The Dow Jones Industrial Average and the Labor Force Participation Rate from Ronald Reagan to Barack Obama

Posted by PITHOCRATES - February 10th, 2014

Economics 101

(Originally published May 21st, 2013)

The DJIA and the Labor Force Participation Rate tell us how both Wall Street and Main Street are Doing

Rich people don’t need jobs.  They can make money with money.  Investing in the stock market.  When you see the Dow Jones Industrial Average (DJIA) increasing you know rich people are getting richer.  Whereas the middle class, the working people, aren’t getting rich.  But they may be building a retirement nest egg.  Which is good.  So they benefit, too, from a rising DJIA.  But that’s for later.  What they need now is a job.  Unlike rich people.  The middle class typically lives from paycheck to paycheck.  So more important to them is a growing job market.  Not so much a growing stock market.  For the middle class needs a day job to be able to invest in the stock market.  Whereas rich people don’t.  For a rich person’s money works enough for the both of them.

So the Dow Jones Industrial Average shows how well rich people are doing.   And how well the working class’ retirement nest eggs are growing for their retirement.  But it doesn’t really show how well the middle class is living.  For they need a job to pay their bills.  To put food on their tables.  And to raise their families.  So the DJIA doesn’t necessarily show how well the middle class is doing.  But there is an economic indicator that does.  The labor force participation rate.  Which shows the percentage of people who could be working that are working.  So if the labor force participation rate (LFPR) is increasing it means more people looking for a job can find a job.  Allowing more people to be able to pay their bills, put food on their tables and raise their families.

These two economic indicators (the DJIA and the LFPR) can give us an idea of how both Wall Street and Main Street are doing.  Ideally you’d want to see both increasing.  A rising DJIA shows businesses are growing.  Allowing Wall Street to profit from rising stock prices.  While those growing businesses create jobs for Main Street.   If we look at these economic indicators over time we can even see which ‘street’ an administration’s policies favor.   Interestingly, it’s not the one you would think based on the political rhetoric.

Wall Street grew 75% Richer under Clinton than it did under Reagan while Main Street grew 65% Poorer

Those going through our public schools and universities are taught that capitalism is unfair.  Corporations are evil.  And government is good.  The Democrats favor a growing welfare state.  Funded by a highly progressive tax code.  That taxes rich people at higher tax rates.  While Republicans favor a limited government.  A minimum of government spending and regulation.  And lower tax rates.  Therefore the Republicans are for rich people and evil corporations.  While the Democrats are for the working man.  Our schools and universities teach our kids this.  The mainstream media reinforces this view.  As does Hollywood, television and the music industry.  But one thing doesn’t.  The historical record (see Civilian Labor Force Participation Rate and Recessions 1950-Present and Dow Jones Industrial Average Index: Historical Data).

DJIA vs Labor Force Participation Rate - Reagan

The Democrats hated Ronald Reagan.  Because he believed in classical economics.  Which is what made this country great.  Before Keynesian economics came along in the early 20th Century.  And ushered in the era of Big Government.  Reagan reversed a lot of the damage the Keynesians caused.  He tamed inflation.  Cut taxes.  Reduced regulation.  And made a business-friendly environment.  Where the government intervened little into the private sector economy.  And during his 8 years in office we see that BOTH Wall Street (the Dow Jones Industrial Average) and Main Street (the labor force participation rate) did well.  Contrary to everything the left says.  The DJIA increased about 129%.  And the LFPR increased about 3.4%.  Indicating a huge increase of jobs for the working class.  Showing that it wasn’t only the rich doing well under Reaganomics.  The policies of his successor, though, changed that.  As Wall Street did better under Bill Clinton than Main Street.

