment.
If 7.9 million unemployed become discouraged, they disappear from the DOL count for unemployed and labor force participants. We then have 7.1 million unemployed in a labor force of 142 million. Voila!!! 5% unemployment.
By this measurement process, we could end up with no one working and 0% unemployment. And let's suppose that somehow (maybe a volunteer does something unpaid for an hour) some little thing is produced. Since no labor was involved (by official measurement) we would reach infinite labor productivity.
Of course, I am taking things to ridiculous extremes. But when there are ridiculous flaws in measurement processes and assumptions, extremes can make them obvious.
John, the thing I like most about your "Thoughts" are the thinking they can stimulate.
As people cut back, all consumption, and this includes imports will drop. Only food and energy will have price stability. It has not been proven that gold protects against deflation as ALL currencies inflate with decreasing trade. And your analysis is heavily siding with the deflation camp and it is scary.
Falling employment means there is little wealth creation going on. Deflation means poor cash flow. Therefore, the only conclusion one can make is there is a Tsunami of bankruptcies coming.
There used to be seed capital in America. There isn't today. The entire VC industry has decided to focus on later stage deals. There could be at any one time 10,000 companies in America looking for seed capital, representing every conceivable industry.
Create a $10 billion "Rebuild America Seed Capital Fund". The fund's mandate is to invest up to $500,000 per worthwhile company until the fund runs out. Many firms will not even need that much. Staff it with 100 experts from the finance, technology and venture capital fields. Each business plan submitted received a reply in 1 month.
What you will see is an explosion of creativity and economic activity in America. My own firm receives at least 5 seed capital financing requests per week and we're a tiny firm in the industry. Most firms seeking this capital have been on the road banging on doors for years. America is bursting at the seams with talented, smart, creative, risk taking entrepreneurs - who can't find seed capital.
The venture capital industry likes to finance established companies with established customer bases and established revenues. Nobody wants to touch the guy running around the country with a business plan who is only asking for $200,000. It takes the same time to do due diligence on a $50million deal as a $200,000 deal and venture firms need to deploy capital they have raised from their investors. Nobody is doing seed capital deals in America.
This is how you create a renaissance in American industry. Fund the tens of thousands or perhaps hundreds of thousands of companies that are right now at this moment ready to roll. Give them the seed capital and they will rebuild America. Problem solved.
This tampering in the officially measured labor force took place in the 1980s when unemployment was above 10%. The numbers of members of the military, which had been a separate category and counted as neither employed nor unemployed, were added to the number of employed, on the grounds that the military had become all-volunteer.
Another variable to consider concerns the composition of the 1.5 million figure. What percentage of that number comes from immigration? And how reasonable is it extrapolate constant immigration growth into a markedly less favorable employment picture? Seems to me that with the negative backdrop well articulated above the US population and by extension labor force is not immune from the forces currently at work in Ireland. Ireland is said to be experiencing an exodus of workers who are headed to more promising locales. Labor mobility seems to work in both directions. This likely can be true in the US as well.
Even before the current recession the US federal government faced a major and rapidly increasing revenue shortfall respecting its Medicare and Social Security programs because of the rapid growth of the US retirement aged population and the fact that the ongoing funding model for those programs was flawed. One might also question whether the ongoing funding models for many federal, state and local government employee health and pension programs are sound and the same may be said for many private sector employer programs (recognizing also that many private sector employer do not have adequate programs). There are also serious questions whether people in their 40s, 50s and 60s were making adequate personal provision (or were able to) for their retirement income and future health cost requirements.
Broadly speaking, the thrust of public policy in the US over the past 30+ years has been to lower taxes and interest rates aggressively and count on economic growth and private initiative as the tide to lift all ships, including incomes and provision for other personal needs. Undoubtedly, this policy thrust had many positive effects but arguably it helped create a structural shortfall in income and benefits provision for the unemployed and retirees and an overheated consumer focus within the US. The current recession highlights these problems as many private sector employers find themselves overburdened by their employee and retiree benefits program responsibilities, governments find their own programs for both citizens and employees underfunded and individuals find themselves inadequately covered. The impact on the consumer sector, that engine of which too much is asked, is decidedly negative.
