| The term red pill and its opposite, blue pill, are pop culture terms that have become a common symbol for the choice between the blissful ignorance of illusion (blue) and embracing the sometimes painful truth of reality (red). |
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What is America’s Economic Breaking Point?
If there exists a single factor that can put enough pressure on the whole of the American economy and force it to crumble under its own weight, it’s the price the average American pays for gas. Extreme up-side gas price swings have preceded seven of the last eight American recessions, most recently in the summer of 2008 when drivers were forced to pay an all time high in excess of $4.50 per gallon at the pumps. What followed this spike – caused in part by tightening supplies, rising demand, easy money and a health dose of financial propaganda – was nothing short of the most severe financial and economic crisis since the Great Depression.
Nearly four years on the country finds itself in the midst of difficult times that have taken their toll on millions of Americans through job losses, home foreclosures, un-servicable debt, and ever dwindling retirement savings. By all accounts, Americans are worse off today than they were ten years ago, and the state of our nation, despite what Washington’s media masters report, is fiscally, economically, and socially dire.
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US Companies Are Furiously Creating Jobs… Abroad
Whatever one thinks of the practical implications of the Kalecki equation (and as we pointed out a month ago, GMO’s James Montier sure doesn’t think much particularly when one accounts for the ever critical issue of asset depreciation), it intuitively has one important implication: every incremental dollar of debt created at the public level during a time of stagnant growth (such as Q1 2012 as already shown earlier) should offset one dollar of deleveraging in the private sector. In turn, this should facilitate the growth of private America so it can eventually take back the reins of debt creation back from the public sector (and ostensibly help it delever, although that would mean running a surplus – something America has done only once in the post-war period). This growth would manifest itself directly by the hiring of Americans by US corporations, small, medium and large, who in turn, courtesy of their newly found job safety, would proceed to spend, and slowly but surely restart the frozen velocity of money which would then spur inflation, growth, public sector deleveraging, and all those other things we learn about in Econ 101. All of the above works… in theory. In practice, not so much. Because as the WSJ demonstrates, in the period 2009-2011, America’s largest multinational companies: those who benefit the most from the public sector increasing its debt/GDP to the most since WWII, or just over 100% and rapidly rising, and thus those who should return the favor by hiring American workers, have instead hired three times as many foreigners as they have hired US workers. Those among us cynically inclined could say, correctly, that the US is incurring record levels of leverage to fund foreign leverage, foreign employment, and, most importantly, foreign leverage.
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0% Interest Rates Lock in Inflation
The decision by the Fed, last week, to keep a key interest rate at near zero percent for 2 years is historic because the Fed has never done this before. This action will have profound negative effect on the U.S. dollar and its buying power. It also signals that even the Fed thinks the economy is not going to get better for at least 2 years. This action will affect every American and telegraphs a policy of inflation by the government. In November of 2009, I predicted this very path in a post called “The Fix is In.” Back then, I said, “It appears the “fix” is in as far as the road plan for the U.S. dollar and economy. The government and the Fed appear to have chosen a path of inflation for America and the world. This is not an official announced plan but it might as well be.”
Zero percent interest on a key Fed rate confirms my prediction right along with the rising inflation in just about everything except housing. In an extensive post about inflation this week, Theburningplatform.com said, “The storyline being sold to you by Bernanke, his Wall Street masters, and their captured puppets in Washington DC is that deflation is the great bogeyman they must slay. They make these statements from their ivory jewel encrusted towers as the real people in the real world deal with reality. The reality since Ben Bernanke announced his QE2 policy in August 2010 is:
- Unleaded gas prices are up 45%.
- Heating oil prices are up 46%.
- Corn prices are up 71%.
- Soybean prices are up 26%.
- Rice prices are up 13%.
- Pork prices are up 31%.
- Beef prices are up 25%.
- Coffee prices are up 38%.
- Sugar prices are up 48%.
- Cotton prices are up 13%.
- Gold prices are up 42%.
- Silver prices are up 115%.
- Copper prices are up 23%.
Economics Lesson 1
Last Friday (January 27) the US Bureau of Economic Analysis announced its advance estimate that in the last quarter of 2011 the economy grew at an annual rate of 2.8% in real inflation-adjusted terms, an increase from the annual rate of growth in the third quarter.
Good news, right?
Wrong. If you want to know what is really happening, you must turn to John Williams at shadowstats.com.
What the presstitute media did not tell us is that almost the entire gain In GDP growth was due to “involuntary inventory build-up,” that is, more goods were produced than were sold.
Net of the unsold goods, the annualized real growth rate was eight-tenths of one percent.
And even that tiny growth rate is an exaggeration, because it is deflated with a measure of inflation that understates inflation. The US government’s measure of inflation no longer measures a constant standard of living. Instead, the government’s inflation measure relies on substitution of cheaper goods for those that rise in price. In other words, the government holds the measure of inflation down by measuring a declining standard of living. This permits our rulers to divert cost-of-living-adjustments that should be paid to Social Security recipients to wars of aggression, police state, and banker bailouts.
Is High, Single-Digit Unemployment the ‘New Normal?’
Ask ManpowerGroup Chairman and Chief Executive Jeff Joerres if there’s a “new normal” of higher-than-desired unemployment in the U.S. He will agree.
“There’s no reason to suspect any time in the next three years we will find ourselves under 7% unemployment,” said the top officer at the $22 billion revenue, Milwaukee-based Manpower, which provides temporary staffing and a host of other employment services globally.
“That (would be) almost eight years of high, single-digit” unemployment, he added in an interview at the outskirts of the World Economic Forum meeting in Davos, Switzerland. The U.S. unemployment rate currently stands at 8.5%.
The bottom line of hiring remains demand and if it gets strong enough, Mr. Joerres asserts it will trump all the serious, much-talked-about structural issues afflicting the ability of so many people to find and keep jobs.
Those issues in the U.S. include a talent mismatch, especially for some highly skilled manufacturing jobs, immigration policies that frustrate employers who believe they keep skilled, productive people out of the country, and colleges that aren’t preparing enough young people for the available careers of the future.
Goldman Sachs Analysis Highlights Tripwires for U.S. Economic Policy in 2012
The Price of Oil, Tight Fiscal Policies, and the European Debt Crisis
The latest economic prognostication for U.S. economic growth in 2012 from analysts at Goldman Sachs Group Inc. is essentially pessimistic—forecasting about 2 percent real economic growth (after accounting for inflation) for the year. That would be tolerable if the economy wasn’t still climbing out of the big hole dug by the Great Recession. To emerge from that hole, we need to do better.
Broadly speaking, the Goldman Sachs analysts see a repeat of 2011 with some job growth but not as much as we need, stagnating incomes, and general sluggishness. But what’s more interesting than this bottom line are the three contributors they highlight as providing the headwinds:
- Tight, and tightening, oil supplies
- Contractionary fiscal policy
- Spillovers from European crisis
