Smiddywesson

And Bernanke Didn't Think Unemployment Would Reach 10%

oops, populations move in 80 yr cycles

And Bernanke Didn't Think Unemployment Would Reach 10%

I agree with Flakca about the effects of aging on our economy, but I think the abortion issue muddies the waters. Populations generally move in 20 year cycles and ours would have aged anyway. That aging process dooms the pyramid schemes of social programs like Social Security and Medicare. In fact, the Congressional record shows that there was plenty of dissent pointing out that this would be the inevitable end result, but FDR's minions passed it anyway and doomed our generation for the benefit of prior generations.

The real deception in terms of population was the trick they pulled on the American family. First, they said women should be allowed in the workplace. Fair enough, but when they battered down these obstacles, there was more opportunity to squeeze the middle class. The next stage was where women had to be in the workplace. In a relatively short period of time, one income families went from being the norm, to being very rare. The next stage was two income families that lived off credit. The last stage was two income families that tapped their home equity to feed the credit monster.

So here we are. The system was able to convince mom and dad to work full time jobs and to have less children, and after years with a reduced home life they have nothing to show for it but piles of debt and an upside down mortgage. Worse still are the professional women who have lost their careers to the economy and who now wonder what they really got for all their sacrifice. Some don't regret that decision, but I'm sure some do. I sure wish I had more children, but it was easy to rationalize that two was enough with a 3 hour round trip into a major city and struggling to make ends meet. We were all had by a system that has destroyed the middle class, and now that middle class has been forced to bail out the ivy league thieves who benefited from the high rolling days. Many people who know enough to follow what's going on are very bitter. My sons didn't benefit from the gambling, why should their generation be saddled with the bill?


On Nov 08 11:16 AM flakca wrote:

> I am not and have not been involved in the abortion battle. The
> chilling effect of a declining population can be clearly seen in
> the Japan economic stagnation that occurred when the average age
> reached 37. At that point more people were withdrawing from savings
> than saving. That is the point we are at now. The 50 million plus
> people that were aborted would have kept the average age well below
> that 37 mark. There is no way out of this mess. No short-term
> way out. We need to have an increasing population to keep that average
> age below 37. That will not happen without a significant uptick
> in the birthrate. Those born today will not become wage earners
> for 20 years. That is how long this thing could take to work out,
> or longer.

And Bernanke Didn't Think Unemployment Would Reach 10%

Sigh, this is getting tedious.

Your U6 number of 22% unemployment is misleading when you compare it to the unemployment numbers of the 1930s, because you are comparing two very different economies. In the 1930s, we didn't have 3 million men in uniform, and 2 million in jail. For each of these men, there has to be a concurrent creation of jobs in the private sector for the economy to remain unchanged. The ugly truth is that state and local government grew by 2.175 million employees on a per capita basis since 1946. The federal government greatly exceeds those numbers. So if you want to compare U6 with the employment figures of the 1930s, you have to take into consideration that these jobs are not of the sort that contribute to the bottom line of the economy. They are a cost, not a benefit. Jobs in the private sector are a benefit. This also ignores the incredible explosion in private sector jobs that are designed to deal with the bureaucracy of government, like lobbyists, environments and labor lawyers, and payroll companies because the rules are so complicated that you have to hire an outsider just to pay your own employees.

If what I am saying is not true, then let the federal government hire everyone. Then our unemployment rate would be zero and we could all kid ourselves that this says anything about the real economy. The truth is that the unemployment problem, or more specifically, the lack of real jobs that contribute to the bottom line of the economy, is far worse than it was in the Great Depression.

Where we are going: The Labor Department published a report which was reported in the Wall Street Journal that asked the question, if the March 9 lows marked the turning point in the economy, how long would it take to rehire all the people out of work? Using the figures from the most recent recession, they reasoned that we could expect to add 94,000 jobs a month (11/01-12/07). They concluded that it would take 86 months to dig ourselves out of this mess. Assuming that we started to add 94,000 jobs a month, starting this month (which is a ridiculous assumption) we are looking at 167 months to find jobs for all the people out of work. That's 14 years or 2023.