These problems are both highlighted and compounded by the recession and the short term response of governments is deficit spending. Many of a Libertarian or Austrian School economic persuasion will argue that even further cuts to government and its regulations and taxes is the course to recovery (albeit that there will now be an intervening period of constructive destruction of inefficient and wasteful factors in the economy which, while painful in the short run, will also be beneficial). Serious consideration should also be given to the utility of changing economic course, however.
Arguably adherence to the policy thrust of the past 30+ years has created imbalances which are best resolved by intelligent rebuilding of public sector health and pensions programs for citizens generally and increasing taxes and other levies to finance those programs. This would free private sector employers of a significant portion of their current employee and retiree benefits provision burden, increase labour mobility as individuals would not be tied to a particular employer for their continuing access to health and pension coverage and give individuals more confidence about their personal future. No one likes to pay taxes but there is no free lunch.
In short, doubling down on the public policy bet of the past 30+ years does not appear to offer real tangible promise of further gains. Sure, true believers will always argue that we haven’t really, really implemented that policy fully and that if we do so now we will pass through the cleansing fires to freedom and prosperity; Marxist make this sort of argument in other contexts as well.
Life is good in the realm of Obama, the Sun King. (sigh)
On Sep 27 10:11 AM flipspiceland wrote:
> HW lost to Clinton because of AIPAC and no other reason.
>
On Sep 27 11:48 AM bbro wrote:
> 7.5% by 2012....Obama gets 55%....
Why is this fact not universally known? It seems to be knowledge that the common American, voter or no, just cannot get their head around. Now, if this fact had been an Elvis or Michael Jackson song.......
profits and cash flow are out of whack in a positive way....
I really liked this article, John - nicely and simply done for a simpleton like me!!!
I am in the process of opening a brokerage account to start to get back into a small amount of investing - don't need to, but I think it will add a bit of spice (hope not too much) - maybe I'm nuts!!!
The unemployment rate has crept up to 9.2 per cent, compared to 7.3 per cent in April last year. The highest unemployment figures across the Eurozone were seen in Spain, which has a current unemployment rate of 18.1%.
Across the whole of the EU, which includes some 27 member states, the figures also indicated rising unemployment. In these 27 countries unemployment rose to 8.6 per cent in April, a 2 point increase since the previous month. European data analysis company Eurostat put the estimated number of unemployed in the EU at 20.8 million.
In 25 of the 27 EU countries unemployment rose in the past few months, with only Romania and Greece witnessing a fall in unemployment. Although recent reports have suggested an increase in economic growth, it does not look like this has reached the jobs market as yet.
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Money without intelligence is like a car without a road.
www.intelligentinvesti...
Obama's tax increase is not good, for certain - but the fact is that 98% of small businesses net less than $250,000. It doesn't seem likely that it would affect new startups.
One other commentator raised the question about the boomer cohort retiring. I know that 5 years ago there were many articles published about coming labor shortages due to this. This seems pretty unlikely now.
Now what does that mean? Does it mean fewer people will start or grow small businesses because of an increase in marginal tax rates? That is one possibility. But is this a serious consideration for these people? The small business owners I know are driven by a whole host of motivations, of which personal success is one, but not the only motivation. Since only 2% of these people will achieve this level of success, it isn't rational that this tax increase would be a big deterrent for starting a new business.
If you are a small business owner at the $250,000 level would the increased tax deter you from hiring? Not sure why, because the additional payroll will be a business expense, keeping you from hitting the new marginal tax bracket. Like alienation pointed out it might encourage you to invest in hiring because it is investing in your business rather than paying the government a high percentage of the earnings.
I'm not an expert in small business operations but for sure it isn't clear to me that this will negatively affect small business hiring.
On Sep 27 06:39 PM alienation wrote:
> How does raising taxes on small business owners lead to increased
> unemployment? If the taxes increase, wouldn't the owners try to
> defer getting paid in cash, and seek compensation in other ways?
> I thought that was part of the reason for owning a small business
> - so you can move the profits away from your income, and put it toward
> assets that the business owns (i.e company car, real estate, equipment,
> etc.)
