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The Only Things That Matter… And No One Talks About
Today, most
pundits are growing increasingly concerned that we are headed for a “double
dip” recession. I think this view is idiotic as the US “recovery” was in fact
nothing more than a small bounce in economy activity within the context of a DEPRESSION.
Regardless,
the stooges are out again in full force proclaiming that the US economy is in
trouble again (duh), that the Stimulus high is wearing off (duh again) and that
the only solution is to issue more Stimulus and money printing to stop another
economic contraction (WHAT!?!).
Let’s be
honest here. The money printing and Stimulus DIDN’T work last time. All it did was buy time. Indeed, from an
economic perspective, the only thing the Feds can claim with any certainty is
that the Stimulus produced a bunch of economic data points that were
questionable in authenticity (GDP, inflation, employment, etc) many of which
have since been revised lower (GDP again).
If the best
evidence you can come up with for justifying Stimulus spending is a bunch of
accounting gimmicks, why even bother spending the money at all? I mean, if you
want to measure success by just fudging a bunch of numbers, why not SAVE the
money and just crank out a bunch of nonsensical data from thin air?
Indeed, why
not say that we’ve got 17% GDP growth and employment of 500%? Sure our economic researchers would lose
all credibility, but they’re already doing that anyway, and at least by simply
making stuff up we wouldn’t be ruining the US’s balance sheet and wasting money
in the process.
This real
issue with US economic policy today is that no one in a position of power
actually has a clue how to address the structural issues in the US economy.
Either that, or they willingly ignore the obvious for the sake of career risk,
choosing instead to take a “wack a mole” approach to handling economic issues:
applying the same solution (spend money) to every problem that raises its head.
The fact of
the matter is that the US economy, on a structural basis, is BROKEN. Starting
in the early ‘70s, we outsourced our manufacturing and began shifting to a
services economy (particularly financial services). We also outsourced our wealth to Asia, OPEC, and Wall Street.
Because of
this, the average American has seen his income dramatically in the last 30
years. This is obvious to anyone with a functioning brain. Forty years ago one
parent worked and people got by. Today both parents work (if they can find
jobs) and still can’t have a decent quality life.
THESE
are the items that matter for economic growth: jobs and income. If you
want people to have money for them to spend and consequently boost economic
growth, they need to have decent jobs
that pay them well.
However,
instead of focusing on these factors, the pundits and powers that be focus on
peripheral issues like stock market levels and housing prices. Don’t get me
wrong, these two markets matter in terms of retirement and savings (they’re the
two largest stores of wealth for most approaching retirement). But people don’t
pay for goods and services using stock gains or home equity (at least not since
the Housing bust).
No, people
pay for things using money they make
from their jobs.
Tax credits,
stock market manipulation, QE… all of these solutions address asset prices, but
NONE of them address income growth: the primary source of funding people need
to BUY assets. Put another way, all of the Feds’ efforts have been directed
towards financial speculation NOT economic fundamentals.
Until this
changes, the US economy is doomed. The consumer drives the US economy and the
consumer’s income is the fuel. And we’re fast running out of gas.
Good
Investing!
Graham
Summers
PS. Come join me for in-depth market analysis and exposes of the various frauds, cheats and corruption taking place in the financial markets at www.gainspainscapital.com
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Buncha crap.
"By they way, I disagree with a lot of Leo's analyses (not all of them Leo!), but I'll defend his right to say them! I want a resource that makes me THINK, not just a whole load of zealots saying the same thing. I'm big time bearish but I have wondered if I'm wrong given my (lack of) trading success over the last year."
Well said, David. I too tend to disagree with Leo regularly, but still respect his opinions no matter how avidly I disavow them...:-)
Alternate points of view to your own are invaluable to all investors..unless you believe you are always right? If that is the case, I suspect you won't be reading zerohedge for all that much longer anyway. In my early years of investing I was wrong about as often as I was right and it cost me. However, I wouldn't trade that experience for any formal education I ever paid for, and feel very fortunate to have taken losses and learned from them back then. It made me the prudent investor I am today and more than willing to entertain other opinions that differ from my take.
The day you start thinking opinions that don't match your own, don't matter, is the day you should check your ego at the door and let someone else manage your money.
I know...I know... Get long Chinese solar stocks...... You have plenty to sell us.
Leo, always take the other side..you canucks have benefited from outsourcing..while I as an American can't get mineral rights in your country..kinda hypocritical or am I misinformed.
(PS was in Atlin BC, prospecting with a Canuk it was an awesome area plenty of mineral wealth,
Au, Ag, PB, CU and Mo plus Ur)
Can we as Americans even get minieral rights in our own country? On our own land?
Graham....
Awesome post...Preaching to the choir....
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Accounting gimmickry...and one time cash hits with no provisions for proper economic stucture ...should be the same as 2 + 2 = 4....in the most basic understanding of core economics....
It is as if one big frat house is "ruining" the country....in order to keep their own parties alive ...always at someone else's expense...
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Here is the one thing that government can do...
Permanent Tax Structure Change
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15% Consumption tax only
....................................
No income or corporate tax....
..................................
This is what needs to be done....
...................................
Taxes just find their way into prices ...along with other forms of legal largesse costs....
Legal largesse and crony fascism have to be eliminated as well...
......................................
The US needs to recuse itself from capitalism interference....
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Graham...here is the acid test...
If the goal is to grow the economy....
Which economy would be 10X+ the size of the current economic structure in 10 years ?
1) 15% Consumption tax only
2) Current and pending tax structure
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Unfortunately....it may take REVOLUTION to purge the US system of its FRATERNITY....
the author and I are on the same page..the bens and tims and obumas of the world are brain washed ivy league zombies who cannot understand that we exported our jobs and wealth. so they will treat the patient with medicine that has no effect on a positive outcome.
Good post Graham, but you left out a minor (but very important qualifier):
What we need is **PRIVATE SECTOR** jobs. Creating jobs out of thin air (census workers, etc.) only makes the problem worse.
+1
On the money!