This argument assumes we will add jobs at the same rate as the Greenspan bubble, which is undercut by almost two years of Greenspan like tricks which have resulted in no job creation. It is almost certain that monetary and fiscal tricks yield diminishing returns with respect to jobs. You can give money to banks, but you can't make them lend. You can stimulate the economy but you can't make employers hire new workers.

This says nothing about the 1.4 million temporary jobs hired by the Census that will soon be added to the 15.7 million unemployed. How's that affect your U6? Even if there are no other quirks to comparing today's economy to the economy of the 30s, rest assured we are in a much worse situation and our prospects for growing our way out of this mess are grim.

Asset Valuation and the Dollar

Another way of looking at things would be that FDR was performing CPR on a dead patient and that as soon as he stopped pumping and raised rates, the "recovery" was shown to have been an illusion.

" the Fed lost its nerve in 1937 and raised interest rates by shutting off liquidity (tightening money supply in other words); prematurely as history has proved."

They were almost 8 years into the depression in 1937. Are you actually suggesting we follow in their path and spend at the current rate for five more years? We are bankrupt after only two.

You Keynesians are out of your minds. Bernanke and the Administration have bankrupt us with their stimulus and the patient is no closer to recovery than when they began. Worse, we have destroyed the dollar fighting deflation with a whopping dose of inflation. Interest rates are already at zero. The dollar is dropping like a stone. Bernanke is running out of room to manuever, and you are offering the same old tired claptrap from the Keynes playbook. Educate yourself, your ship is on a one way slide to the bottom of the ocean, compliments of followers who can't think for themselves.

Markets: Reversion to the Mean or a Really Mean Reversion?

So many smart people out there, thanks for a great blog.

I have one more thing to add. The G-20 has practically said they will put the pedal to the metal in the near term. In this country, the same people who got us into this mess with low interest rates are now in complete control of the politicians. They refuse to recognize that low interest rates and easy credit are the problem. Their reputations and legacy involve solving the problem with more of what caused the problem in the first place. As long as they are boxed in a corner and unable to admit the truth, and that will be as long as they are in office, the dollar will continue to fall. Their elected lackeys, who think they run the country, cannot now admit that they wasted trillions of dollars following a flawed game plan, so they can't change either.

So all the scoundrels, Republican and Democrat, political appointee and renown economist, are together TRAPPED ON THE LOSING SIDE OF THIS TRADE. If the market drops, they will have to pump more liquidity into the market to prop it up. If a big company fails, they will have to bail it out. Otherwise they would have to admit they were wrong. The big money knows this. The rally will continue. Watch the sweat break out on Mr. B's bald head if we drop more than 10%. He'll have to reach for the drugs. We have their egotistical skins nailed to a board.

Whether or not there is a small correction to the down side. The rally will continue until the suckers join in and create an opportunity on the short side.

Markets: Reversion to the Mean or a Really Mean Reversion?

Exactly. If the market offers you huge moves in one direction, take them. If they move against all logic, take them. The fallacy is believing that you know where this steaming heap of dung is going to go. With these long sweeping moves, you don't have to predict, just react.

I'm not trying to be critical of the author, because his analysis of the fundamentals makes sense. It's analysis as usual that I have a problem with right now because it doesn't work. It's like trying to use your 3 HP electric bass motor to push your boat in a hurricane. Sure, it usually works, but not today bubba.

Markets do respond to the economy, except when they respond to themselves.

Markets: Reversion to the Mean or a Really Mean Reversion?