DJIA vs Labor Force Participation Rate - Clinton

Despite the Democrats being for the working man and Bill Clinton’s numerous statements about going back to work to help the middle class (especially during his impeachment) Wall Street clearly did better than Main Street under Bill Clinton.  During his 8 years in office the LFPR increased 1.2%.  While the DJIA increased 226%.  Which means Wall Street grew 75% richer under Clinton than it did under Reagan.  While Main Street grew 65% poorer under Clinton than it did under Reagan.  Which means the gap between the rich and the middle class grew greater under Clinton than it did under Reagan.  Clearly showing that Reagan’s policies favored the Middle Class more than Clinton’s policies did.  And that Clinton’s policies favored Wall Street more than Regan’s did.  Which is the complete opposite of the Democrat narrative.  But it gets worse.

The Historical Record shows the Rich do Better under Democrats and the Middle Class does Better under Republicans

The great economy of the Nineties the Democrats love to talk about was nothing more than a bubble.  A bubble of irrational exuberance.  As investors borrowed boatloads of cheap money thanks to artificially low interest rates.  And poured it into dot-com companies that had nothing to sell.  After these dot-coms spent that start-up capital they had no revenue to replace it.  And went belly-up in droves.  Giving George W. Bush a nasty recession at the beginning of his presidency.  Compounded by the 9/11 terrorist attacks.

DJIA vs Labor Force Participation Rate - Bush

The LFPR fell throughout Bush’s first term as all those dot-com jobs went away in the dot-com crash.  Made worse by the 9/11 attacks.  As all the malinvestments of the Clinton presidency were wrung out of the economy things started to get better.  The LFPR leveled off and the DJIA began to rise.  But then the specter of Bill Clinton cast another pall over the Bush presidency.  Clinton’s Policy Statement on Discrimination in Lending forced lenders to lower their lending standards to qualify more of the unqualified.  Which they did under fear of the full force and fury of the federal government.  Using the subprime mortgage to put the unqualified into homes they couldn’t afford.  This policy also pressured Fannie Mae and Freddie Mac to buy these toxic subprime mortgages from these lenders.  Freeing them up to make more toxic loans.  This house of cards came crashing down at the end of the Bush presidency.  Which is why the DJIA fell 19.4%.  And the LFPR fell 2.1%.  Even though the economy tanked thanks to those artificially low interest rates that brought on the subprime mortgage crisis and Great Recession both Wall Street and Main Street took this rocky ride together.  They fell together in his first term.  Rose then fell together in his second term.  Something that didn’t happen in the Obama presidency.

DJIA vs Labor Force Participation Rate - Obama

During the Obama presidency Wall Street has done better over time.  Just as Main Street has done worse over time.  This despite hearing nothing about how President Obama cares for the middle class.  When it is clear he doesn’t.  As his policies have clearly benefited rich people.  Wall Street.  While Main Street suffers the worst economic recovery since that following the Great Depression.  So far during his presidency the LFPR has fallen 3.7%.  While the DJIA has risen by 86%.  Creating one of the largest gaps between the rich and the middle class.  This despite President Obama being the champion of the middle class.  Which he isn’t.  In fact, one should always be suspect about anyone claiming to be the champion of the middle class.  As the middle class always suffers more than the rich when these people come to power.  Just look at Venezuela under Hugo Chaves.  Where the rich got richer.  And the middle class today can’t find any toilet paper to buy.  This is what the historical record tells us.  The rich do better under Democrats.  And the middle class does better under Republicans.  Despite what our schools and universities teach our kids.  Or what they say in movies and television.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The Obama Recovery is Good for Wall Street but Bad for Main Street

Posted by PITHOCRATES - January 18th, 2014

Week in Review

The December jobs report was pretty bleak.  It showed that the unemployment rate fell to 6.7% and that the economy added 74,000 jobs.  Not great but good enough for some who say that President Obama’s policies are finally working after 5 some years of trying.  Which is ridiculous.  Because that unemployment rate doesn’t tell you how many people lost their jobs.  And how many people disappeared from the civilian labor force as they gave up trying to find work that just isn’t there.  Which hides the number of people who lost their jobs.  Because the Bureau of Labor Statistics doesn’t count anyone as unemployed if they are no longer looking for work.  But if you dig down into the jobs report you’ll find this data.  And see that for every person that entered the labor force about seven people left it in December (see The BLS Employment Situation Summary for December 2013 posted January 13th, 2014 on PITHOCRATES).  Which is anything but an economic recovery.

