The Economic Recovery That Isn't 91 comments
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For those market boosters who are prattling on about the possibility of a "jobless recovery," I offer an invitation to join me for a breakfast of "fat-free bacon," "eggless omelets," and "no-carb bread." As unappetizing as such a meal may sound, it would nevertheless offer more substance than the oxymoronic concept of an economic resurgence without job creation.
Those who do cling to the absurd belief that, absent exponential productivity gains, the economy can expand while workers are being laid off will undergo a massive test of their convictions now that it's clear the employment picture is bleak. Friday's weaker-than-expected report on non-farm payrolls revealed that employers shed 263,000 jobs in September. The losses propelled the headline unemployment rate to a 26-year high of 9.8%. U6, the Bureau of Labor Statistics' most complete measure of unemployment, has risen to a dismal 17%.
This figure includes those people who want to work full time, but have simply given up looking, or who have accepted part-time work in the interim. As it is similar to the methodology used during the Great Depression, U6 offers better historical perspective on the severity of our current crisis.
Taken together with Thursday's larger-than-expected pickup in unemployment claims (first time claims rose by 17,000 to 551,000), Friday's report makes it certain that the job market is still contracting, even while some indicators like GDP and consumer confidence are moving in the opposite direction.
There is no question that the sense of panic has temporarily subsided. In recent interviews, Treasury Secretary Geithner has been almost giddy in his descriptions of the recovery – all the while crediting his own policies for averting disaster. Americans are once again taking the government's bait by spending money they don't have to buy things they can't afford. Evidence of this trend was contained in data released earlier this week which showed that even while income growth was largely stagnant, U.S. consumers showed the biggest month-over-month increase in personal spending in ten years! With the same report showing a 25% drop in the savings rate, the source of the spending money is clear. But depleting savings and increasing borrowing does not a recovery make.
To really recuperate, the government must allow market forces to restructure our economy. The government and individuals must rein in their spending; we must replenish our stock of savings, allow interest rates to rise, asset prices to adjust to economic reality, insolvent businesses to fail, and wages to reflect productivity. To accomplish these goals, subsidies that distort market forces must be removed and regulations that undermine our competitiveness must be repealed.
None of this can be accomplished without a degree of short-term economic pain. However, if we endure it, the payback will be a real recovery with plenty of new jobs that don't rely on government stimulus money. If we refuse to allow the economy to experience a real recession, we will never have the benefit of a real recovery. Instead, we get the "jobless recovery," a veneer of apparently positive indicators that merely obscures the underlying rot.
Over the last few decades, our industrial job market has atrophied while service- and public-sector jobs have grown unsustainably. We must restore balance. New jobs will have to come from areas that produce goods; bloated service and government sectors must be allowed to shrink. By propping up the sectors that need to contract, and running staggering budget deficits, the government cuts off the capital necessary to fund sectors that need to expand.
In truth, many of the service-sector jobs that exist today, such as real estate sales, mortgage finance, home improvement, and auto sales, were created in an environment of ever-increasing home equity, rising stock prices, and almost unlimited access to cheap consumer credit. With home equity gone, stock markets flat, and credit depleted, Americans find themselves needing to save rather than spend. But Washington has put through policies that have counteracted our good instincts.
While we were focusing our economy on consumer spending, much of the rest of the world was saving for the future. As such, we must begin to produce more for export, so that we can sell goods to those who have the savings to pay for them. That is the only way we can repay our debts, replenish our savings, repair our infrastructure, and rebuild our industrial base.
Another prerequisite to any real economic expansion is the potential for business owners to earn profits. With increased regulation and higher taxes on the way, these incentives are being diminished. In fact, via a phenomenon called 'regime uncertainty,' our current policy path is actually encouraging businesses to contract in order to prepare for a more hostile business environment.
Robust economies utilize all spare capacity, or restructure it for better use. Having 17% of our able-bodied population sitting at home or working part-time at Cinnabon indicates that our present policies are weakening the economy – even if GDP is growing. There is no "jobless recovery," only senseless cheerleading.
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This article has 91 comments:
What we have since the debacle of the dot com boom a decade ago is smoke and mirrors. Pretending that the financilisation of the economy was a substitute for meeting peoples real needs and wants through real production was foolish. The most financialised economies will suffer the most, the UK and USA.
The United States has no option than to feel the pain of a depression or severe recession. It will mean lower wages, less wealth but people will emerge with real jobs with real production.
The perceived wealth of the US is but an illusion created by debt expansion since Ronald Reagan. Without the debt expansion there would have been no growth in the USA for 20 or more years.
I think the asset bubbles are still inflated, helped along by the treasury and reserve policy. The tactic of preventing the asset bubble from bursting in order to save the USA from a depression will only work for so long.
Consumers and investors are still in denial, this Christmas lights will definitely be a lot dimmer than last year - lots of jobs and home have been actually lost.
At this point we know the Keynesian stimulus has failed - clunkers and car sales are early sign, home sales in a couple of months (after 8K credit ends) will further confirm that. So lot of wasted money (ultimately to be repaid by higher taxes). Now far from having a lush garden, as priced in into stocks now, we don't even have any green shoots. Lot more job losses and other pain yet to come, so just brace yourself. Even Wall Street may get over its irrational exuberance.
None of this can be accomplished without a degree of short-term economic pain. However, if we endure it, the payback will be a real recovery with plenty of new jobs that don't rely on government stimulus money. If we refuse to allow the economy to experience a real recession, we will never have the benefit of a real recovery. Instead, we get the "jobless recovery," a veneer of apparently positive indicators that merely obscures the underlying rot."
This is wisdom. More debt is the last thing we need.
These are fine objectives but the difficulty lies in the road to these achievements. Undertaken suddenly, with a massive debt and toxic-ridden economy would mean a total collapse and possible anarchy. A gradual descent, as we're now seeing, is the only way to go.
Prepare for a very long period of decline and adjustment, a lower standard of living, an escalation of prices and the reality of living as much of the rest of the world now exists; a day to day struggle for food, a little clothing and a roof that sometimes leaks.
The most important econ. report in years if not decades comes in a few weeks. If the economists expect Q3 GDP of 3 percent and the error is wrong on the downside by 30-50 %, it could make last week's plunge in the Dow tepid by comparison. A recent string of poor monthly reports is a warning of potential danger: the economy is stumbling again.
If we never make ourselves deal with our problems we won't ever solve them, with a couple of exceptions. We will no longer have a problem with other countries being jealous of us. And a whole lot of people won't have to worry about income taxes (because they won't have an income).
So how do you create job growth?
Remember that MD entrepreneur I mentioned?
Our government must have regulations and tax codes that stand behind him, NOT IN FRONT OF HIM.
Assuming 170 million workforce with 9.8% unemployment it would relay to almost 17 million unemployed people and 34 million with rate of 17%. Having such a big group of people without any means of support would create radical part of population calling for system change. Please remember that the biggest revolts happened when the people were pushed against the wall.
This kind of revolt could threaten current system and possibly loss of what we have. I still prefer to have current system (maybe government corruption should be eliminated) instead of different choice.
“…At age 25, John Mackey was mugged by reality. "Once you start meeting a payroll you have a little different attitude about those things." This insight explains why he thinks it's a shame that so few elected officials have ever run a business. "Most are lawyers," he says, which is why Washington treats companies like cash dispensers…”
As Shakespeare said "first, kill all the lawyers". Today, that would include almost 100% of the Executive and Legislative branches.
The time for higher interest rates was five years ago.
We're in a box now. Higher rates would result in a collapse of the entire system right now.
I would be in favor of a massive downsizing of government on all levels though.
