The Dow fell 140 points. This was baaaad…because it shows that the stock market does not really buy Bernanke’s storyline.

You’ll recall that when we left off last week, Ben Bernanke assured the world that while the recovery was not exactly what he had hoped for, he nevertheless had the situation in hand. He said he had the tools necessary to fix the problem and would do whatever was required.

The initial reaction was positive. The Dow rose more than 160 points on Friday. Some analysts thought the market’s downward trend had been broken. But it needed follow-through on Monday. Instead, the market fell.

The fact is, there is no recovery…and no recovery is possible…and investors are beginning to realize it.

Then what is going on? A “Great Recession,” say some analysts. A “depression,” say others.

There is a good article in The Financial Times that helps understand what is really going on. It’s by Ken Rogoff and Carmen Reinhart; you’ve heard of them before, dear reader. They are the ones who researched dozens of episodes of financial crisis and sovereign default throughout history.

Today, they write in the FT about what happens after a financial crisis. Well, what do you think? Do you think you get a “recovery”? Do things go back to normal? Is the recession over quickly and painlessly?

Not at all. Instead, there is rarely anything you would recognize as a “recovery.” Things do not go back to normal because they weren’t normal before the crisis. Crises are caused by abnormal conditions — usually too much credit, too much debt, too much spending and too much speculating. Then, when the bubble blows up, it typically takes a long time for the economy to get back on its feet.

Over the following ten years, unemployment usually stays higher than it was before the crisis.

Growth rates are usually lower.

And ten years after a blow-up in real estate house prices are still usually BELOW where they were when the crisis hit.

But what if the feds really get on the ball and try to turn things around? Then, watch out!

We read an article on dying yesterday. Here’s a question for you, dear reader. Would you rather live in a recessionary economy or die in a booming one? We’ll take the recession. Probably most people would. Heck, make it a depression.

There are a lot of illnesses for which there are no cures. Still, people will spend a fortune…and endure unspeakable treatments…in the hopes that they will be the one in a thousand who survives.

So too are people ready to believe that Dr. Bernanke can cure what ails the US economy. We don’t think so. Because we don’t think the economy is “sick.” We think it is healthy…and finally correcting the mistakes of the Bubble Epoque.

Leading economists and the feds have believed, for example, that there was some problem of “liquidity” that was temporarily blocking the flow of cash and credit. They believed the problem could be solved by making more money available. That was why the Fed bought an extra $1.4 trillion of the banking sector’s suspicious “assets.” They wanted to make sure the banks had money to lend.

Well, now the banks have plenty of cash. Businesses too have record holdings of cash. Even households are rebuilding their cash accounts.

But who’s borrowing? Who’s spending? Who’s buying new houses, for example? (New house sales are currently taking place at the slowest rate ever measured.)

CNN: “Credit if finally available, but no one wants it.”

Why don’t people borrow?

Because it’s not a liquidity problem. It’s a debt problem. A solvency problem. And it won’t go away by making more cash and credit available. Instead, all those bad decisions, bad loans, and bad investments have to be cleaned up. And that takes time. And while the economy is de-leveraging, people are becoming more cautious…more risk-averse…more modest in their expectations.

What do Rogoff and Reinhart say about governments’ efforts to fix these problems? What does history show?

They say the feds often make the situation worse.

Not only do governments typically pour bad money after good, they also disrupt the process of correction. Insolvent banks are kept alive. Big businesses that ought to go broke and be sold off are instead propped up…the lights are kept on by government subsidies, preventing new competitors from occupying the space. Consumers and investors keep waiting for the promised “recovery”…for the cure…for the fix. Instead of quickly adjusting to the new circumstances, they delay…they hesitate…they postpone unpleasant changes.

They might quickly sell a house at a loss, for example. They could then go on with their lives. But when they hear the feds tell them they have a new program in the works…or a new stimulus bill in Congress…or new action by the Fed…what are they supposed to think?