All during the Obama presidency the Federal Reserve has been stimulating the economy.  Right out of the Keynesian handbook.  By keeping interest rates near zero to encourage people to borrow money to buy things they don’t need.  But few have.  No.  The only people borrowing that money are rich investors.  Who are borrowing this ‘free’ money to spend in the stock market.  Helping Wall Street to do very well during the worst economic recovery since that following the Great Depression.  While Main Street sees their median family income fall.  Still the chairman of the Federal Reserve, Ben Bernanke, thinks he did a heck of a job (see Bernanke Says QE Effective While Posing No Immediate Bubble Risk by Jeff Kearns and Joshua Zumbrun posted 1/16/2014 on Bloomberg).

Bernanke is seeking to define his legacy before stepping down on Jan. 31. During his eight-year tenure as leader of the Fed he piloted the economy through a financial crisis that led to the longest recession since the 1930s. He has tried to bolster growth by holding the target interest rate near zero and pushing forward with unprecedented bond buying known as QE.

“Those who have been saying for the last five years that we’re just on the brink of hyperinflation, I think I would just point them to this morning’s CPI number and suggest that inflation is not really a significant risk of this policy,” Bernanke said, referring to a Labor Department report showing the consumer price index rose 1.5 percent in the past year. The Fed has set an inflation target of 2 percent…

The Federal Open Market Committee (FDTR) announced plans last month to reduce monthly purchases to $75 billion from $85 billion, citing improvement in the labor market. The jobless rate last month fell to 6.7 percent, a five-year low.

The only reason why we don’t have hyperinflation is that everyone has depreciated their currency so much to boost exports and pay for bloated welfare states that all currencies are losing value.  And of all these bad currencies the American currency is the least bad of the lot.  Which is why some foreign nationals will pay to park their money in American banks.  Because the risk of it losing its value is so much greater in their home country.

But that doesn’t mean inflation hasn’t reared its ugly head in the US economy.  Just go to a grocery store and look at a bag of chips.  Or a box of cookies.  Or any packaged item that didn’t seem to get overly expensive during the Obama recession. A bag of chips may be the same $3-4 it was before the recession.  But notice the size of the bag.  It’s gotten smaller.  So, yes, consumer prices have not shown great inflation.  But packaging has gotten smaller.  So instead of paying more for the same quantity we are paying the same price for a lesser quantity.  Which means we may be buying 4 of something in a month instead of 3 of something.  It adds up.  Which is why there are so many more people on food stamps.  The Bernanke inflation is taking more of our paycheck to buy what it once did.

The economy is horrible.  Fewer people are in the labor force with each jobs report.  Our grocery packaging is shrinking.  And once the Fed stops its bond buying the stock market is going to fall.  A lot.  For every time rich investors think the economic data will show solid economic activity what do they do?  They sell their stocks.  Causing a stock market fall.  Why?  Why would investors leave the stock market when the data say the economy is getting stronger?  Which seems to go against common sense?  Because they know there’s been only one thing helping them get rich during the Obama presidency.  That ‘free’ money.  Once that source of cheap money goes away they will sell before those inflated stock prices fall back to earth.

The Obama recovery.  Good for Wall Street.  Bad for Main Street.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , ,

Oil Trains Derail as President Obama tries to Enrich his Rich Billionaire Friends

Posted by PITHOCRATES - January 4th, 2014

Week in Review

If there are two things President Obama doesn’t like they are rich people and oil.  Well, at least he acts that way.  Espousing more concern for the working man.  And clean energy.  Which is why President Obama said “no” to the Keystone XL pipeline.  Or could there have been another reason (see BNSF opens North Dakota track as oil by rail faces more scrutiny by Nicholas Sakelaris posted 1/2/2014 on the Dallas Business Journal)?