Our government in Congress and the White House is filled with lawyers. Lawyers who have never run a business. They don't know how to create wealth, they know how to attack wealth and try and profit from it.
We have one party controlling our entire government and most of the media. This doesn't bother anybody?
I'm not sure the U7 stats even count everything. The workers who quit looking, and the part time workers, but what about all the boomers near retirement who were forced into "early retirement"?
The thing that gets me is the stock market vs the economy. When the stock market was down, and the economy was sinking, people were talking about canned food, the end of the world, and all these scary thoughts.
Now the unemployment numbers are still going up and the economy still shows tons of weakness, but people are just blinded by positive returns in the stock market.
Economy weak + weak stock market = panic
Economy weak + positive stock market = no fear
Could GDP go up in the 3rd quarter? Sure, it's possible, it would be going up from a very low level. But do you believe we will be at the start of a real lasting recovery, or some new normal/depressed state?
And those who gravitate to view points on the edges, rather than understanding that what takes place usually is somewhere near the middle, subject themselves to not being taken seriously.
You write as if the economy can't expand once the lay offs stop but hiring doesn't resume.
Can the economy expand without workers being laid off but minus a renewal of large scale hiring? The answer is yes, slowly.
At some point workers will stop getting laid off and concurrently companies will find their equilibrium point. From there, they don't go on a hiring rampage and create the unnecessary/duplicate jobs that needed to be cut during the contraction, but rather, they manage their workforce relative to the economic cycle. The economy grows slower, but it grows, as "capitalism and free markets" work out the excesses. That should be cheering you up, no?
The current economic statistics are difficult to interpret correctly because they are contradictory on so many levels. Growth in some areas, contraction in others demonstrates a changing, evolving worldwide business environment and economy. Cherry picking stats to support a position should be reserved for those who follow sports.
I would think being the "free market" guy you are, you would have at least considered that US businesses are capable of managing their employment rolls not only when the economy contracts or expands, but also when it grows slowly. No one is happy with the large number of people still losing their jobs, but isn't the free market, cutting the fat, tightening the belt stage what free market capitalists have been recommending since this began? Now that the markets are doing their thing, it's suddenly become proof of fundamental flaws??
I'm not sure if you aware, but there are colors that exist between black and white.
Best regards
Louis
The marginal value of government debt is becoming more precarious each day. If we insist on "stimulus" then it should be leveraged as efficiently as possible. Cash for clunkers is a prime example of spending that provides no long-term growth benefits.
To our Govt, Fed and Treasury, for successfully orchestrating the biggest taxpayer heist in US history.
To that group again, for orchestrating the 3rd stock market bubble in less than 12 years for the sole purpose of letting the media use that rise as "the reason" the economy is getting better. Congrats your asset gathering friends thank you.
To Bill Gross for as always having the correct investment strategy. Of course it helps when you have a red phone in your desk with the Treasury on speed dial.
It took quite a long time before the Roman people understood that their lives were over and their empire was finished. They were once a proactive empire and that is when they flourished. They became a reactive empire, decay on all levels from within set in, the rest is history.
Sounds like another Empire I know and used to believe in.
State capitalism consists of one or more groups making use of the coercive apparatus of the government — the State — to accumulate capital for themselves by expropriating the production of others by mulcting, force and violence.
What Peter is actually saying addresses the limits of state capitalism, which took place in the 30's and has grown into a colossal failure which today is in a state of frozen paralysis. While highly unlikely, we need to rebalance our economic system and restore the heritage of free market capitalism.
For example the US is by far the largest manufacturing nation in the world, producing 21% of the value of all goods produced in the world today. Yet we only employ 8% of our workforce to achieve this. And the output of each worker IS growing exponentially, resulting in fewer manufacturing jobs each year.
Even if you double employment and thereby production in this area you will only increase the percentage of the workforce engaged in these activities to 16%. And this doubling clearly cannot happen - the demand for the output is simply not there.
There is no going back to an economy where manufacturing jobs are the bulk of the employment opportunities. Won't happen. We have had a transition much like what happened when we went from an agrarian economy where most of the population worked on farms to an industrial society where few people work on farms. Wishing for it will not make it so. You might as well wish for a society where most people work on farms.
The future is a service economy. That is the reality. And economic policies must realize this and be structured to work in this environment. Calls to return to a manufacturing economy show a basic lack of understanding in how a modern economy actually works, or does not work.
Thanks to Karl Denninger, digging in the U.S. Gov. employment numbers, he uncovered an interesting statistic. First, here is the link to the site he found the statistic in.
www.bls.gov/news.relea...
Go to page 11 (PDF file) and the "HOUSEHOLD DATA Table A-1. Employment status of the civilian population by sex and age"
Now drop down to "Employed" For Aug and Sept numbers. You will find that the "unadjusted numbers equate to a drop of about 995,000 employed ( Aug. 140,074, Sept. 139,079), not the 263,000 that the "seasonally adjusted" number (further to the right on that line) that was reported.
Here is how they define "seasonally adjusted."
quote
Most seasonally adjusted series are independently
adjusted in both the household and establishment surveys.
However, the adjusted series for many major estimates, such
as total payroll employment, employment in most
supersectors, total employment, and unemployment are
computed by aggregating independently adjusted component
series.
======================
I posted this on another topic here at Seeking Alpha but, it applies here too. The number may be larger due to more taking early retirement, dropping out, starting their own business, going on SSI or some other thing but, still it is a very large drop in the number employed.
Regarding manufacturing, it isn't the number employed or the amount (21% quoted) but where it goes. If we mostly consume it and don't export much we still have a problem with trade and our economy and growth and ability to increase tax revenues.
When you export, the 35% in hidden taxes and tax compliance costs in goods is paid by people in other nations. When we consume most of what we produce, we bear virtually all the burden hidden in prices.
Also, the ratio of consumption to production has to be considered and with the government spending 61% of national income, we are at a great disadvantage.
(source: www.heartland.org/publ... )
-----------------------
For those who believe the world crashes if we have a double dip or depression period, the global market doesn't believe so. They are turning their back on the U.S. and pouring investment money and relocating business to the emerging markets. Will they have a recession if we have a depression? Quite likely but, it will be an "inventory recession" that can be overcome faster than a "credit recession," like we are in.
quote:
Depressions marked by balance sheet compression
Recessions are typically characterized by inventory cycles – 80% of the decline in GDP is typically due to the de-stocking in the manufacturing sector. Traditional policy stimulus almost always works to absorb the excess by stimulating domestic demand. Depressions often are marked by balance sheet compression and deleveraging: debt elimination, asset liquidation and rising savings rates. When the credit expansion reaches bubble proportions, the distance to the mean is longer and deeper. Unfortunately, as our former investment strategist Bob Farrell’s Rule #3 points out, excesses in one direction lead to excesses in the opposite direction.
The next day, I highlighted Ray Dalio’s version of this story because it takes a historical view and rightly emphasizes the debtor instead of the lender as the crux of the problem. Notice the part about printing money and devaluing the currency if the debt is in your own currency.
www.creditwritedowns.c...
================
In that very long article, you will learn more that 98% of Congress knows about the real crisis we are in and why it isn't like any of the "inventory recessions" we have had since the last Credit Recession in the 1930's.
One look at this total debt chart that shows both the 30's and now, will tell you what we face and why it takes years to unwind.
www.financialsense.com...
Most of the comments and Peter's article were on target.
This is huge, and something I have been worrying about for some time. The media has become nothing short of a danger to the population. Aside from being absolutely bias in their reporting, they are intent on feeding people information that could get them hurt. I keep hearing how important it is for consumers to "feed" the economy, as our economy is 70% consumer. That, of course, is a big part of our problem.
