|
For those market boosters who are prattling
on about the possibility of a "jobless recovery," I offer an
invitation to join me for a breakfast of "fat-free bacon,"
"eggless omelets," and "no-carb
bread." As unappetizing as such a meal may sound, it would nevertheless
offer more substance than the oxymoronic concept of an economic resurgence
without job creation.
Those who do cling to the absurd
belief that, absent exponential productivity gains, the economy can expand
while workers are being laid off will undergo a massive test of their convictions
now that it's clear the employment picture is bleak. Today's
weaker-than-expected report on non-farm payrolls revealed that employers shed
263,000 jobs in September. The losses propelled the headline unemployment
rate to a 26-year high of 9.8%. U6, the Bureau of Labor Statistics' most
complete measure of unemployment, has risen to a dismal 17%. This figure
includes those people who want to work full time, but have simply given up
looking, or who have accepted part-time work in the interim. As it is similar
to the methodology used during the Great Depression, U6 offers better
historical perspective on the severity of our current crisis.
Taken together with yesterday's
larger-than-expected pickup in unemployment claims (first time claims rose by
17,000 to 551,000), today's report makes it certain that the job market is
still contracting, even while some indicators like GDP and consumer
confidence are moving in the opposite direction.
There is no question that the
sense of panic has temporarily subsided. In recent interviews, Treasury
Secretary Geithner has been almost giddy in his
descriptions of the recovery – all the while crediting his own policies
for averting disaster. Americans are once again taking the government's bait
by spending money they don't have to buy things they can't afford. Evidence
of this trend was contained in data released earlier this week which showed
that even while income growth was largely stagnant, U.S. consumers showed the
biggest month-over-month increase in personal spending in ten years! With the
same report showing a 25% drop in the savings rate, the source of the
spending money is clear. But depleting savings and increasing borrowing does
not a recovery make.
To really recuperate, the
government must allow market forces to restructure our economy. The
government and individuals must rein in their spending; we must replenish our
stock of savings, allow interest rates to rise,
asset prices to adjust to economic reality, insolvent businesses to fail, and
wages to reflect productivity. To accomplish these goals, subsidies that
distort market forces must be removed and regulations that undermine our
competitiveness must be repealed.
None of this can be accomplished
without a degree of short-term economic pain. However, if we endure it, the
payback will be a real recovery with plenty of new jobs that don't rely on
government stimulus money. If we refuse to allow the economy to experience a
real recession, we will never have the benefit of a real recovery. Instead,
we get the "jobless recovery," a veneer of apparently positive
indicators that merely obscures the underlying rot.
Over the last few decades, our
industrial job market has atrophied while service- and public-sector jobs
have grown unsustainably. We must restore balance. New jobs will have to come
from areas that produce goods; bloated service and government sectors must be
allowed to shrink. By propping up the sectors that need to contract, and
running staggering budget deficits, the government cuts off the capital necessary
to fund sectors that need to expand.
In truth, many of the
service-sector jobs that exist today, such as real estate sales, mortgage
finance, home improvement, and auto sales, were created in an environment of ever-increasing
home equity, rising stock prices, and almost unlimited access to cheap
consumer credit. With home equity gone, stock markets flat, and credit
depleted, Americans find themselves needing to save rather than spend. But
Washington has put through policies that have counteracted our good
instincts.
While we were focusing our economy
on consumer spending, much of the rest of the world was saving for the
future. As such, we must begin to produce more for export, so that we can
sell goods to those who have the savings to pay for them. That is the only
way we can repay our debts, replenish our savings, repair our infrastructure,
and rebuild our industrial base.
Another prerequisite to any real
economic expansion is the potential for business owners to earn profits. With
increased regulation and higher taxes on the way, these incentives are being
diminished. In fact, via a phenomenon called 'regime uncertainty,' our
current policy path is actually encouraging businesses to contract in order
to prepare for a more hostile business environment.
Robust economies utilize all spare
capacity, or restructure it for better use. Having 17% of our able-bodied
population sitting at home or working part-time at Cinnabon
indicates that our present policies are weakening the economy – even if
GDP is growing. There is no "jobless recovery," only senseless
cheerleading.
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).
More
importantly take action to protect your wealth and preserve your purchasing
power before it’s too late. Protect your wealth and preserve your
purchasing power before it’s too late. Discover the best way to buy
gold at www.goldyoucanfold.com ,
download my free research report on the powerful case for investing in
foreign equities available at www.researchreportone.com
, and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp
| 