Burlington Northern Santa Fe re-opened the double track Thursday morning outside Casselton, N.D., where an oil train collided with a grain train, causing a massive fireball-like explosion earlier this week…

Fort Worth-based BNSF hauls an estimated 750,000 barrels of crude oil per day. The railroad carried an estimated 100 million barrels of crude oil out of the Bakken in 2012, a massive increase from previous years.

You know who owns Burlington Northern Santa Fe (BNSF)?  Warren Buffett.  For BNSF is a wholly owned subsidiary of Berkshire Hathaway.  So Warren Buffet is profiting greatly from President Obama’s rejection of the Keystone XL pipeline.  One can’t help to wonder if that has anything to do with the Buffett Rule (see Buffett would profit from Keystone cancellation by Dave Boyer posted 1/24/2012 on The Washington Times).

Warren Buffett, whom President Obama likes to cite as a fair-minded billionaire while arguing for higher taxes on the wealthy, stands to benefit from the president’s decision to reject the Keystone XL oil pipeline permit.

Mr. Buffett’s Berkshire Hathaway Inc. owns Burlington Northern Santa Fe LLC, which is among the railroads that would transport oil produced in western Canada if the pipeline isn’t built…

If completed, the $7 billion Keystone XL would deliver 700,000 barrels a day of crude from oil sands in Canada to Texas refineries on the coast of the Gulf of Mexico. It would traverse about 1,600 miles.

The State Department’s review of the project said shipping oil via rail is more costly than delivering it to refineries by pipeline.

Mr. Obama often cites Mr. Buffett as an example of a civic-minded billionaire because the entrepreneur has said he should pay a higher tax rate than his secretary. Mr. Buffett and the president like to tell the story of how Mr. Buffett pays a 15 percent effective tax rate, while his secretary pays a higher rate even though she earns only a fraction of what he does.

The president has called his push for higher taxes on the wealthy the “Buffett rule.”

Funny.  Warren Buffett says we should tax rich people more and the Keystone XL pipeline doesn’t get built.  Instead that oil goes on Buffett’s trains.  Making him a lot of money.  Just like the president’s rich friends on Wall Street are making a lot of money.  Who have all gotten richer under the Obama presidency while median family income fell for Main Street.  So more oil is traveling across the country.  Some of which is derailing and soaking into our pristine environment.  Or exploding.  While rich people are getting richer.  And President Obama would have us believe he’s for the working man and clean energy.

It would seem President Obama is more for getting Democrat supporters rich than helping Main Street.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , ,

President Obama is Good for Wall Street but Bad for Main Street.

Posted by PITHOCRATES - December 8th, 2013

Week in Review

The unemployment rate fell from 7.3 to 7.0 in November (see Table A-1. Employment status of the civilian population by sex and age).  With the government reporting 203,000 jobs created.  The economy must be turning around.  Things are getting better.  Especially for rich people (see Not fully inflated posted 12/7/2013 on The Economist).

TALK of bubbles is in the air again. The Dow Jones Industrial Average has hit an all-time high. A loss-making technology firm (Twitter) has floated its shares on a flood of investor demand. Private-equity groups are buying companies using amounts of debt not seen since 2008. A record price (more than $50m) has just been set for a penthouse in Manhattan. A triptych by Francis Bacon became the most expensive piece of art sold at an auction when Christie’s flogged it for $142.4m last month. Robert Shiller of Yale University, who correctly identified bubbles in tech stocks in the late 1990s and in property in the 2000s, has expressed unease about giddy American share valuations.

All this suggests that wealthy investors have become increasingly confident.

The rich sure are getting richer under President Obama.  But that’s Wall Street.  Where if you have friends in Washington you do well.  And Wall Street has a lot of friends in the Obama administration.  But what about Main Street?  How are the rest of us doing?  Who don’t have friends in Washington looking out for us?  Well, when President Obama took office there were 80,507,000 that were NOT in the labor force.  Under the economic policies of President Obama this number rose to 91,273,000.  Meaning that President Obama has destroyed 10,766,000 jobs since he became president.  It will take another 53 months at this pace to replace the jobs President Obama’s policies destroyed.  Or 4.42 years.