Worse than the latest employment number is the realization that those jobs, at least a scary portion of them, will never come back. I'm afraid that at some point people are going to have to understand just how bad things are, and that a REAL recovery is many years away. Only then can we begin to turn things around. In the meantime, this policy of print and prop-up is only delaying the inevitable. And inevitably, things are going to get unpleasant...and we just have to deal with it.
Its my opinion that they made a major strategic blunder by doing that.
Now they are seeing the potential downside, not least of which is the requirement that they tie up most of their financial gains propping up the currency they are joined at the hip with.
CAN they now execute the de-coupling and enact the major structural changes that will go with it?
I believe this is the unanswered question - the lurking 600 pound gorilla next to the buffet table.
A lot of what goes into "things" these days is called and recorded as "services", a lot of manufacturing is more about logistics now that rows of workers, but if the manufacturing is offshore those services get added somewhere else
On Oct 04 10:28 AM bricki wrote:
> The problem with this analysis and modern economies in general is
> that industrial productivity has reached the point where the material
> needs of a modern society can easily be met by a small fraction of
> the workforce.
>
> For example the US is by far the largest manufacturing nation in
> the world, producing 21% of the value of all goods produced in the
> world today. Yet we only employ 8% of our workforce to achieve this.
> And the output of each worker IS growing exponentially, resulting
> in fewer manufacturing jobs each year.
>
> Even if you double employment and thereby production in this area
> you will only increase the percentage of the workforce engaged in
> these activities to 16%. And this doubling clearly cannot happen
> - the demand for the output is simply not there.
>
> There is no going back to an economy where manufacturing jobs are
> the bulk of the employment opportunities. Won't happen. We have had
> a transition much like what happened when we went from an agrarian
> economy where most of the population worked on farms to an industrial
> society where few people work on farms. Wishing for it will not make
> it so. You might as well wish for a society where most people work
> on farms.
>
> The future is a service economy. That is the reality. And economic
> policies must realize this and be structured to work in this environment.
> Calls to return to a manufacturing economy show a basic lack of understanding
> in how a modern economy actually works, or does not work.
globaleconomicanalysis...
With respect to the idea that we're in any kind of 'recovery', count me as a non-believer.
Free market capitalism works if it is allowed to work.
State controlled economies don't work. Russia has already proved that.
Shrink the military to within the borders for truly just national security.
Shrink government - city, county , state, federal.
Use the savings to invest in industrial manufacturing base, people, Infrastructure, etc.
Keep taxes low. Shrink all non - essential programs for the short term, eg. NASA etc.
Use the savings for upgrading and improving education, which at the moment is in deplorable shape.
Remove government from areas of the economy in which they have no business, however enforce and prosecute laws justly.
There is much to be done. You have your work cut out for yourself Peter! Good luck. Shiff for Senate.
Anyone who trots out the trade deficit problem and doesn't include a workable proposal for the oil problem is wasting your time.
On Oct 04 10:52 AM Jan Paul wrote:
> Good comment Vule:
>
> Thanks to Karl Denninger, digging in the U.S. Gov. employment numbers,
> he uncovered an interesting statistic. First, here is the link to
> the site he found the statistic in.
>
> www.bls.gov/news.relea...
>
> Go to page 11 (PDF file) and the "HOUSEHOLD DATA Table A-1. Employment
> status of the civilian population by sex and age"
>
> Now drop down to "Employed" For Aug and Sept numbers. You will find
> that the "unadjusted numbers equate to a drop of about 995,000 employed
> ( Aug. 140,074, Sept. 139,079), not the 263,000 that the "seasonally
> adjusted" number (further to the right on that line) that was reported.
>
>
> Here is how they define "seasonally adjusted."
>
> quote
> Most seasonally adjusted series are independently
> adjusted in both the household and establishment surveys.
> However, the adjusted series for many major estimates, such
> as total payroll employment, employment in most
> supersectors, total employment, and unemployment are
> computed by aggregating independently adjusted component
> series.
> ======================
>
> I posted this on another topic here at Seeking Alpha but, it applies
> here too. The number may be larger due to more taking early retirement,
> dropping out, starting their own business, going on SSI or some other
> thing but, still it is a very large drop in the number employed.
>
>
> Regarding manufacturing, it isn't the number employed or the amount
> (21% quoted) but where it goes. If we mostly consume it and don't
> export much we still have a problem with trade and our economy and
> growth and ability to increase tax revenues.
>
> When you export, the 35% in hidden taxes and tax compliance costs
> in goods is paid by people in other nations. When we consume most
> of what we produce, we bear virtually all the burden hidden in prices.
>
>
> Also, the ratio of consumption to production has to be considered
> and with the government spending 61% of national income, we are at
> a great disadvantage.
> (source: www.heartland.org/publ...
> )
> -----------------------
>
> For those who believe the world crashes if we have a double dip or
> depression period, the global market doesn't believe so. They are
> turning their back on the U.S. and pouring investment money and relocating
> business to the emerging markets. Will they have a recession if
> we have a depression? Quite likely but, it will be an "inventory
> recession" that can be overcome faster than a "credit recession,"
> like we are in.
>
> quote:
> Depressions marked by balance sheet compression
> Recessions are typically characterized by inventory cycles – 80%
> of the decline in GDP is typically due to the de-stocking in the
> manufacturing sector. Traditional policy stimulus almost always works
> to absorb the excess by stimulating domestic demand. Depressions
> often are marked by balance sheet compression and deleveraging: debt
> elimination, asset liquidation and rising savings rates. When the
> credit expansion reaches bubble proportions, the distance to the
> mean is longer and deeper. Unfortunately, as our former investment
> strategist Bob Farrell’s Rule #3 points out, excesses in one direction
> lead to excesses in the opposite direction.
>
> The next day, I highlighted Ray Dalio’s version of this story because
> it takes a historical view and rightly emphasizes the debtor instead
> of the lender as the crux of the problem. Notice the part about printing
> money and devaluing the currency if the debt is in your own currency.
>
>
> www.creditwritedowns.c...
>
> ================
>
> In that very long article, you will learn more that 98% of Congress
> knows about the real crisis we are in and why it isn't like any of
> the "inventory recessions" we have had since the last Credit Recession
> in the 1930's.
>
> One look at this total debt chart that shows both the 30's and now,
> will tell you what we face and why it takes years to unwind.
>
> www.financialsense.com...
>
> Most of the comments and Peter's article were on target.
On Oct 04 04:51 AM markfl wrote:
> Looking back at last week's numbers, I was surprised about what many
> reporterss overlooked: the surprisingly poor job economists did of
> predicting the final Q2 GDP. It turned out to be better than expected,
> only -.7 %, but that wasn't the big story. Bloomberg's survey had
> predicted a concensus of about -1.2, what the markets expected. Their
> forecasts were off by 50%! Not a huge absolute number, but a huge
> margin of error on a percentage basis.
>
> The most important econ. report in years if not decades comes in
> a few weeks. If the economists expect Q3 GDP of 3 percent and the
> error is wrong on the downside by 30-50 %, it could make last week's
> plunge in the Dow tepid by comparison. A recent string of poor monthly
> reports is a warning of potential danger: the economy is stumbling
> again.
The era of manufacturing as a major means of economic growth is over for all but undeveloped or developing countries. Trying to change that is a waste of time and bad policy because it won't work.
Do you know what county has been losing the most manufacturing jobs over the past few years? (Hint: It's China). The reason is they are now participating the inevitable: increasing wages and increasing manufacturing efficiency.
That's the facts.
On Oct 04 11:06 AM Andrew Butter wrote:
> You are right in a way but I don't think it's that cut and dried.