Bullish argument, Part II

You want to know why the rally can continue? Given the terrible fundamentals, there's no reason for this rally to have occurred in the first place. Stocks weren't worth their March lows either. Since fundamentals didn't continue the drop in March, I'm not very receptive to a fundamental argument why the rally should end now. Yes, I know the jobs numbers stink, and without jobs in an economy that depends on 70% of its GNP coming from consumer spending, this economy is going nowhere. But I'm not arguing the rally can continue because this market is sound, I'm arguing it can continue because it has absolutely nothing to do with market fundamentals.

This rally is a casino, nothing more. The market is driven by big money fund managers who are desperate to put up some positive numbers before a second losing year in a row shuts them down. They are willing to gamble everything in a bear market because they want to survive, and their clients are out of patience. It's a safe bet for these fund managers, because either they win and save their funds, or they don't win, but they would have lost their clients anyway if they didn't try.

All I hear on the web is doom and gloom. Look at your web site today, it's downright morose. The contrarian in me tells me that we haven't topped just yet. Look at the markets' reaction to the horrible market data coming out. We struck China a body blow for the United Steel Workers (tires) and the UAW (cars), and now they have all but declared a trade war, BUT THE MARKETS WENT UP! When bad news is discounted, it is not the behavior of a market ready to come to its senses

You might say that the level of insider sellers shows something is amiss. No, really? Didn't we just agree that the fundamentals are horrible? How is more evidence of bad things going to change investor sentiment when they were bad throughout the rally? They'll just ignore the insiders like they've ignored everything else. On the other hand, maybe the insiders are selling because they need the money. Maybe they are in hock just as much as everybody else, or maybe they are gambling on the rally too.

There is a lot of liquidity being pumped into the marketplace. Unfortunately, nobody is willing to spend it. The companies are cutting costs and the individuals are worried about debt and jobs. The extra money has to go somewhere so it ends up in stocks and commodities. It happened during the Depression. How would you feel if you sat out a 300% rally? Vindicated because you were right? There are precedents for huge rallies. You know where you find them? Right after huge drops like we just experienced.

The thin volume of this rally is a trap for the bears. If the rally is going to end, where are all the sellers going to come from? They are already out of the game. There's an enormous amount of money sitting on the sidelines. Most of this money is held by small retail investors. Their retirements were hurt real bad when they went to cash. Now, they are under a unbearable strain knowing that they are the cause of their missing the rally. Every day, Joe Sidelines has to face his coworkers, a bunch of idiots who usually don't know squat about the market, but who are bragging about making money while Joe thinks about how he is going to have to work into his 70s. How long do you think people like this can hold out? If they reenter, they will be long because they can't go short in a 401k or long is all they know. There is a tremendous amount of investors ready to join the tug of war on the buy side even though the game is being played on the edge of a cliff.

I grant the fundamentals are as menacing as they can get, but that's not the issue (yet).

Smiddywesson

Justin Fox on Regulatory Reform and Market Irrationality

The markets are alive. I don't see the need for their steady state of rationality. Is your wife always rational? Are you always rational. Just because you cannot measure the change in state between wisdom and folly doesn't mean the markets must always be the same.

Just as the old saying goes "The trend is your friend, until it's not", the Markets are rational, until they're not.

Surowiecki, in his book, The Wisdom of Crowds, argues that the herd is capable of surprisingly accurate collective decisionmaking until some outside force impairs its ability to access information. He opined that this usually occurred when information is limited, or it is deliberately ignored, such as what happens when the crowd becomes overly attached to a person, a story, or a product.
I learned from you, my fellow bloggers, that this is more likely to occur in some markets, like financial markets, than in others, and that the damage done is greater in markets based on debt (like real estate) than on equity (tech stocks).

Anyway, I would like to suggest a third position to the rational/irrational debate. I disagree with the old adage that the crowd is always wrong. In fact, the markets are always rational... except when they're not. This happens during the big turn arounds when the herd is seized by collective greed or fear. It is at those times that there are not enough counter emotions to cancel each other out and create a rational market. Instead, everyone being on one rail of the ship, they are all thown into the sea together during the capsize which they created.