This is how Main Street is doing.  Not good.   Unlike the rich.  Who are doing very well buying and selling assets by borrowing cheap money.  Courtesy of the Federal Reserve’s quantitative easing.  Basically printing money.  Making more of it available to borrow.  And because there is so much available to borrow interest rates are near zero.  Allowing the rich to borrow all the money they need to buy and sell assets with.  And as the Fed devalues the dollar it takes more of them to buy those assets.  Allowing the rich to reap huge profits when they sell.  Following the simple strategy of ‘buy low’ and ‘sell high’.  But that inflation also raises the prices of our groceries.  Which consume a larger portion of our paychecks.  Which makes us, those on Main Street, poorer.

President Obama.  Good for Wall Street.  Bad for Main Street.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , ,

The Dow Jones Industrial Average and the Labor Force Participation Rate from Ronald Reagan to Barack Obama

Posted by PITHOCRATES - May 21st, 2013

History 101

The DJIA and the Labor Force Participation Rate tell us how both Wall Street and Main Street are Doing

Rich people don’t need jobs.  They can make money with money.  Investing in the stock market.  When you see the Dow Jones Industrial Average (DJIA) increasing you know rich people are getting richer.  Whereas the middle class, the working people, aren’t getting rich.  But they may be building a retirement nest egg.  Which is good.  So they benefit, too, from a rising DJIA.  But that’s for later.  What they need now is a job.  Unlike rich people.  The middle class typically lives from paycheck to paycheck.  So more important to them is a growing job market.  Not so much a growing stock market.  For the middle class needs a day job to be able to invest in the stock market.  Whereas rich people don’t.  For a rich person’s money works enough for the both of them.

So the Dow Jones Industrial Average shows how well rich people are doing.   And how well the working class’ retirement nest eggs are growing for their retirement.  But it doesn’t really show how well the middle class is living.  For they need a job to pay their bills.  To put food on their tables.  And to raise their families.  So the DJIA doesn’t necessarily show how well the middle class is doing.  But there is an economic indicator that does.  The labor force participation rate.  Which shows the percentage of people who could be working that are working.  So if the labor force participation rate (LFPR) is increasing it means more people looking for a job can find a job.  Allowing more people to be able to pay their bills, put food on their tables and raise their families.

These two economic indicators (the DJIA and the LFPR) can give us an idea of how both Wall Street and Main Street are doing.  Ideally you’d want to see both increasing.  A rising DJIA shows businesses are growing.  Allowing Wall Street to profit from rising stock prices.  While those growing businesses create jobs for Main Street.   If we look at these economic indicators over time we can even see which ‘street’ an administration’s policies favor.   Interestingly, it’s not the one you would think based on the political rhetoric.

Wall Street grew 75% Richer under Clinton than it did under Reagan while Main Street grew 65% Poorer

Those going through our public schools and universities are taught that capitalism is unfair.  Corporations are evil.  And government is good.  The Democrats favor a growing welfare state.  Funded by a highly progressive tax code.  That taxes rich people at higher tax rates.  While Republicans favor a limited government.  A minimum of government spending and regulation.  And lower tax rates.  Therefore the Republicans are for rich people and evil corporations.  While the Democrats are for the working man.  Our schools and universities teach our kids this.  The mainstream media reinforces this view.  As does Hollywood, television and the music industry.  But one thing doesn’t.  The historical record (see Civilian Labor Force Participation Rate and Recessions 1950-Present and Dow Jones Industrial Average Index: Historical Data).