>
>
> A lot of what goes into "things" these days is called and recorded
> as "services", a lot of manufacturing is more about logistics now
> that rows of workers, but if the manufacturing is offshore those
> services get added somewhere else
So, the question would be, what would stimulate more employment? That's the question I would like to see answered.
An abrupt filtering out of the economy as Mr. Schiff suggests, while more than likely required to a large degree, is exactly how we entered into the Great Depression. I also agree with sentiments that our current approach is probably the only sensible approach that will not plunge the nation into anarchy.
Perhaps one day we will innovate our way into another golden age, and thus see full employment once again. However, it will be much harder relatively speaking - we are no longer the 800 pound gorilla amongst a flock of sheep.
On Oct 04 12:08 PM Ricard wrote:
> ">
> So, the question would be, what would stimulate more employment?
> That's the question I would like to see answered.
>
>.
>
>
On Oct 04 09:34 AM yellowhoard wrote:
> I'm a big fan Peter. But, I've got to agree with Vuke.
> The time for higher interest rates was five years ago.
> We're in a box now. Higher rates would result in a collapse of the
> entire system right now.
> I would be in favor of a massive downsizing of government on all
> levels though.
As a people, we are constantly exhorted to buy to the point that we have accepted continuous intrusion into our mental lives of voices that tell us to call, to log in or just to come on down and buy with nothing down and no risk ....
We can flatten our buns, clear up our skin and/or develop superman muscles if we'll just try out the product with complete satisfaction guaranteed, or all of our money will be returned with no obligations or questions.
In the recent historical past we were also constantly exhorted, in the same way, to stop drinking, fornicating and smoking by accepting Jesus Christ as our personal savior
Before that it was the first and second Great Awakening and then, in the late 19th century, the religious fervor that developed around woman's suffrage, the Woman's Christian Temperance Union to end drinking, and the movement to end slavery.
After Americans had their brief fling with consumerism in the 1920's, the stock market plunged and religion and moral exhortation made a comeback during the Roosevelt administration.
After World War II, religion went to bed with Mammon once more and consumerism took off its clothes and once more began to dance its ass off.
Even though all of us are too young to have experienced this "other" America of our grand parents and great grandparents, its red hot coals still smolder underneath the floors on which we are still dancing our asses off.
Crazy as it sounds to most rational Americans, a new religious movement might be in our future exhorting us to Christlike material abstinence.
Economists, and especially those of the Austrian School, are exhorting us, even if their version of hell and brimstone is completely secular, But no one is listening. They also promise heaven on earth again, after a sufficient period of savings purgatory and spending abstinence.
It sounds a lot like the message Aimee Semple McPherson preached in the 1930's. A lot more people listened to her than listened to Joseph Schumpeter.
Maybe another Aimee is in our future.
Most importantly, given that S&P 500 is mostly global companies and the global economy (apart from the US & UK) have mostly recovered. With the dollar down these multinationals will have the winds on their back and will be raising earnings. I am looking forward to be pleasantly surprised in Q4. I will not be surprised if the S&P earnings come in a $75 next year. Applyling a conservative multiple of 15 gives me S&P of 1125 - I expect to reach this by year end.
None of this can be accomplished without a degree of short-term economic pain."
The pain of course is continued economic failure until some politician says "government is the problem not the solution." Carter II will lead to Reagan II.
Excellant article. Two years premature but excellent nevertheless.
Nick KrahS>>
You must be a government worker? Union worker? Civil servant?
Health insurance paid for? Guaranteed pension perhaps? Or perhaps on disability and "allowed" to keep working 30 hrs per week and perhaps doing yard work to keep the old heart healthy?
Nothing to worry about I guess. Just flip on the latest reality TV program and keep the I-phone by your side in case an "important" call comes in.
American culture in the 21st century.
This may happen ultimately anyway. Guess who is going to benefit then ???? GS et al.., instead of those who kept themselves clean, forsaw the disaster and should have had a once in lifetime benefit/ deserved windfall last year.
On Oct 04 04:55 PM bob adamson wrote:
> Mr. Schiff is wrong in his assessment of what could have been achieved
> during the past year, about what has been achieved during that period
> and what needs to be done over the next few years. The task for the
> past year was to prevent an unprecedented world wide banking, financial
> and general economic collapse and set the stage for remedial action
> in further stages over the next years; not merely end a mild downturn
> in an essentially healthy economy through some fiscal and monetary
> tweaking or by letting market forces do the job unaided. Left to
> its own, the economy would have spun into a deflationary depression
> (with untold misery for large sections of the population) forestalling
> any short to mid term productive options for either government or
> private sector action. The task now is to stay the stimulus course
> until the private sector is again able to carry its share of the
> load. The longer term task is to prevent a false recovery that simply
> returns the state of affairs to that which pertained in 2005 or thereabouts.
> Rebuilding the public sector and industrial sectors of North America
> and Western Europe and encouraging thrift and increased savings patterns
> at these later stages will be important to the development of economic
> soundness but only if we don’t jump the gun with this before the
> recovery is truly underway.
From an engineering perspective, the investments into reducing energy costs have been tremendous recently. Imagine the world when energy costs $0.04/kWh. THAT will result in more disposable income, exponentially more, and then there will be more (possibly full) employment for a hundred years till we have a Malthusian crisis.
Long: commodities, TBT
On Oct 04 12:29 PM The Geoffster wrote:
> War??
Source :
peterschiffchannel.blo...
But then when the dust is settled in a month or two, the people in other nations will look around and see that they are ok, dust themselves off, and say "Who the f needs the US?"
On Oct 04 10:04 AM popey wrote:
> Peter, you have one very big problem with your analysis that is seldom
> addressed by you. If the USA goes into a double dip, or W formation
> (which it will, and which you claim), then why are you investing
> in commodities and foreign stocks? Because I can assure you, that
> if the USA goes down, and the USA long bond collapses (as your predict),
> then the whole world will be dragged down into a catastrophic vortex
> due to the reserve status of the USD and the interconnectedness of
> global markets. And don't tell me the USD will be replaced any time
> soon. You would be better served waiting for the meltdown by staying
> in cash, and then invest after the W crash collapse.
You are correct in stating that we're not out of the woods yet and that we could yet fall into a deflationary depression. However, it’s dangerous tunnel vision to fanaticize that some farsighted investors (ourselves included, of course) would have been immune from negative impact (and could, in fact have profited) if the economy had simply been allowed to implode last year. Even if one had liquidated all securities in advance of the crash and bought only safe (or better still, grossly undervalued) holdings (would that have been gold? US Treasuries? Who knows.), the resulting chaos and efforts of governments, other investors, people generally etc. responding out of fear and anger would have had serious collateral effects on even sanguine and sagacious investors.
At least now we have the prospect of an orderly albeit long and difficult recovery if our national governments are both wise and lucky (and we can take investment opportunities as they arise).
On Oct 04 05:17 PM EMS wrote:
> "Left to its own, the economy would have spun into a deflationary
> depression (with untold misery for large sections of the population)::
>
>
> This may happen ultimately anyway. Guess who is going to benefit
> then ???? GS et al.., instead of those who kept themselves clean,
> forsaw the disaster and should have had a once in lifetime benefit/
> deserved windfall last year.
Too bleak an assessment but broadly correct. The ultimate best outcome probably entails some assumption by governments (the US and UK governments especially) of a portion of the secularized debt and derivative bubble that created the pretext for the current crisis and also the monetizing of part by governments and the repudiation of part and the slow paying off of the balance by the major investment banks. Hopefully the reflation of part of that bubble that has taken place, especially since March, will make this unwinding process easier. Obviously this will be a lengthy, difficult and dreary process but it needn’t be a disaster.