“Maybe I should wait and see if this new effort does the trick…” they say to themselves. “I’ll feel like a real fool if I sell now and then the feds get a new bull market going.” “Maybe I should wait before accepting a job at a lower salary; it says in the paper that the economy should recover by summer…”

The economic setbacks of the 19th century were sharp, but fairly short, affairs. The contribution of modern economics has been to stretch them out and make them worse.

Regards,
Bill Bonner
Whiskey & Gunpowder

September 1, 2010

What’s Bad for Bernanke Is Worse for You was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Justice Little, Editor of Taipan Daily, also out of the AF stable, says that 26 M jobs have been lost.

The Federal Government says that the unemployment rate is 9.8%.  Traditional methods of accounting make the answer right at twice that much, recognizing that people are still jobless even though they have exhausted (expanded) unemployment compensation or been on the rolls more than six months.

Another source claims one million jobs were lost last month, as opposed to the government reports which will fluctuate for a while and finally show up on the back pages as 475,000 again, at a good guess.

Rocket scientists used slipsticks and Cray computers which have been replaced by fancier models, while split second “trades” are executed algorithmically on the floor of the stock exchange to garner half a cent a share, but let’s get back to good old tried and true methods which don’t even require an abacus.

If there are 130 M jobs, net, in the USA (rounding slightly to keep the arithmetic simple), and 25,000,000 have been lost (again, rounding to keep matters simple) then we can either say that the job market has shrunk on the close order of twenty per cent. (a ploy the government should have thought of but didn’t, and if we go with 26 M that is precisely 20% of 130M), or we can say that the jobless rate is approximately twenty per cent., which is exactly the same result I got when I told you in the second paragraph what the true rate probably is.  Inconvenient truths do not really disappear just because someone mumbles mystical new accounting parameters.

It is possible that the wizards were trying to tell us that there are currently 131M jobs in the USA, down from a previous high of 157M.  In that case, the job loss is 26/157 which is an awkward number to reduce by division while typing, so let’s multiply, instead.  The figure is one-sixth, almost exactly.  (6 x 26 = 120 + 36 = 156.  That is definitely close enough for government work.)

By that view, 15% + 1.66% (a quick way to deduce 1/6, since multiplication is far simpler than its upside down view, division.  Perhaps no one ever told you that, or that addition is only backwards subtraction.)  = 15.66 % total destruction of the portion of the economy known as employment.  That is even worse news than that 20% of those who need jobs can’t get them.  It means that a sixth of our economy has disappeared to foreign lands or been destroyed by the fall of the stock market, banking instutions, and real estate.

Even a large factory starting up isn’t going to produce more than a few thousand jobs (and it is not guaranteed to succeed, particularly with such horrors as cap and tax, more regulation, and the guarantee of many other new taxes ahead of us), and who has the capital for such an undertaking, other than foreigners with a surfeit of falling dollars?  Do we really want an economy dependent upon the good will of those chortling over the demise of the dollar as the reserve currency?  I guess assorted governments in Washington this century shouldn’t have borrowed so much money from them.  They did, though, and in some ways the best thing that could happen is for the whole sleazy fraud of fiat currency and the Fed to crash around their deserving ears.

It is possible to jigger figures in any number of entertaining ways, but that won’t change the facts.  All it does is disguise them and lead to more palatable annual corporate reports and soothing statements from Bernanke, Geithner, and Obama.  If our measure of “recovery” is getting back to the slippery ground we were on five years ago–not a pleasant place to stand, as events have revealed–then it follows that 25,000,000 jobs must be created, one or a few at a time.  These cannot be temporary jobs, such as census workers or seasonal workers; that is the equivalent of putting a bandaid on a ruptured appendix and saying that time will heal it.  Time is going to cause us to bleed out and die of septicemia if we don’t do some surgery, here.

Mind, all creating twenty-five million real jobs in manufacturing, construction, agriculture, and education would do is restore the status quo ante.  As daunting a task as that would be, it would not solve the problem; it would merely stanch the bleeding.  Until we work our way through the devastation of all the bubbles there is no way to clear the decks for rebuilding.