DJIA vs Labor Force Participation Rate - Reagan

The Democrats hated Ronald Reagan.  Because he believed in classical economics.  Which is what made this country great.  Before Keynesian economics came along in the early 20th Century.  And ushered in the era of Big Government.  Reagan reversed a lot of the damage the Keynesians caused.  He tamed inflation.  Cut taxes.  Reduced regulation.  And made a business-friendly environment.  Where the government intervened little into the private sector economy.  And during his 8 years in office we see that BOTH Wall Street (the Dow Jones Industrial Average) and Main Street (the labor force participation rate) did well.  Contrary to everything the left says.  The DJIA increased about 129%.  And the LFPR increased about 3.4%.  Indicating a huge increase of jobs for the working class.  Showing that it wasn’t only the rich doing well under Reaganomics.  The policies of his successor, though, changed that.  As Wall Street did better under Bill Clinton than Main Street.

DJIA vs Labor Force Participation Rate - Clinton

Despite the Democrats being for the working man and Bill Clinton’s numerous statements about going back to work to help the middle class (especially during his impeachment) Wall Street clearly did better than Main Street under Bill Clinton.  During his 8 years in office the LFPR increased 1.2%.  While the DJIA increased 226%.  Which means Wall Street grew 75% richer under Clinton than it did under Reagan.  While Main Street grew 65% poorer under Clinton than it did under Reagan.  Which means the gap between the rich and the middle class grew greater under Clinton than it did under Reagan.  Clearly showing that Reagan’s policies favored the Middle Class more than Clinton’s policies did.  And that Clinton’s policies favored Wall Street more than Regan’s did.  Which is the complete opposite of the Democrat narrative.  But it gets worse.

The Historical Record shows the Rich do Better under Democrats and the Middle Class does Better under Republicans

The great economy of the Nineties the Democrats love to talk about was nothing more than a bubble.  A bubble of irrational exuberance.  As investors borrowed boatloads of cheap money thanks to artificially low interest rates.  And poured it into dot-com companies that had nothing to sell.  After these dot-coms spent that start-up capital they had no revenue to replace it.  And went belly-up in droves.  Giving George W. Bush a nasty recession at the beginning of his presidency.  Compounded by the 9/11 terrorist attacks.

DJIA vs Labor Force Participation Rate - Bush

The LFPR fell throughout Bush’s first term as all those dot-com jobs went away in the dot-com crash.  Made worse by the 9/11 attacks.  As all the malinvestments of the Clinton presidency were wrung out of the economy things started to get better.  The LFPR leveled off and the DJIA began to rise.  But then the specter of Bill Clinton cast another pall over the Bush presidency.  Clinton’s Policy Statement on Discrimination in Lending forced lenders to lower their lending standards to qualify more of the unqualified.  Which they did under fear of the full force and fury of the federal government.  Using the subprime mortgage to put the unqualified into homes they couldn’t afford.  This policy also pressured Fannie Mae and Freddie Mac to buy these toxic subprime mortgages from these lenders.  Freeing them up to make more toxic loans.  This house of cards came crashing down at the end of the Bush presidency.  Which is why the DJIA fell 19.4%.  And the LFPR fell 2.1%.  Even though the economy tanked thanks to those artificially low interest rates that brought on the subprime mortgage crisis and Great Recession both Wall Street and Main Street took this rocky ride together.  They fell together in his first term.  Rose then fell together in his second term.  Something that didn’t happen in the Obama presidency.

DJIA vs Labor Force Participation Rate - Obama

During the Obama presidency Wall Street has done better over time.  Just as Main Street has done worse over time.  This despite hearing nothing about how President Obama cares for the middle class.  When it is clear he doesn’t.  As his policies have clearly benefited rich people.  Wall Street.  While Main Street suffers the worst economic recovery since that following the Great Depression.  So far during his presidency the LFPR has fallen 3.7%.  While the DJIA has risen by 86%.  Creating one of the largest gaps between the rich and the middle class.  This despite President Obama being the champion of the middle class.  Which he isn’t.  In fact, one should always be suspect about anyone claiming to be the champion of the middle class.  As the middle class always suffers more than the rich when these people come to power.  Just look at Venezuela under Hugo Chaves.  Where the rich got richer.  And the middle class today can’t find any toilet paper to buy.  This is what the historical record tells us.  The rich do better under Democrats.  And the middle class does better under Republicans.  Despite what our schools and universities teach our kids.  Or what they say in movies and television.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