On Oct 04 04:16 AM Vuke wrote:
> The author writes: "The government and individuals must rein in their
> spending; we must replenish our stock of savings, allow interest
> rates to rise, asset prices to adjust to economic reality, insolvent
> businesses to fail, and wages to reflect productivity."
>
> These are fine objectives but the difficulty lies in the road to
> these achievements. Undertaken suddenly, with a massive debt and
> toxic-ridden economy would mean a total collapse and possible anarchy.
> A gradual descent, as we're now seeing, is the only way to go.<br/>
>
> Prepare for a very long period of decline and adjustment, a lower
> standard of living, an escalation of prices and the reality of living
> as much of the rest of the world now exists; a day to day struggle
> for food, a little clothing and a roof that sometimes leaks.
The first step on the road to long-term recovery is to stop killing jobs with bad Government policies. Will the Obama/Democrat zeal to socialize healthcare careen our nation on a path to inevitable fiscal ruin as the taxes and mandates just kill future jobs?
Now comes crunch time in DC. If this is passed, USA's economic pre-eminence will be history. Save America's economy, Stop ObamaCare!
Not such a huge challenge, really, but it does require discipline and some tolerance for hardship. Looking back on history we certainly have done it before.
On Oct 04 09:01 PM bob adamson wrote:
> Vuke -
>
> Too bleak an assessment but broadly correct. The ultimate best outcome
> probably entails some assumption by governments (the US and UK governments
> especially) of a portion of the secularized debt and derivative bubble
> that created the pretext for the current crisis and also the monetizing
> of part by governments and the repudiation of part and the slow paying
> off of the balance by the major investment banks. Hopefully the
> reflation of part of that bubble that has taken place, especially
> since March, will make this unwinding process easier. Obviously this
> will be a lengthy, difficult and dreary process but it needn’t be
> a disaster.
>
> On Oct 04 04:16 AM Vuke wrote:
".. I would be in favor of a massive downsizing of government on all levels though. "
absolutely! at the Federal level.. at the State level.. at the County level.. at the municipal level..
The problem with job contractions is that the private sector is always the one doing the layoffs. When is the government going to follow suit?? at ALL levels ? That is one of the biggest problems of all: the government keeps adding workers, even during economic downturns and yet, they expect the private sector to keep paying taxes so they don't have to ever shrink the public rolls!
On Oct 04 10:24 AM CautiousInvestor wrote:
> It may be worthwhile to place Peter's thinking and comments in the
> context of the distinction between free market capitalism and state
> capitalism. Free-market capitalism is a network of free and voluntary
> exchanges in which producers work, produce, and exchange their products
> for the products of others through prices voluntarily arrived at.
>
>
> State capitalism consists of one or more groups making use of the
> coercive apparatus of the government — the State — to accumulate
> capital for themselves by expropriating the production of others
> by mulcting, force and violence.
>
> What Peter is actually saying addresses the limits of state capitalism,
> which took place in the 30's and has grown into a colossal failure
> which today is in a state of frozen paralysis. While highly unlikely,
> we need to rebalance our economic system and restore the heritage
> of free market capitalism.
On Oct 04 10:15 PM Freedoms Truth wrote:
> Schiff's focus on JOBS is well-placed. What is as bad as the jobs
> report is the average workweek, and looking at the fact that our
> economy is currently putting the total amount of hours that was put
> it back in 2002 - is that the path to a growing economy?
>
>
> The first step on the road to long-term recovery is to stop killing
> jobs with bad Government policies. Will the Obama/Democrat zeal to
> socialize healthcare careen our nation on a path to inevitable fiscal
> ruin as the taxes and mandates just kill future jobs?
>
> Now comes crunch time in DC. If this is passed, USA's economic pre-eminence
> will be history. Save America's economy, Stop ObamaCare!
On Oct 04 08:10 PM bob adamson wrote:
> EMS -
>
> You are correct in stating that we're not out of the woods yet and
> that we could yet fall into a deflationary depression. However, it’s
> dangerous tunnel vision to fanaticize that some farsighted investors
> (ourselves included, of course) would have been immune from negative
> impact (and could, in fact have profited) if the economy had simply
> been allowed to implode last year. Even if one had liquidated all
> securities in advance of the crash and bought only safe (or better
> still, grossly undervalued) holdings (would that have been gold?
> US Treasuries? Who knows.), the resulting chaos and efforts of governments,
> other investors, people generally etc. responding out of fear and
> anger would have had serious collateral effects on even sanguine
> and sagacious investors.
>
> At least now we have the prospect of an orderly albeit long and difficult
> recovery if our national governments are both wise and lucky (and
> we can take investment opportunities as they arise).
We should all support the reorganization or elimination of wasteful or unnecessary public sector programs at any time, not only during a deep recession. That said, ‘downsizing the heck’ out of government indiscriminately, especially now, makes no sense. Besides reducing service quality or denying needed services to individuals and enterprises, such ideologically driven slashing reduces economic activity, efficiency and effectiveness; something definitely not needed when a significant threat of falling into a deep deflationary depression exists.
Arguably an intelligently designed and well managed public sector also serves as an economic counterbalance to hyperactive private sector business cycles and dislocation of local business activity during a period of transformation in a global economy. For example, in countries where sound health care, pension, unemployment benefit and other similar programs are provided through government to its citizens generally, companies in those countries do not need to provide those benefits to the same degree to their employees. Companies can then focus on their core business plans; there is greater labour mobility and generally enhanced efficiency and effectiveness all around. Note, for example, that production costs for automobiles in Canada are about $1300 a car cheaper on that score.
And yes, governments can act intelligently provided an intelligent, informed and active citizenry demands this of them.
On Oct 05 01:09 AM realold wrote:
> Wise national governments? What planet have you been on? The only
> hope is that the PEOPLE will wise up and dump the incredibly stupid
> government (and downsize the heck out of it).
In response to you telling people they can get the frick out - there is a third option. And that is to try and overcome the naive, ignorant voters like yourself. This country is great in spite of its government, not because of it. You forget, this was once a government of the people. Can you say that now?
On Oct 04 12:39 PM NickelMan wrote:
> Never Going to Happen in a million years! He is to extreme and though
> he has "some" limited, good points, he has many more points that
> are to extreme for the average Joe to vote for him.
>
> Nick KrahS
Wal-Mart, the largest retailer in the US, has a mass discount business that is focused on low-income consumers, who have been the hardest hit by rising energy prices and tightening credit. It's shares have risen by 23% since last October, when the credit crunch started picking up pace, to hit their highest level for 4 years.
And this is typical for these kind of companies when the economy is not doing too well anymore. I wrote about this several times to my subscribers already and why this is so. In bad times no one is going to stop eating and drinking just because the economy is in a recession. So what do you have to do? Go shopping of course. The same goes for the healthcare sector. If people need medication and pharmaceuticals, they won't stop buying them either just because of an economic pull-back. But most of us will definitely have second thoughts on buying a new car or tv etc, when times are bad and not everyone can afford carrying a fat wallet around with them!
People just don't have as much access to cash in economic turmoils as they are used to and that clearly has an impact on how people behave in these times!
Wal-Mart has also confirmed that it was benefiting from more traffic at the hundreds of stores across the country. The retailer also noted that customers overall are using cash, rather than credit cards.
Same with Procter & Gamble. The worlds largest consumer products company reported that sales of it's leading brands such as Pampers and Tide are still going strong. So when markets are in a down-spin, it doesn't automatically mean that every company is affected. On the contrary. Some even benefit.
Another bright spot on the corporate American landscape are those companies with large export markets, which are helped by the weak dollar, and those exposed by booming sectors, such as energy and mining, and energy markets.