I don’t think it can be done.  I’m feeling nautical, so let’s say that we have been hulled between wind and water.  Our masts are down in a tangle of rigging, the sheets are snapped and tangled, and our lower decks are awash in blood and loose cannons rolling over the wounded.  All the surgeon has in his chest is salt and rough canvas.  In this case, Geithner and Bernanke are terrified of using the bone saw.

Oh, occasionally the Captain and senior officers will throw a bank overboard, but pretty much the fix is in for those who are connected.  We are witnessing the greatest transfer of wealth in the last two hundred and 233 years, and it is all going to special interest groups.  Other than what they dole out on luxury goods and buying more power that money is not going back into the economy to create new businesses or expand old ones which is the only way that genuine, long-lasting, productive jobs come into being.

Can there be a recovery without jobs?  Of all the idiotic suppositions that only Keynesians would promulgate!  Of course not, any more than those who are not employed can pay bills, eat, and provide tax recovery.

Jobs are not an intangible, save in one increasingly dangerous sense.  Jobs must produce something.  By its very definition, a job is labor which produces something the employer wants more than he wants or needs his money.  It always seems to surprise Statists, but the purpose of business is to create profits, not to create products, and certainly not to create jobs; indeed, technology is reducing the need for human workers, to the understandable delight of entrepreneurs.  Creating profits involves risk, forethought, knowledge (or hired experience), and it isn’t something just anyone can do.  In particular, it is not something which can be done under shackling regulations, increased taxes and cost, insecurity over fuel availability, and capricious governments dedicated to non-science and paying off themselves and open-handed constituents.

The biggest problem I see is not fiat money (which is collapsing from its own lack of substance), or the purported “global” economy, which is composed of numerous countries none of whom are doing well.  (Prosperity in China?  Oh, my, tell me another one.)  The big problem, which is being exacerbated, is that something like 40% of all “jobs” are in government.  Yup.  Four out of every ten “workers” are paid lavishly (in general, twice what counterparts in business make for similar tasks) are engaged primarily in the business of making our lives more difficult, our businesses less profitable, and our ability to plan for the future almost impossible.  This country has grown bureaucracy and chased manufacturing jobs off shore.  It has increased regulation and deleterious “services” at the expense of freedom and capital to create real business which include real jobs and genuine products which can be sold instead of buying shoddy merchandise from China.  We’ve seen the cycle…from Taiwan to Japan to Sri Lanka, and now to China.  We have sent our money overseas for many decades rather than fight to reduce regulation, reduce taxes, and reduce costs.  A fork lift operator simply isn’t worth $86,000 a year, even if he works for the ci devant “Big Three.”  Not many of them do any more, and it serves them right.  Greed at all levels of the unions  made American products too expensive to buy.  Manufacturers–whom, I will remind you again, are not in business to employ “workers,” but to make profits–picked up their blueprints and went elsewhere.  We cannot blame them.  We would do the same if we were able.

No, friends, there will be no “jobless” recovery.  There will be no recovery at all until we are so much farther down that October of 2009 looks like “the good old days.”  The “green shoots” are the slime growing up the North wall of government, the bacteria of corruption, and of parasites such as governmental Spanish Moss and Pharma and Agribiz mistletoe.

What is to be done?  You’ve got your choice.  Destroy Carthage, or opt out.  Pull back into your own perimeter.  Produce nothing that can be taxed or regulated.

That’s what we have come to.  State revenues are down 17%, which looks like a pretty close correlation of 1:1 for enterprise destruction and joblessness both.  Every job destroyed is another blow at the Nanny State which cannot survive without continuous economic growth, because such as they never curtail their own spending and urge to shackle and harry those who produce the funds upon which Statists thrive.  Perhaps you are not in a position to do so, but if you are…just quit.  This isn’t new advice; Ayn Rand gave it to you sixty years ago.  Do not lend credence to your oppressors and do not support them…and do not look for any genuine green shoots representing real growth any time soon.

Regards,
Linda Brady Traynham

October 19, 2009

The Jobless Recovery, So Called was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The producer of the screed’s triumphant cry is…”Ding, Dong, the Bear is dead!”

