First, let's go back in time and see how the last jobless recovery worked out.
September 9, 2003
A jobless recovery can't go on for long
Even though real people are losing real jobs that likely wont be replaced anytime soon, the stock market seems to have bought into the conventional wisdom that unemployment is a lagging indicator of economic growth.
If you are a stock market bull, you might want to stop reading here. I'll be bringing up painful memories.
The major problem in this recession (which officially began in March 2001 and officially ended eight months later) and recovery has been an excess of capacity and a lack of demand growth. Weak job growth wont do anything to create extra demand: People without jobs dont buy stuff. And to the degree that consumers with jobs start to worry about the security of their jobs, weak job growth can undermine even existing demand as consumers tighten their belts in anticipation of tougher times. Thats exactly the kind of mind set that produces recessions.
Jim Jubak was right. Using hindsight, the jobless recovery didn't work out so well. On September 9, 2003 the DJIA closed at 9,507. Today it closed at 7,978. Even after the impressive stock market rally over the past month, that's still a 16% loss.
It's not often you can exit a bull market long before its peak (14,000+ in 2007), ride it out for over 5 years, and be thankful that you did. I think investors will get another chance though. I'm told that we will be getting the mother of all jobless recoveries soon and I am a big believer in the theory.
March 30, 2009
The Recovery May Feel Like a Recession
The next question is what kind of recovery can we expect given all the monetary and fiscal stimulus injected into the economy? What comes next, I'm afraid, will be the mother of all jobless recoveries as the economy gradually shifts from contraction to a "growth recession," a phase we'll be stuck in through most of 2010.
In my opinion, borrowing money from ourselves to stimulate ourselves is going to do nothing to generate permanent jobs. Here's an analogy.
Let's say we are bleeding to death. We go to the hospital. We clearly need more blood but they don't have it. The doctor comes up with a plan. He's going to do a blood transfusion from our left arm into our right arm and he's calling it the mother of all bloodless recoveries.
After further reflecion, what was I thinking? My analogy stinks.
ReplyDeleteI forgot that jobs aren't the lifeblood of the American economy. Credit is.
I stand corrected over here in the sarcastic corner.
Credit Markets Still Navigate in a Choppy Sea of Liquidity
http://online.wsj.com/article/SB123855098396876653.html?mod=googlenews_wsj
But other credit markets still are mostly stuck. Lower-quality companies are shut out unless they want to pay 15% or more to borrow money, and markets for securitized debt, which are the lifeblood of the consumer economy, remain on virtual life-support.
well said. The credit is indeed the lifeblood of american economy. But who is the next sucker to lend to American consumers. The Japanese and the chinese have been consumed to the hilt. The Indians with 37% savings could be the next target. You can try. But centuries of exploitation have made them wise. They will rather buy gold then lending.
ReplyDeleteiyer,
ReplyDeleteToo bad several centuries of prosperity hasn't made us wise.
Optimism and $4 will buy a latte.
Realism and $4 will buy 8 hours of cheap Chinese factory labor.
Pessimism and $4 will buy/hoard future toilet paper needs on the off chance the world's unsustainable imbalances someday balance.
Perhaps I am a pessimist, but toilet paper has outperformed most retirement accounts since I turned bearish in 2004. Don't fight the Fed they say. The trend is our friend they say. Buy and hold is best they say. I agree. I agree. I agree.
What to buy and hold just requires some inside the box thinking. If you will need it in the future and it fits inside a box, buy it now before this latest round of massive stimulus pushes oil's price higher, lol.
Gallows humor, sigh.
Stag,
ReplyDeleteThe Mother of All Jobless Recoveries
That's a doozie. A real whopper. It's beyond me why so many buy into such tripe.
I've been saying this over at CR for years: There is NO SUCH THING AS A JOBLESS RECOVERY!
The dot.CON bust never ended. Sure it appeared to end while the majority were impoverishing themselves with debt, but I can't CONsider that a recovery as we are collectively much worse off.
A boom on Wall Street and a bust on Main Street is a recovery? The last recovery was outright propaganda just like Bernanke's bs that falling prices are bad. WTF! Falling prices increase demand. Look at calculators, computers, autos, cell phones, apparel, etc. Moving housing costs out of the CPI calculation was a huge mistake. Expanding credit senselessly is an even bigger mistake.
Here's another crock: We need to save Wall Street in order to save main street. Good grief, the majority will believe anything. How is amplfying the extractiveness of Wall Street going to save Main Street?
Total employment has not increased in nine years. Population has increased. Debt has increased. It seems our eCONomic leaders have no interest in what is done with new credit only that it is created. Net worth for the bottom 90% has trailed inflation for what seems like forever. Is it any wonder our eCONomy narrowly avoided an epic collapse?