Other companies that have reported strong first-quarter profits are Apple, Goodyear (boosted by the weak dollar) and Caterpillar (the worlds biggest maker of bulldozers), Boeing and Honeywell that were buoyed by strong overseas demand.
So not everything is bad on the US economic front! And if things carry on as above and we don't see another credit crunch or similar situation, we should sail out of the current market slowdown, or if you like, recession, pretty smoothly.
-------------------
Money without intelligence is like a car without a road.
www.intelligentinvesti...
Look at the July 09 and August 09 silver clearing numbers and level them against the numbers going back to 96. Also, look at the July 09 and Aug 09 Gold numbers. Did they totally mess up these numbers or is there something else to it? Thanks for your help.
17.7, 16.5, 1317, 90.5, 1.21, 310
That would put gold trades averaging $932/oz and silver $13.37 in July which seems accurate depending on the weight of trades in early v late july
On Oct 05 07:43 AM CC_Gold wrote:
> I need some help deciphering the London Bullion Market Clearing stats
> page. I know this is off topic, but I see most of the brain power
> reads Peter's articles. Please go to this website:www.lbma.org.uk/stats/...
>
>
> Look at the July 09 and August 09 silver clearing numbers and level
> them against the numbers going back to 96. Also, look at the July
> 09 and Aug 09 Gold numbers. Did they totally mess up these numbers
> or is there something else to it? Thanks for your help.
Thanks for the help. It just didn't look right and I was only on my first cup of coffee.
We shouldn't be surprised if the average consumer follow suit.
If you default on credit cards or mortgage you get help.
Lesson = be someone who needs help versus being responsible.
If the banks can rob me via the government, why shouldn't I rob the bank by running up credit and debt then defaulting?
On Oct 04 05:53 AM sticktoitiveness wrote:
> We won't recover in absolute terms until we return to the concept
> of personal accountability. The savings rate dropping back proves
> that we've learned nothing yet. America is still a country of spoiled
> children. We are always blaming other people for our problems. We
> spend today without a thought in our head about tomorrow.
>
> If we never make ourselves deal with our problems we won't ever solve
> them, with a couple of exceptions. We will no longer have a problem
> with other countries being jealous of us. And a whole lot of people
> won't have to worry about income taxes (because they won't have an
> income).
Schiff and all the others saying "let there be a real recovery and the jobs will eventually come back........" are smoking something.
The (good paying with benefits) jobs aren't ever coming back. The sad fact is with automation/computeriza... whatever ---- most remaining jobs are not hard and require no real education other than a little on-the-job experience and training.
What few good jobs requiring a real education that do exist -- are flying overseas as fast as our corporatocracy will allow.
So Mr. Schiff, once you are elected -- will you advocate for repealing or altering GATT?, NAFTA ?
Will you require that government contracts are fulfilled by American companies ?
Will you seek to enact laws that will protect U.S. jobs -- or is your idea of 'free markets and unfettered capitalism' mean that there will be no tariffs and white collar jobs are free to flee to India?
Where do the jobs come from that cannot be done cheaper in China or India ?
On Oct 04 10:28 AM bricki wrote:
> The problem with this analysis and modern economies in general is
> that industrial productivity has reached the point where the material
> needs of a modern society can easily be met by a small fraction of
> the workforce.
>
> For example the US is by far the largest manufacturing nation in
> the world, producing 21% of the value of all goods produced in the
> world today. Yet we only employ 8% of our workforce to achieve this.
> And the output of each worker IS growing exponentially, resulting
> in fewer manufacturing jobs each year.
>
> Even if you double employment and thereby production in this area
> you will only increase the percentage of the workforce engaged in
> these activities to 16%. And this doubling clearly cannot happen
> - the demand for the output is simply not there.
>
> There is no going back to an economy where manufacturing jobs are
> the bulk of the employment opportunities. Won't happen. We have had
> a transition much like what happened when we went from an agrarian
> economy where most of the population worked on farms to an industrial
> society where few people work on farms. Wishing for it will not make
> it so. You might as well wish for a society where most people work
> on farms.
>
> The future is a service economy. That is the reality. And economic
> policies must realize this and be structured to work in this environment.
> Calls to return to a manufacturing economy show a basic lack of understanding
> in how a modern economy actually works, or does not work.
Congress has been warned for years (before this crisis) in the GAO reports to it, that our policies are unsustainable (we still haven't changed them) and we face either gradual or "sudden" ... loss of our standard of living." In other testimony, Congress was basically told we can't grow or tax out of this. We have to cut spending and instead we are making this crisis even worse.
The crisis is not the high unemployment but, that the private sector can no longer support the amount of government we have even when we have positive GDP because too much of GDP now comes from government spending. Gov. spending is 61% of national income.
Thus, even if we get a positive GDP in the coming quarters, things are still getting worse each quarter the government isn't cutting spending so much that we are not only balanced in our budget but creating a positive account balance. Again, that is because the private sector is too small to support the government we have.
When real CPI data is used however, even a positive GDP may be false. For 8 years, using real CPI, we have only had a couple quarters of real GDP that was positive. Shadow Statistics is a private company used now, by many corporations to get real data because they can't trust government figures. Here in the "free" site for alternative data, you can see the statistics in charts, computed the way we use to compute them and compared to what the government is telling us.
www.shadowstats.com/al...
=====
The global economy and the 2.5 billion people who control 2/3 of the global economy may keep chugging along but, it will be for the most part, without the U.S.
For those who think ill of the doom and gloomers, remember they have to live in the same mess as the rest, whether they are better prepared for it or not. This is not about "betting against America" but being realistic if we are not only going to be better prepared, but know what we have to do to rebuild the nation better and stronger than it is after decades of bad policies.
We and Europe are still losing businesses for the emerging markets. We are seeing investment dollars leave the U.S. and Europe for emerging markets. We have not changed the policies that got us in this mess and again, it is impossible to tax or grow out of this. We have to cut spending and that will cause a very bad depression, too. Depression now or later. Those are the two choices we have.
Think about it. We have used bad policies for so many decades that now, even the reforms we need will cause a depression first before they start to make things better. That is the result of using debt inappropriately for growth. Clear back in 1968 we started borrowing $1 for each $1 of GDP growth and now it is infinity if you take out the illusion you have GDP growth from increasing debt even more so the government spending part of the GDP formula can override the negatives of the other 3 parts.
If you were to subtract "debt spending," from the GDP formula (which you should), you would find we have been in deep trouble for long time.
This organism of debt we've created we created in accord with other nations, for the good of many nations. The idea that that world would implode and injure one nation only seems naively hopeful. Look at Great Britain, Ireland, Spain. China's recovery seems largely based on (like all other nation's) another bubble created by government spending.
Other nations will survive, but it will be like America....at a much lower level than what they've become used to over the last few decades. There will be social chaos in America; but there will probably be even more social chaos in Europe and in China. China has a long history of regional civil strife, and weak central power. America has resources. Japan, Germany, Great Britain, and many European nations have limited resources.
America might be coming home; but that doesn't mean that the rest of the world is sailing into some kind of utopia.
On Oct 04 05:29 PM Tony Daltorio wrote:
> Dead wrong. If the US goes down, what the rest of the world will
> experience is a short, sharp down move due to panic selling by US
> fund managers.
>
> But then when the dust is settled in a month or two, the people in
> other nations will look around and see that they are ok, dust themselves
> off, and say "Who the f needs the US?"
If businesses finally reach equilibrium with much smaller workforces, and the job losses slow to a stop, how does the very slow growth support the nation's needs? How does our nation manage the millions of unemployed and potentially needy families? What do we do with these people that can't consume and possibly can't afford the basics of life?
Just wanting to know....