Old piece of country wisdom: when you shoot a dangerous predator reload your weapon and take your own sweet time before approaching the presumed carcass. With your gun at the ready when you finally decide it is safe to assume the b’ar is actually dead. It may turn out the thing was only stunned — or it could have been playing ‘possum.

Don’t go riling a wounded animal up; let the adrenalin die down first. Yours and its.

Sure, we’re tired of the Bear but the market does not run to our wishes, so let’s be a little cautious. A genuine new Bull will be good for at least eighteen months and it is far better to forego the chance of capturing the market version of golf’s hole in one by calling the bottom exactly and jumping on your chosen stocks lest we find we have leapt imprudently to a ledge halfway between top and bottom with no way out but down (or averaging down.)

Let some braver soul stroll up and kick the bear, because I’m not going to do it.

From my side of the table the proposal gets a solid nix. My soul reaction (sic) is relatively polite surprise and shaking my head at the naivete of the intrepid who rush out to add to the old adage, “There’s a lot of money in the Stock Market. I know; I put a bunch of it there myself.”

Okay, so the Spring Fling has continued through the long hot summer, the Dow is up handsomely, and a pack of Statists who don’t know a round lot from a round up are shouting “Green shoots, ho!” from the Crow’s Nest.

In time, they will choke on those crows who are watching the absurd proceedings with interest.

The whole premise is ludicrous. The Bear is dead because losses have slowed in the durable goods sector, not counting transportation? The Bear is dead because a “jobless” recovery “is still a recovery?” The Bear is dead because connected players have trillions of electronic dollars stuffed in their computerized vaults? The Bear is dead because new job loss claims are down 20% from the stats of the last many weeks? All of which, as I recall, were revised upwards later? The Bear is dead because one of America’s most famous investment firms managed to lose another 15% of what’s left of ten thousand I overlooked two years ago when I meant to get totally out of the market? How can anyone be down to $4750 when the market is up 48% in recent months? Ted managed.

All of that is on a par with the wisdom of “You aren’t jobless if you have been looking unsuccessfully for more than six months or if you are drawing unemployment insurance!”

I didn’t have to listen to the hype coming out of Washington to ascertain whether or not I were interested in government bailouts. I find it equally easy to resist happy cries of, “C’mon in! The water’s fine!” when the swimmer isn’t in a nice, big, clear, chlorinated, filtered, and skimmed pool but has jumped, inexplicably, into one of the lakes here on the ranch.

If anyone asked I would advise against such a course. Our lakes contain a fascinating assortment of wild life I would not care to encounter personally. No, I do not know that there are still leeches in our West lake, but I do know they were there fifty years ago and I see no reason to suppose they have moved on. You can see snakes and snapping turtles. Big fish come out of there, and while we don’t have any alligators, it would be unpleasant to step on a catfish. I know. My mother did it, long ago, and ended up having to visit the hospital to have the spiny fins removed.

“If you can’t see your way clearly, don’t step into it,” sounds like an excellent guideline to me.

I have every reason to suppose that the current financial climate is just as full of disgusting, painful, and dangerous entities and a plethora of particularly potent phenomena and petrifying possibilities, along with, perhaps, putrescent products, to go alliterative on you.

Nope, I’m going to stay right here hunched over my ancient computer (my only “lightning” offer recently took eight seconds to initiate and was on the board for an eternity: thirteen seconds) trolling for bargains in Reed & Barton and terrific trades in Towle. I don’t intend to play “Let’s feed it to Mikey!” by plunging in stocks. Signature chuckle…literally, many times old, slow technology we understand is far more efficient than the latest model with Vista, which I unplugged after two frustrating days. Figuratively…stick with what we know.

A jobless recovery…a jobless recovery…rolling that around on my experienced intellectual tongue, I’m going to spit it out inelegantly. A “jobless” recovery is a concept so inane and insane that only a Keynesian Statist who has never even patronized, far less run, a hot dog stand could come up with such a phrase.

You all know that I’m a technical analyst when it comes to the literal Stock Market and that I use my own bizarre brand of pragmatism when it comes to finding places to park stored value safely. My son is the Finance major with an MBA, and I don’t know if even he mucks around in P/E. I’m the Philosopher and Counselor who “reads” behavior and reeks of common sense.