In 1975 the top marginal tax rate (for an annual income of $200,000) was 70%. In 2008 the top rate ($357,000/year) was 35%. Add to this various exclusions for dividends, and lower cap gains rates, and it is easy to see what the "neo" in "neo-conservative" really means.
While there is much useful information here, it is difficult to reconcile the data you lay out in this piece with your overall sanguine attitude. I especially like the author's comparison of today's difficulties for someone starting out, to 1975 when he was getting his start in the workforce. I guess the author is right, folks will just have to muddle through, of that there can be little doubt.
Too bad the days of deficit financed tax cuts are over, just about everything has been deregulated that can be, and the magic of monetarist economics has managed to push the DOW from 793.88 in July, 1975 to 13,895.63 in July, 2006. While I would love to believe that the market rose 17.5 times in value due to the industriousness, thrift, temperance, and all 'round exceptional nature of the Me Generation, I must admit I find it hard to swallow. But not to worry. . .Times were tough in 1975, and you all made it.
Too bad we can no longer continue the policies that have ushered in our newest Gilded Age, and brought us back to an 1880s style economy with a twist - massive and destructive debt racked up over 30 years. But not to worry. . .Times were tough in 1975, and you all made it.
When I turn 60 years of age - a day too near for my liking - perhaps I too will indulge in the same sort of nostalgic rationalizations. After all. . .Times were tough in 1975, and you all made it.
Perhaps we can once more fire up the credit machine, summon the various alchemists and priests of high finance and economics respectively, and get this party back on track. Maybe we can find the justification to perpetrate that most marvelous - and victimless - of crimes: theft from the future. After reading this, I'm certain that if we are all as frugal, and conscientious as our Boomer forebears, if we unleash the intellectual and moral flexibility within us, we can succeed. Above all, we must first resist the temptation to raise taxes and demonstrate our moral bankruptcy. Yes, thanks to you I'm sure that is a big part of it.
At the moment though I have a problem. I for one feel somewhat responsible for the state of affairs I will leave behind when I am gone. I know it's misguided and out of fashion. Hopefully I can be cured of this awful condition. I'm sure that if we get creative, if we get downright "innovative," we can come up with new ways to transform future prosperity into present day wealth. After all. . .Times were tough in 1975, and you all made it.
It' called a Pandemic!
This 6 month bear market bull rally has had its run. Now is time to short and make it on the down side. Trends are just trends until they change direction and they ALWAYS do. Looks like the bull trend is just now broken to me. Get ready and positioned for a very big ride down to DJI 400..
On Sep 27 11:48 AM bbro wrote:
> 7.5% by 2012....Obama gets 55%....
We will see a world war in within 5 years, or less.
I don't want it, but the civilization compass points that way.
You can't make something from nothing; as we have tried to do.
This is a cycle as old as time; and the result of over-leveraging, government intervention, and immoral conduct with the savings and investments of the moral ends in hyperinflation, collapses, and war.
Sadly.
personally, i have more confidence in our leaders. they have better lines of communications. i have more confidence in our productivity. food is not scarce, thanks to improved farming techniques. our corporations are global. they have ears and assets on the ground, in every country. i have more confidence in education. people are better educated, receiving instantaneous information. our news is up to the second. better news makes for better decisions. i have more confidence in the future.
we are days away from curing the incurable. advances in genetics and pharmacology are happening daily. our computers are getting faster and faster. our programmers better and better. in no time, we'll be able to put raw materials into one end of factories and have finished products coming out the other end. our scientists are inches away from room temperature super conductors, fusion reactors, nanosized machines. i have faith that we are on an accelerated path to a much brighter future, where science fiction becomes science fact. do not fear the future. embrace it. look forward to it.