Propaganda is killing us. Our entire eCONomic system is now based on propaganda. Barrack Obama is on TV everyday talking about our eCONomy. Spending will save us he says. Huh??? Just how does consumption in excess of production make a society wealthier? That kind of foolish thinking is only possible in a brainwashed society. And the brainwashing is everywhere. The universities, the newspapers, the tv, the radio, magazines, etc. I even see it in my kids. Our society teaches them to be trusting not questioning. To accept facts not challenge them.
At the root of the propaganda is this kind of thinking: Don't think for yourself, let others think for you. Trust "experts." Let others make you rich. You can get something for nothing.
Skepticism should be taught at every level of public education.
And here's the worst part. The best way to take care of yourself is to get in on the sham. Buying shams is a losing game. Selling shams is the road to riches. Talk about perverse incentives and aderse selection.
Anyone that blindly accepts information from the MSM or right wing radio is clueless.
GRRRRRR!
mab,
ReplyDeleteNice rant! Can't argue with any of it. I now even agree that pulling home prices from the CPI was a huge mistake. Although it smoothed the data and eventually balances out (since rents are used), it sure as heck didn't smooth out our economy. In fact, it helped send our economy right over the cliff.
What really gets my goat though is the whole "service economy" sham. WTF are the Chinese going to do with our thriving "service" exports? Can't you just picture a cargo ship headed to China filled with service workers?
Hey China! Would you like fries with that?!
As if they don't already have a billion people who could provide that service even cheaper. No, I'm not thinking of Chinese workers doing it. There's actually another billion in India. I am reminded that drive through order taking can and will be outsourced since we never need to see that person directly. Further, it will be a productivity miracle since a call center could efficiently route the order taking to the next available lowest paid worker in India!
We just need to work smarter in order to compete. Yeah, that's all.Maybe a PhD in literature could help level the playing field.
Might I interest you in some exceptionally well prepared seasoned potato sticks with a side of cool, refreshing tomato dipping sauce?
Ah, who am I kidding? India could crank out PhDs too. That won't work.
I'm stumped. I can't seem to come up with a solution that allows the typical American worker to keep earning an order of magnitude more prosperity than billions of low paid workers and automated machines long-term.
Taking on lots and lots of debt might work I suppose, if we were to factor in all the humor of a really good Greek Tragedy that is.
As if they don't already have a billion people who could provide that service even cheaper
ReplyDeleteYour looking at it all wrong. Think of those one billion people as prizes. CONsumers in the Western world are tapped out. Even the newly co-opted Eastern Europe is tapped out (didn't take long). The low hanging fruit in the West is gone and not coming back for at least a generation.
So where will credit expansion come from? Printing? Temporarily maybe. However, it's still debt with interest. I know, I know, central bank printed credit is more certain and can potentially be expanded through the fractional reserve system. But how do you lend to tapped out Westerners? Especially at low, low interest rates. Their wages aren't likely to increase. Lending to Western CONsumers just won't do anymore. Time to throw them under the wage arbitrage bus.
That G-20 "gift" of $1 trillion that was announced yesterday is a Trojan Horse imo. That money will go to developing nations until they can no longer pay. And it's almost certain they won't be able to pay back the "credit/money." Then they'll cut off further funding, seize control of foreign assets and move on to another group of willing debtors. I can guarantee those third world debtors won't get access to the fed's alphabet soup facilities too.
The days of self liquidating debt are long gone. Remember how they turned the U.S. housing market from liquidating debt into non-liquidating debt? Well, third world nations are even easier to exploit than Americans as the politicians are more corrupt so the money gets squandered faster. Of course the debts remain long after the money has been stolen and transfered out of the country.
Taking on lots and lots of debt might work I suppose, if we were to factor in all the humor of a really good Greek Tragedy that is.
Beware of Greeks bearing gifts! The pig bomb is coming to the developing world.
Democracy demands morals. So does a debt based money system. One of the above corrupted the other.
mab,
ReplyDeleteThink of those one billion people as prizes.
Do you have any idea how hard it is to get the basketball into the undersized hoop at the carnival a billion times?
I'd probably need to hire a billion workers to get it done in my lifetime.
Hold on! You clever dog. I finally do get it now, lol. ;)
Beware of Greeks bearing gifts! The pig bomb is coming to the developing world.
What about Brits bearing gilts?
No Longer Gilt Edged - the Inflation Implications
http://nyinvestingmeetup.blogspot.com/2009/03/no-longer-gilt-edged-inflation.html
There is no time in history where the money supply hasn't been expanded beyond the economic growth rate and inflation hasn't resulted. The inflation this time is going to be considerable. If you haven't done so already, you should be adjusting your portfolio accordingly. By the time the mainstream media tells you to do so (they are currently telling you the deflation is your big worry), it will already be too late.
For what it is worth, you may note that I moved to inflation neutral in the short-term near the peak of the oil bubble. Now that deflation seems a permanent condition, I've got an itchy trigger finger when it comes to embracing short-term inflation again and increasing my long-term inflationary outlook. The finger is very itchy. It's looking for any excuse at all really. Sigh.