You can’t have a “jobless” recovery for reasons so basic a reasonably bright pre-schooler can discern them. People without jobs cannot consume more than the most meager basics, if those. The jobless cannot make payments on credit card debt or mortgages. They do not buy new cars even during the tragi-comedy which lasted less than a week, the duration of the destructive (literally) “Cash for Clunkers” program.

Statists come up with cute slogans for their idiotic ideas. America took a very large capital loss, destroying billions of dollars’ worth of perfectly good used car parts for a Green victory. That was the purpose of the drill: to ensure that other older cars would be harder to repair. To reduce the inventory of usable radiators and hubcaps, transmissions and dipsticks. It “worked” so well Congress has thrown twice as much money in the pot to see how many more can be induced to give up workable cars in return for lesser vehicles which will never make back their cost in gas savings.

What concerns me isn’t what I see and advise you to do, it is what I see and back away from telling you for reasons ranging from the fact that this is an investment site, not a political one, although those factors are definitely intertwined inextricably, to not wanting to look like more of a domestic errorist (If I put in the T it will trip an automatic program to have this e-mail read by some bureaucrat I would prefer not to benefit from such wisdom as I have) than Janet Napolitano already says I am.  The same day an overeager columnist declared the Bear’s demise, the Daily Bell, out of Switzerland, mentioned in print something I had known about for a couple of weeks. I believed it the first time a source sent it to me, and have had two different reports come across my screen prior to then.

Let’s make this hypothetical…what would your analysis and reaction be if you were told that large amounts of cash were being stuffed into diplomatic pouches with instructions, “Purchase all the local currency needed for a year’s operations?” Well…perhaps that the government thought it could save money because the current price is low? Snigger. Uh…that anticipated rising JP4 prices would curtail flights? Perhaps that electronic transfers of digits were not likely to be honored in host nations? Really reached for that one..who would dream of refusing USD..particularly considering the splendid reception of the last couple of offerings of US bonds? (Pretty much, we’re printing the things and selling them to ourselves, paying for them with money we printed ourselves. At last, a true perpetual motion machine. The world’s taste for fiscal cotton candy appears to be waning.)

How about if accumulating foreign currency is linked to a projected shortage of bank services, as in the anticipated imposition of bank “holidays?” That makes sense, the “holidays,” which would be “closures,” of course, have been on the table sporadically for a while…and just to make the matter more deadly, potentially, are usually linked with official devaluing of the dollar. Uh-oh. That one has a ring of plausibility to it greater than ding, dong, the Bear is dead.

You don’t need my (possibly paranoid) decision that the two best things we can do with money are to get it out of banks and to turn it into durable goods with all due dispatch.

I am definitely putting my remaining funds where my fears are. If Jesse James raids the banks he isn’t going to find much of mine to steal. Now, if Sherman marches through raping the pigs and stealing the chickens he’s going to do pretty well, at least on the first pass through. Yuh cain’t bury the livestock, but you could be hiding the smoked hams and great-grandfather’s gold-headed walking stick. And your clunkers.

Y’all do as you deem best, but here at the Whiskey Outpost the big pit over on th’ South Forty isn’t to bury the Bear in. We’re going to have a pig roast–and all my instincts say that so is the market!

Regards,
Linda Brady Traynham

August 11, 2009

P.S.: It is said that “Hindsight is 20-20,” which is another very large piece of nonsense. Few people ever figure out what happened in most instances. They do not learn from experience. A pertinent example is those twin debacles, the policies of FDR and the purported efficacy of socialized medicine.

The US is heading to the Greater Depression and our dear leader is determined to foist not only Canadian-style medical practices on us, but also the biggest “budget” deficit since the world began, the business-killing tax known as “Cap & Trade,” and the destruction of the small farmer and rancher under the noble title of the Food “Safety” Act, while Congress is hoping to add a VAT. I’ll discuss the everything-less “recovery” soon.

Ding, Dong, the Bear Is Dead was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.