I have add once again, that there are few businesses in America that would not hire help tomorrow if they were able to hire help at a cost that they could afford. I have my hand firmly on the pulse of my small town here (I don't actually own all of it yet but am fond of it and getting there) and I can tell you that the minimum wage is out of whack badly. Several posts point out correctly that Americans cannot expect to live as they have in the past. Obama, the liberals liberal was the one man who could have said that small business cannot take yet another kick in the behind at this dangerous moment and postponed at least the increase if not a roll back. Of course, this would never happen. We will go through years of pain, then inflation will kick in and lower the minimum wage and all those jobs that small businesses want to hire help to do will be done. I think that the vast majority of readers to this site can't contemplate working for minimum wage nor really feel that those jobs are the ones the economy needs but that's where a lot of jobs start. And the sooner we start to create them, the better.
i'll never understand the anti-tax rhetoric. we are in a historically low tax environment. the middle class has been far better off in post-WW2 high-tax periods than in recent years. any apparent prosperity since 1980 is imo the prosperity of a homeless junky with a credit card.
the debt binge has been fueled by the SS payroll tax. soon the right will claim that honoring the SS bonds is "unsustainable". insofar as spending the SS tax made tax cuts at the top possible, any reneging on the SS bonds amounts to theft by the wealthy from average Americans.
trying to fire up the debt engine again will just put our children deeper in the hole.
The mess is going to occur a lot faster than the next two generations, possibly within a few years.
Buy a bigger house. Your children and your grandchildren will all be moving in with you.
For every advance in pharmaceuticals or farming or "perceived better'ness" there is a regression in terms of inputs or outputs, physically, emotionally, spiritually.
The advances we make with technology reduce our connection to that from which we come. We elevate ourselves toward god status as we devalue the things that truly matter; and get further and further from the truth and higher and higher on the ladder of lies and self-delusion.
We have built a grand house of cards for ourselves, but it is still a house of cards.
If this house of cards had a foundation of moral and ethical behavior, if the divorce rate were down, good parenting and true learning were up, there were actually 20% or more decent programs per channel to watch on T.V., and if three generations hadn't just been put into indentured servitude via the collusion of their own government and financial oligarchs; then I might be able to see our society and current situation in a positive light.
On Sep 28 01:50 AM curious cat wrote:
> predicting a war is like predicting an earthquake or a hurricane.
> there is no end to them, but a world war? well, that's different.
> we started numbering them, so we already have a name for it. will
> we start one over a collapsed financial system? will we start one
> over iran or north korea? we didn't start one when russia collapsed.
> we didn't start one when the chinese turned into capitalists. we
> didn't start one when oil prices ran up.
>
> personally, i have more confidence in our leaders. they have better
> lines of communications. i have more confidence in our productivity.
> food is not scarce, thanks to improved farming techniques. our corporations
> are global. they have ears and assets on the ground, in every country.
> i have more confidence in education. people are better educated,
> receiving instantaneous information. our news is up to the second.
> better news makes for better decisions. i have more confidence in
> the future.
>
> we are days away from curing the incurable. advances in genetics
> and pharmacology are happening daily. our computers are getting faster
> and faster. our programmers better and better. in no time, we'll
> be able to put raw materials into one end of factories and have finished
> products coming out the other end. our scientists are inches away
> from room temperature super conductors, fusion reactors, nanosized
> machines. i have faith that we are on an accelerated path to a much
> brighter future, where science fiction becomes science fact. do not
> fear the future. embrace it. look forward to it.
Also, a lot of interesting and important data isn't reported (or at least discussed and analyzed) such as wages as a percentage of total income (stocks, bonds, real estate, capital gains, etc.)
And no one seems to be interested in various things such as the percentage of unemployed or employed illegal immigrants.
The problem of exactly WHO is counted as unemployed is rarely reported or discussed either: Prisoners, early retirees, partially handicapped, soldiers, housewives and house husbands, people over 14, 16 or 18 ....
We clearly need better and more consistent data with more variables if we are going to have more success predicting the future.
On Sep 27 11:10 AM ConPar wrote:
> Maybe I missed it in the article, but what impact will the retiring
> baby boomers have in all this? I realize that some are not retiring
> because they have to make up losses in their retirement portfolios,
> and those that are retiring contribute to an even bigger issue with
> regard to SSI & Medicare obligations. However I have read many
> other articles discussing the unprecedented number of workers leaving
> the workforce due to retirement. Just wondering how this will factor
> into Mr. Mauldin's analysis(?)
It's referred to regularly by folks like Jim Sinclair and Paul Craig Roberts.
