This is serious; what cures are there for pathetically small job creation and the suffocating weakness in real home prices? Dr. Bernanke has no magic potions. Congress and the White House are bewildered. The big Wall Street houses are just plain wrong on their prognostications. The risk trade in equities and many commodities are under selling pressure. There's not much help coming from rest of the world, where Japan is crippled, China in the midst of a directed slowing, Europe in a debt crisis.
The lousy job figures have cleaned the clocks of the equity market and been a boon to the bond market, driving rates down below 3% on the 10 year note and driving up bond prices. Last week's auctions of the 2 year, 5 year and 7 year treasuries were oversubscribed. In this lousy economic climate we might not even need Chinese buying of governments.
Here's a dispiriting rule of thumb to consider. Self-reinforcing trends are fine when the economic cycle is in the up phase; but they are disastrous when the downturn starts gaining momentum. Plug that notion into your portfolio strategy. The economic cycle looks to have peaked, and recovery looks to be slowing down.
Housing prices have fallen over 30% and are supposed to rebound in a recovery. But, instead they have continued to lose another 7.1% in value during the past 2 years of a stock market climb of 80%. And there are estimates of many millions more homes where the mortgages are larger than the homes are worth. Home prices might take years to truly bottom out and come back.
"The abysmal jobs report in the U.S. crowns a two-week period of shockingly weak data for virtually every sector of the economy" writes Sherry Cooper in The Bottom Line: U.S. Pothole -- from the Bank of Montreal. "Housing and jobs are crucial to a sustainable rebound in confidence and growth. And both are contingent upon confidence in the longer-term outlook."
As austerity is the mood of the federal government, it is doubtful another massive stimulus program is coming. Perhaps the scariest notion is that QE2 didn't work and the recognition that monetary policy cannot control the progress of economic recovery as well as it was hoped. This upsetting point is the focus of Robert Smith, CEO of Smith Capital's credit note this week. Smith is the astute analyst of the current patch to predict that inflation was not in the offing- and predict that interest rates were headed lower -- not higher. Give Smith credit for understanding that the Fed has no oversight of the shadow banking system -- which is now twice the size of commercial banking.
What's happening here is a liquidity trap -- where there is ample money, but its not going into job creation, home building or consumer spending. It's time to raise some cash.
Follow Robert Lenzner on Twitter: www.twitter.com/boblenzner
and they were and are wrong.
So, let's stop listening to them.
Progressives were right, Obama should have let the Bush tax cuts expire. That would have gone a long way to fixing the deficit issue and freed up the Govt move on to jobs.
Obama's economic advisors were wrong, they need to go and never be heard from again.
We have clogged up employing people with way too much red tape and paperwork, if you want employment up, attack that.
However, I agree that employment will pick up when we focus on fixing things that there is a need need for ie. infrastructure, alternative energy, innovative education, national modern transportation (high speed trains). That's millions of jobs that can't be outsourced.
Jobs are down because demand is down? What does that mean? Jobs are down because there are none. No new jobs are being created in the US. Listen to Fareed Zakaria on http://www.thedailyshow.com/full-episodes/tue-june-7-2011-fareed-zakaria
You list infrastructure (construction), energy, innovative education (whatever that is), high speed rail (expensive to implement) - those jobs, especially any construction related jobs, can use cheap manual labor that already exists here thanks to NAFTA.
This is why a famous economist said, roughly, Americans had better get used to austerity because it's going to be around for a while.
We need less narcissistic bs and more integrity and character.
We need Herman Cain and the FairTax.
The 'club members' and their groupies/appologist rail at such a solution. It must be really good.
Without extremely high (several hundred percent) USA import tariffs, businesses (and US workers) must compete with international foreign workers at very low foreign wage scales and very low foreign environmental manufacturing process costs.
INSTEAD OF JUST HANDING OUT US GOVERNMENT BORROWED CASH TO THE UNEMPLOYED, maybe the US government would/should/could build manufacturing plants to make various consumer products, in sequence, one product at a time, i.e. refrigerators, washing machines, clothing, TV's, electronics, tires, auto parts, hand tools, power tools, machine tools, appliances, and etc., and impose import taxes to make those imported products as expensive as products made by US workers.
How about also passing laws to prohibit the import of services (the same as exporting the jobs) such as accounting, telemarketing, customer assistance service, computer aided drafting, engineering, legal research, etc. that are now easily provided by workers overseas through the internet at a small fraction of the costs paid to US citizens to perform those services.
Maybe most all of the consumer goods that we import could eventually be made in the USA. The US government could impose higher and higher import taxes that are high enough so that these US made products are always less expensive to the consumer than the same imported product.
As far as Made in America, we need to demand it as consumers.
Amen to that.
Because of the unpopular stance of government in our country, no politicians were brave enough to promote what should have been done. Big thanks to Reagan and what he did to denounce our government in every aspect so he could help his wealthy friends take over all our inner workings. Seems so ironic, almost like ... Karma.
SERVICE SECTOR (Accountants, Lawyers, Educators, Healthcare, casualty/ property/ product liability Insurance, Wall Street, Banking, Unions (worker and professional), etc) merely redistribute wealth, feed-off in the process and add costs. These groups can justify themselves if they improve efficiency; making the entire socio-economic system more productive.
Current Service Sector is a hurdle and economic drag with high cost and grinding inefficiencies; which drive-away manufacturing (creators of new and added-on wealth).
NAFTA, WTO etc are tools to make this option easier. Trade is a gun going-off. NAFTA, etc. are merely triggers for the gun loaded with economic inefficiencies.
Current Choice: Do more of the same (system with high costs, huge trade imbalance, massive inefficiencies) or make our system more efficient.
Its for US (govt, private enterprise, and us-all) to bring down cost of Service Sector for economy to again become a lean-mean-competitive machine. No question we need "More Bang for the Buck'.
US Manufacturing elected to off-shore instead of fight the drags in the system. Above groups added their costs (at every corner) both for employer and for employee. All passed these costs along. Govt, ultimate consumer paid these increased costs directly and indirectly. With federal debt, costs were / are passed to grandchildren and yet-to-be-born Americans.
Those who continue to merely extract money from society (for their perceived worthy goals) are "killing the goose that lays the golden egg."
What this author is saying is the market is about to "decline". As more people come to the same conclusion, it will "decline" faster.
The Bernank is leaving the cost of money cheap for anyone that wants to take advantage and some businesses clearly are. However, jobs are a longer term commitment. In that case it is the Administration that has hamstrung the Fed.
No business needs to build a factory here if they do not want to. Today even those that are like Boeing in South Carolina are being sued by federal agencies.
Interest rates are low, money is cheap. Unemployment rates are going up. There is no more clear case that Obama policies are the issue with Job Creation.
When the private sector can't get itself out of a liquidity trap, and it obviously can't right now, only government can save us.
Unfortunately, the purse strings are controlled by the House. And they don't seem to care about average Americans.
Took you 3 years to figure that out Robert?.
What do you think $700 million TARP,,,$125 million bank injection,,trillion dollar stimulus was?,,,outpatient convalescence?.