Two dissatisfied customers comment about a restaurant.
One says, "The food here is terrible." The other replies, "I
know, and such small portions!" In many ways, they could be describing
our current employment picture. Not only are the portions shrinking, but the
jobs themselves are steadily losing quality.
Today's release of the October jobs report showed
the loss of another 190,000 jobs had pushed the official unemployment rate to
10.2%, only the second time since the Great Depression that unemployment was
quoted in double digits (factoring in workers who had given up job hunting
altogether or have settled for part-time work would push that rate to 17.5%).
That didn't stop Wall Street pundits from trying to fashion a silk purse of
this sow's ear. The 'green shoots' crowd focused on the slowing pace of job
losses, the nascent economic 'recovery' (even if it is jobless), and the
projected improvement in 2010. No mention was even made of the quality of
what few jobs were being created.
The analysts completely ignored the continued trend
of replacing goods-producing jobs with those jobs that require production
from other sources. For example, we lost 61,000 manufacturing jobs last
month, but added 45,000 jobs in education and health services. In particular,
the addition of health workers is nothing to celebrate. Just as a family's
economic position is not improved by higher medical bills, the country as a
whole does not benefit from increased health-care spending. Until this trend
reverses, our unbalanced economy will not regain its stability, a real recovery
will never take hold, and the overall job outlook will get much bleaker.
By spending trillions of dollars of borrowed money,
President Obama hopes to engineer a recovery and create jobs. However, he has
only succeeded in digging America into an even deeper hole than the one he
inherited from his predecessor. He believes that if we can simply push up
spending to levels seen during the "good times," then those
favorable economic conditions will return. The reality, of course, was that
those good years came with a heavy price-tag that we have barely begun to
pay.
In a press conference today, the President claimed
that the latest extension of unemployment benefits will not only help the
unemployed, but the overall economy as recipients spend the money. If spending
government-granted money really were a benefit to the economy, why not simply
increase the amounts endlessly? Why limit the benefits to the unemployed?
Let's make this recovery a real barn burner: send out million-dollar checks
to everyone! Of course, what Obama and his economic advisors do not
understand is that money spent by recipients of unemployment benefits is
money not spent or invested by taxpayers. It's a transfer of wealth, not a
creation on new wealth.
In addition, policymakers are also struggling with
diminishing returns on ultra-low interest rates. No matter how much monetary
alcohol the Fed tries to pour down consumers' throats, the swill simply will
not go down anymore. Consumers have already had enough and are trying to
sober up - by refusing to spend irrationally. The excess liquidity simply
weakens the dollar and spills over into other pools, such as goods prices,
money metals, commodities, and investment assets.
During the boom, we spent money we did not have to
buy things we did not produce and could not afford. As a result, we are now
deeply in debt and must sharply reduce our spending to replenish our savings.
By focusing solely on consumer spending, the Administration is neglecting the
capital investments necessary to improve our infrastructure and productive
capacity.
To generate legitimate economic growth and
meaningful jobs, we must reverse the trends that brought us down. Consumers
may have led us into this recession, but they can't lead us out. The road to recovery
is a one-way street, and it's paved with savings, capital investment, and
production. It's not an easy road, but we must follow it to ensure our future
prosperity.
As a first step, our politicians must stop pushing
us backward. Rather than imposing more market-distorting regulations, we
should repeal those most responsible for inefficient resource allocation.
Rather than creating new moral hazards, we should withdraw guarantees for
large financial institutions and irresponsible consumers. Rather than
continuing the Greenspan policy of keeping interest rates too low, we should
let them rise. Rather than trying to prop up asset prices, we should let them
fall to market levels. Rather than increasing the burden of bureaucracy on
the economy, we should look for ways to lighten the load. Rather than
encouraging people to borrow and spend, we should reward those who save and
produce.
Until we acknowledge these fundamental errors, more
of our citizens will lose their jobs. As those that stay employed are funneled
into unproductive industries like the federal bureaucracy, the country will
sink further into stagnation. Worse still, everyone taking jobs in these
sectors will be laid off in the next phase of the crisis - and will have lost
this opportunity to build practical skills for the new economy.
Peter D. Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach,
CA 92660
Toll-free: 888-377-3722 / Direct:
203-972-9300 Fax: 949-863-7100
www.europac.net
pschiff@europac.net
Also
by Peter Schiff
For a more in
depth analysis of the tenuous position of the American economy, the housing
and mortgage markets, and U.S. dollar denominated investments, read my new
book : The Little Book
of Bull Moves in Bear Markets" (Wiley, 2008).
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