On Sep 28 06:12 PM carey_jim wrote:
> The problem of misleading unemployment data (U1-U6) is bad enough
> but when you try to compare past unemployment rates with present
> rates it's virtually impossible if unemployment rates were calculated
> differently during different years. (U6 in 1980 and U3 in 2009 for
> example.)
>
> Also, a lot of interesting and important data isn't reported (or
> at least discussed and analyzed) such as wages as a percentage of
> total income (stocks, bonds, real estate, capital gains, etc.) <br/>
>
> And no one seems to be interested in various things such as the percentage
> of unemployed or employed illegal immigrants.
>
> The problem of exactly WHO is counted as unemployed is rarely reported
> or discussed either: Prisoners, early retirees, partially handicapped,
> soldiers, housewives and house husbands, people over 14, 16 or 18
> ....
>
> We clearly need better and more consistent data with more variables
> if we are going to have more success predicting the future.
Thus using your $200K seed capital idea, the investor has to put up $200K x 1,000 = $200 million. And 10 years later only 10 business will be left for that $200 million investment. Since venture captial is high risk, the VC expects very high rates of return. Maybe something like 50% annual rate of return. 50% compounded over 10 years via my calculator is 56.67 times higher than the original seed captial. Thus the 10 remaining business would have to be worth 10 x $200K x 56.67 to justify the VC investments or for them to be willing to take the risk to fund 1,000 startups at $200K each knowing that 990 of the startups will fail within 10 years.
It's just not that easy to find startup business that can generate the massive returns necessary for the 10 succesful business that will be left in 10 years. And that is why VC firms simply would not be willing to invest $200K each in 1,000 startup business.
On Sep 27 11:08 AM bluesky123 wrote:
> A piece of cake to solve. The future is not so bleak and employment
> can be addressed very quickly and cost effectively. Venture capital
> firms around America are being inundated with requests for seed capital,
> defined as small amounts of capital in the range of about $200,000
> for a firm to do a "proof of concept" for their new technology or
> product.
>
> There used to be seed capital in America. There isn't today. The
> entire VC industry has decided to focus on later stage deals. There
> could be at any one time 10,000 companies in America looking for
> seed capital, representing every conceivable industry.
>
> Create a $10 billion "Rebuild America Seed Capital Fund". The fund's
> mandate is to invest up to $500,000 per worthwhile company until
> the fund runs out. Many firms will not even need that much. Staff
> it with 100 experts from the finance, technology and venture capital
> fields. Each business plan submitted received a reply in 1 month.
>
>
> What you will see is an explosion of creativity and economic activity
> in America. My own firm receives at least 5 seed capital financing
> requests per week and we're a tiny firm in the industry. Most firms
> seeking this capital have been on the road banging on doors for years.
> America is bursting at the seams with talented, smart, creative,
> risk taking entrepreneurs - who can't find seed capital.
>
> The venture capital industry likes to finance established companies
> with established customer bases and established revenues. Nobody
> wants to touch the guy running around the country with a business
> plan who is only asking for $200,000. It takes the same time to do
> due diligence on a $50million deal as a $200,000 deal and venture
> firms need to deploy capital they have raised from their investors.
> Nobody is doing seed capital deals in America.
>
> This is how you create a renaissance in American industry. Fund the
> tens of thousands or perhaps hundreds of thousands of companies that
> are right now at this moment ready to roll. Give them the seed capital
> and they will rebuild America. Problem solved.
Thank you for providing hard data for what is turning out to be a seemingly intractable problem--how to put enough people to work to pull the economy out of its doldrums, yet not bankrupt the Treasury in the process?
It seems clear that only massive government intervention will make a material difference in the job count, yet no one wants that (including me). I contend that the government is already far too intrusive, and more powers begat more intrusiveness.
But for private industry, the only reason to hire is that the new employee will produce more work than his or her cost to hire. Until profit margins recover, hiring workers will continue to be an expensive proposition.
And without top-line revenue growth, there's little incentive to hire. Yet without expanding employment, top-line growth will languish.
An economic conundrum: Companies won't hire because they see no revenue growth, but unemployed workers can't spend because they aren't working. And that reinforces the companies' stand against hiring.
Again, thank you for the article, and the lively discussion it spawned.