IS THE ECONOMY ACTING THE WAY IT SHOULD AT THIS STAGE OF THE NON-RECOVERY?
Yes, it is – although the confusing ebb and flow of daily market activity and headline news would lead many to use the term “schizophrenia” to describe it!
Have we experienced a “recovery”? So far we have seen the normal beginnings of a recovery that, in previous cycles, would have advanced to the next stage by now. Manufacturing is showing signs of improvement due to distribution channels filling the pipeline with orders in expectation of a continuation of growth in sales, which declined in May. Consumers have fueled the expectation of growth by increasing their buying at levels similar to early stages of prior recoveries. The increased buying is a sad "head fake" as the consumer is running out of enthusiasm, cash, and credit -- all at the same time. A small amount of savings and freed-up credit were built up over the past 18 months that has now largly disappeared. The positive feelings generated by an almost manic campaign designed to convince the public that efforts to stimulate the economy are working, are also disappearing, as more and more Americans are seeking information from channels carrying the truth about all issues. As they learn more, they spend less, a rapidly accelerating process that will continue to be reflected in the decline in sales of retailers nationwide.
Most of the consumers who have a job (about 80% of the eligible work force) had been lead to believe the worst was behind us so it was safe to go back to buying as usual. That sentiment is rapidly changing back to fear born of uncertainty.
The worker out of a job has seen his unemployment benefits extended time and time again and is even more convinced now that there is no need to take a job that does not pay substantially more than his unemployment benefits (including food stamps, Aid to Dependent Children, CHIP, etc.). Taking a pay check for not working is an easy habit to get into. When reality forces congress to cease extending unemployment compensation limits, the shock of the sudden loss of income may create a large group of very angry citizens, with paid organizers ready to whip them into an effective street mob in virtually every city in our nation.
The majority of the jobs created to date have been government jobs; jobs that produce nothing, are created to largely restrict and control those who produce, and which must be paid for by those who do produce. Although, the money from producers for such payrole increases ran out long ago, leaving borrowing or the printing press as the source of money, with a false premise that producers will someday be able to create enough excess from their production to pay for all of this. For example: Hundreds of thousands of census workers are being paid by money that must be borrowed or printed, in an amount that is ten times the cost of taking the census ten years ago, and that can never be paid back. Why can't it be paid back? Because that debt just gets added to amounts that are already too large to pay back (see the debt clock). They will take the count, absorb over twelve billion dollars, and all be back on the street in the fall -- most to join the unemployed.
Our economy runs on the backs of small businesses, and, they are not being created at a rate that is keeping up with the number that are failing. Retail sales had a negative growth rate in May, housing purchases have fallen off dramatically since the end of the home buyer's tax credit, and employment growth outside of government is virtually non-existent. Liquidity (funds available for immediate use) has been declining rapidly, which in every previous cycle is a leading indicator of a coming recession.
In my last article, “The Impact of Government Policy On the Economy and Investments” written in September 2009, I laid out the case for there being no logical reason to expect anything other than economic collapse, and a massive devaluation of the US dollar. The fact that Europe is in even worse condition and is facing the same dilemma will just make our situation worse, and emerging countries with fragile economies will collapse as well. China will continue to emerge as the economic super-power having increasing power over our government policy as they blunt our power to resist their will as a major creditor. How will it feel, to have our old enemy China's "boot on our neck"?
I believe we cannot avoid suffering severe consequences created by the current massive debt, future unfunded liabilities (both domestic and foreign through treaties), and from the continuing negative impact of socioeconomic policies already the law of the land, along with additional destructive policy that will be passed before it can be stopped by a change in those in power. Even a total reversal of governing ideology and policy making would not prevent our having to face extremely difficult living conditions.
Those who see the disaster coming, and are willing to take action, have the ability to not only survive it, but to also prosper from it. Is the confusion and noise paralyzing you into inaction? We only have everything to lose, and nothing to gain by ignoring the obvious!
Bill Fowler
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