On Oct 04 09:47 AM studiophototrope wrote:
> >> Those who do cling to the absurd belief that, absent exponential
> productivity gains, the economy can expand while workers are being
> laid off will undergo a massive test of their convictions now that
> it's clear the employment picture is bleak. <<
>
> And those who gravitate to view points on the edges, rather than
> understanding that what takes place usually is somewhere near the
> middle, subject themselves to not being taken seriously.
>
> You write as if the economy can't expand once the lay offs stop but
> hiring doesn't resume.
> Can the economy expand without workers being laid off but minus a
> renewal of large scale hiring? The answer is yes, slowly.
>
> At some point workers will stop getting laid off and concurrently
> companies will find their equilibrium point. From there, they don't
> go on a hiring rampage and create the unnecessary/duplicate jobs
> that needed to be cut during the contraction, but rather, they manage
> their workforce relative to the economic cycle. The economy grows
> slower, but it grows, as "capitalism and free markets" work out the
> excesses. That should be cheering you up, no?
>
> The current economic statistics are difficult to interpret correctly
> because they are contradictory on so many levels. Growth in some
> areas, contraction in others demonstrates a changing, evolving worldwide
> business environment and economy. Cherry picking stats to support
> a position should be reserved for those who follow sports.
>
> I would think being the "free market" guy you are, you would have
> at least considered that US businesses are capable of managing their
> employment rolls not only when the economy contracts or expands,
> but also when it grows slowly. No one is happy with the large number
> of people still losing their jobs, but isn't the free market, cutting
> the fat, tightening the belt stage what free market capitalists have
> been recommending since this began? Now that the markets are doing
> their thing, it's suddenly become proof of fundamental flaws??<br/>
>
> I'm not sure if you aware, but there are colors that exist between
> black and white.
>
> Best regards
> Louis
Jan: We may not have seen anything yet. Just wait until they get the proposed (and much whispered) VAT rolling.
VAT, the tax of last resort...
On Oct 05 10:00 AM Jan Paul wrote:
> For those who claim we would have had a global financial collapse
> and depression here, that is most likely very true. That is what
> was needed but, it is so painful we have delayed it. Now, some nations
> that were borderline may benefit from this delay but, all we did
> is postpone the inevitable here and benefit the "banksters" that
> got the global financial system in this mess.
>
> Congress has been warned for years (before this crisis) in the GAO
> reports to it, that our policies are unsustainable (we still haven't
> changed them) and we face either gradual or "sudden" ... loss of
> our standard of living." In other testimony, Congress was basically
> told we can't grow or tax out of this. We have to cut spending and
> instead we are making this crisis even worse.
On Oct 04 10:04 AM popey wrote:
> Peter, you have one very big problem with your analysis that is seldom
> addressed by you. If the USA goes into a double dip, or W formation
> (which it will, and which you claim), then why are you investing
> in commodities and foreign stocks? Because I can assure you, that
> if the USA goes down, and the USA long bond collapses (as your predict),
> then the whole world will be dragged down into a catastrophic vortex
> due to the reserve status of the USD and the interconnectedness of
> global markets. And don't tell me the USD will be replaced any time
> soon. You would be better served waiting for the meltdown by staying
> in cash, and then invest after the W crash collapse.
Just because the U.S. has managed to do mighty well from being the manufacturer for the world since WWII, doesn't mean that we are destined to always bounce back to the top of the pile. The pages of history are littered with great civilizations descending into chaos and ruin. Go re-read "Ozymandias" one more time (assuming there was a first time) and think about the "wrinkled lip and sneer of cold command." Arrogance always assumes mastery and triumph, as did the Third Reich and many other regimes throughout history. Don't think that the laws of physics don't apply to us. Don't think we're immune from consequences - that would be the crapola thinking that put us where we are now.
On Oct 04 05:24 PM NickelMan wrote:
> ...But I don't start crapping in my own bed when things get tough. This country has afforded me and you and the rest of the Doom and Gloomers a lot they take for granted. Then when things get tough all you sissies come out crying and you insinuating our "Empire is doomed!"
> So quit your complaining and tough it out till current crisis passes
just like all the other crisis in history have.
At least we are talking now for the last several months on how to have an economic recovery rather than talking about how the economy might implode if the RTC-type $700B TARP package will not be approved by Congress way back August/September 2008.
The stock markets can then keep on going UP just based on that observation.
Remember 1929 to 1932 meltdown history and the Great Depression that followed the market crash?
Dow Jones went down to $42 in 1932 and the economy went into a severe recession in 1932 just like what we had early this year.
The US economy went into depression in 1933 and more than half of banks and presumably other companies went bankcrupt in 1933 to 1935 Greatest Depression years.
Dow Jones went up from $42 on 1932 to $100 into 1935!
Unemployment went so bad during the great depression of 1933 to 1939 the US unemployment rate deteriorated to 25% by 1939 and Germany got 33% thus leading the way for WW II to happen.
Dow Jones went up from $42 in 1932 to $300 by 1939!
Dow Jones then got a major correction $300 to $100 from 1939 to 1944 because of WWII. A major haircut but never break below the 1932 low of $42.
We'll, perhaps we will need WW III for the stock markets to go way below whatever we will go up to in another 8 to 9 years if we use 1932 to 1944 history as a guide?
On Oct 04 02:22 PM E Nuff Sed wrote:
> Sorry guys I don't buy the gloom and doom - while we may have a 10
> - 20% pull back as reaction to the ~60% rally - but that it and its
> going to be short. The jobs which are not coming back are jobs are
> related to leveraging - real estate, mortgage finance, investment
> banking, investment advisor etc. Most of the rest of the economy
> and the market will recover to a new normal sooner than later. The
> new normal is S&P between 900 - 1100,
>
> Most importantly, given that S&P 500 is mostly global companies
> and the global economy (apart from the US & UK) have mostly recovered.
> With the dollar down these multinationals will have the winds on
> their back and will be raising earnings. I am looking forward to
> be pleasantly surprised in Q4. I will not be surprised if the S&P
> earnings come in a $75 next year. Applyling a conservative multiple
> of 15 gives me S&P of 1125 - I expect to reach this by year end.
Really like the way you can turn complictaed issues into understandble way. Just like Warren Buffet, he can turn hard to grasp ideas into everyday's man's language.
I hate those idiots who dress up easy understandble ideas into complicated issues by adding non-common vocabularies so to make them sound or seem very sophisticated.
Although I am not an American. I am a Chinese, and a Christian. But here is a real hope from the bottom of my heart: God Bless America and best wishes to your political endeavours.
With people like yourself in leadership, the world will be a much better and safer place.
On Oct 04 04:12 AM Michael Clark wrote:
> "To really recuperate, the government must allow market forces to
> restructure our economy. The government and individuals must rein
> in their spending; we must replenish our stock of savings, allow
> interest rates to rise, asset prices to adjust to economic reality,
> insolvent businesses to fail, and wages to reflect productivity.
> To accomplish these goals, subsidies that distort market forces must
> be removed and regulations that undermine our competitiveness must
> be repealed.
>
> None of this can be accomplished without a degree of short-term economic
> pain. However, if we endure it, the payback will be a real recovery
> with plenty of new jobs that don't rely on government stimulus money.
> If we refuse to allow the economy to experience a real recession,
> we will never have the benefit of a real recovery. Instead, we get
> the "jobless recovery," a veneer of apparently positive indicators
> that merely obscures the underlying rot."
>
> This is wisdom. More debt is the last thing we need.
source :
peterschiffchannel.blo...
"Company X is too big and important, we just can’t let them go under! Think of what that would do to the economy!”
How is Company X Fannie and Freddie doing lately?
Fannie and Freddie Continue to Struggle, Lawmakers Told
In the year since the government stepped in to rescue the collapsing mortgage giants Fannie Mae and Freddie Mac, the agencies have taken $96 billion from the Treasury, and may still need more.
That was the somber assessment delivered Thursday by the federal agency charged with overseeing the government-controlled Fannie and Freddie, which have lost a combined $165 billion since July 2007 as their bets on the housing market went bad.
“The short-term outlook for the enterprises remains troubled,” said Edward J. DeMarco, acting director of the Federal Housing Finance Agency, in testimony before the Senate Banking Committee. By JACK HEALY
Published: October 8, 2009 etc... New York Times
Legendary investor Jim Rogers chairman of Rogers holdings told Reuters that despite the U.S. government's policy of a strong dollar, it's trying to debase the dollar even further.
U.S. dollar making new lows Gold going to the roof
"If we are going to continue to debase it, the dollar is going to go down a great deal." He says.
Watch the Interview in the link bellow :
jimrogers1.blogspot.co...
www.JimRogers.Tk
The issue is that service productivity has not kept up with productivity in Manufacturing or Agriculture, so needs more people to meet the needs of the population.
On Oct 04 10:28 AM bricki wrote:
> The problem with this analysis and modern economies in general is
> that industrial productivity has reached the point where the material
> needs of a modern society can easily be met by a small fraction of
> the workforce.
>
> For example the US is by far the largest manufacturing nation in
> the world, producing 21% of the value of all goods produced in the
> world today. Yet we only employ 8% of our workforce to achieve this.
> And the output of each worker IS growing exponentially, resulting
> in fewer manufacturing jobs each year.
>
> Even if you double employment and thereby production in this area
> you will only increase the percentage of the workforce engaged in
> these activities to 16%. And this doubling clearly cannot happen
> - the demand for the output is simply not there.
>
> There is no going back to an economy where manufacturing jobs are
> the bulk of the employment opportunities. Won't happen. We have had
> a transition much like what happened when we went from an agrarian
> economy where most of the population worked on farms to an industrial
> society where few people work on farms. Wishing for it will not make
> it so. You might as well wish for a society where most people work
> on farms.
>
> The future is a service economy. That is the reality. And economic
> policies must realize this and be structured to work in this environment.
> Calls to return to a manufacturing economy show a basic lack of understanding
> in how a modern economy actually works, or does not work.
So the only thing remaining is to make the American banking system buy up treasury bonds by granting them artificially low short term funding and providing them with an interest spread. Add to it the possibility that they can deposit these treasuries with the FED as capital reserves, and, if that were not enough, even pay them interest on it.
The consequence is that "real interest rates" of treasuries are hidden, "real" supply-demand equilibrium is distorted further and that - once this practice will be wound up - rates will shoot out of orbit really quickly. In the meantime, I am convinced that foreigners are net sellers of treasury bonds, recycling the proceeds into commodity and equity markets (therefore getting a claim an real assets, even if they may be depreciated later).
As a consequence, imported inflation through punishingly increased commodity prices will hit the consumer, this will certainly be celebrated as a turn around as inflation is back. What I am wondering how under such circumstances a real recovery should be expected.
Unless a clever FED or government official invents a scheme how to capitalize the bankrupt masses, I don't get it how a recovery should be orchestrated. If anyone here could tell me I'd be delighted.
Until then, I expect that the next major move in the markets will be down, however it is hard to forcast how long the current idiocy can continue....
Roland Urban
On Oct 04 09:34 AM yellowhoard wrote:
> I'm a big fan Peter. But, I've got to agree with Vuke.
> The time for higher interest rates was five years ago.
> We're in a box now. Higher rates would result in a collapse of the
> entire system right now.
> I would be in favor of a massive downsizing of government on all
> levels though.
Last year, when stocks went down, Dollar was up and treasuries as well, and vice versa. Panik stock selling would cause the bond to rise in a flight to quality trade.
one would expect that to happen again, i.e. increased stock prices making bonds less attractive and thus higher yields. instead bonds are holding up. the only explanation I can find is that big primary dealers are using the cheap short term FED credit to purchase longer maturity treasury bonds, and to book the spread in interest as a "free profit", cooking up their books to make them look more pretty.
This could work as follows: treasury offers bills and notes in an auction, banks are buying these papers with FED credit (at 0,25% interest), the proceeds are transferred to the account of the treasury. then the bank deposit some or all of these notes and bills at the FED as capital reserve (and even receive interest on it). with foreign held bills and notes it is basically the same, the only difference is that the cash goes out to foreign accounts, and the recipients do have the problem what to do with it...
At this moment, it seems that the foreigners are either:
1. selling these dollars against other currencies to finance a carry trade or to simply saveguard against devaluation
2. bidding up commodity markets all over
3. bidding up other financial markets in general
The net result for ordinary American people is zero in any way: as this additional money printing is 100% dilutive, imported inflation will offset it completly, or, for example, if the amount of dollars in circulation increases by 25%, commodity prices could rise by 25% as well to offset the increase in the monetary base.
Wealth effect of the operation: zero. growth effect of the operation: zero. In fact, the opposite may be true: as the "ordinary American citizen" can hardly protect himself from this unproductive inflation, he may even loose purchasing power again, increasing the already tough situation in which he is and aggravating the recession by spending and consuming even less.
In the meantime, bureaucracy cost is wasted and a real solution as advocated by Peter Schiff is postponed.
Roland Urban
Secondly, since US multinationals have decided to outsource almost all manufacturing, US knowledge, experience and infrastructure is either vacant or in a rapid decline. Once countries realize we are dependent, price increases are on the way, lowering our standard of living.
Lastly, manufacturing jobs leverage a large number of service jobs. Some estimates are around eight to one. Without manufacturing, can there be a service economy? Will all the graduate degrees in Literature be employed landscaping their Professors home?
On Oct 04 10:28 AM bricki wrote:
> The problem with this analysis and modern economies in general is
> that industrial productivity has reached the point where the material
> needs of a modern society can easily be met by a small fraction of
> the workforce.
>
> For example the US is by far the largest manufacturing nation in
> the world, producing 21% of the value of all goods produced in the
> world today. Yet we only employ 8% of our workforce to achieve this.
> And the output of each worker IS growing exponentially, resulting
> in fewer manufacturing jobs each year.
>
> Even if you double employment and thereby production in this area
> you will only increase the percentage of the workforce engaged in
> these activities to 16%. And this doubling clearly cannot happen
> - the demand for the output is simply not there.
>
> There is no going back to an economy where manufacturing jobs are
> the bulk of the employment opportunities. Won't happen. We have had
> a transition much like what happened when we went from an agrarian
> economy where most of the population worked on farms to an industrial
> society where few people work on farms. Wishing for it will not make
> it so. You might as well wish for a society where most people work
> on farms.
>
> The future is a service economy. That is the reality. And economic
> policies must realize this and be structured to work in this environment.
> Calls to return to a manufacturing economy show a basic lack of understanding
> in how a modern economy actually works, or does not work.
On Oct 04 11:50 PM proxyjoe wrote:
> studiophototrope said, "No one is happy with the large number of
> people still losing their jobs, but isn't the free market, cutting
> the fat, tightening the belt stage what free market capitalists have
> been recommending since this began? Now that the markets are doing
> their thing, it's suddenly become proof of fundamental flaws??"<br/>
>
> The problem with job contractions is that the private sector is always
> the one doing the layoffs. When is the government going to follow
> suit?? at ALL levels ? That is one of the biggest problems of all:
> the government keeps adding workers, even during economic downturns
> and yet, they expect the private sector to keep paying taxes so they
> don't have to ever shrink the public rolls!