President Obama and his Keynesian Policies are Working on a Lost Decade just like Japan’s

Posted by PITHOCRATES - May 19th, 2013

Week in Review

In the Eighties Japan Inc. was going strong.  The Japanese economy roared.  And the Nikkei soared.  The Japanese had more money than they knew what to do with it.  So they started buying U.S. assets.  People feared that Japan would one day own America.  And urged that we had to follow their lead before it was too late.  The American government should partner with business like in Japan.  So smart bureaucrats could maximize economic output.  Instead of leaving it to inefficient market forces.

But Japan Inc. was state capitalism at its worse.  Instead of letting the market determine the allocations of scarce resources that have alternate uses the government stepped in with their crony capitalist friends.  Leading to corruption.  And a lot of malinvestments.  Money invested poorly.  Causing great asset bubbles.  That burst in the Nineties.  Where Japan Inc. was replaced by the Lost Decade.  A decade or more of deflation.  To wring out all the inflation the government fueled with their artificially low interest rates that caused all of that malinvestment.  And those asset bubbles.  If you’re too young to have lived during this you can still see it in action.  This time in the United States (see The U.S. looks like Japan: Investors rejoice by Paul R. La Monica posted 5/16/2013 on CNNMoney).

The U.S. economy is still not close to being fully recovered from the Great Recession, but investors could give a mouse’s posterior about this sad fact…

…Consumer prices fell for the second straight month. The absence of runaway inflation is of course a good thing, especially when you consider that the Federal Reserve has pumped an inordinate amount of money into the system with its asset purchase programs. But if prices continue to dip, that’s a big problem. Deflation is much worse than mild inflation. Just ask Japan.

Ah yes, Japan! It has taken steps to combat deflation with a vengeance this year. The Bank of Japan’s stimulus, dubbed Abenomics in honor of the country’s prime minister, is like the Fed’s quantitative easing…on steroids.

There’s the rub. The longer that the U.S. stays in tepid growth mode — what I’ve been calling the “low and slow barbecue recovery” since 2010 — the comparisons to Japan will only increase. After all, the U.S. also has an aging population and a large government debt load. The Great Recession ended in June 2009 and here we are in May 2013 still with a lackluster recovery. So we’re almost halfway to our own Lost Decade…

The problem here is Keynesian economics.  It was Keynesian economics that got Japan into the mess they’re in by playing with interest rates to stimulate artificial economic activity.  But Keynesians are like drunks.  They think a little hair of the dog can cure their hangover.  So they binge again on artificially low interest rates to create more artificial economic activity.  Which will end the same way.  As it ended in the Nineties.  A long painful deflation to wring out all of that inflation they pumped into the economy.  Just as the Americans will go through.  Because Keynesians dominate their monetary policy, too.

Even though there are many smart people, including members of the Fed, who are worried that QE ∞ will eventually cause a huge inflation headache and create more nasty asset bubbles down the road, the market doesn’t expect the Fed to pull back on its easing anytime soon…

That’s why stocks could keep climbing. It doesn’t matter that the economy is not healthy enough to make most average consumers feel better. Wall Street only cares about the Fed.

This can’t last forever, of course. Sooner or later, the economy is either going to slow so much that we have to start worrying about another recession (and no amount of stimulus will help prevent a market pullback if that happens) or the economy will start showing signs of a legitimate, sustainable and robust recovery. In that latter case, the Fed will have no choice but to end QE and start raising interest rates.

But for now, at least, investors can enjoy the fact that the United States is basically morphing into Japan Lite. Who cares about the health of the economy as long as central banks keep those printing presses running 24/7/365? Joy.

The selling point of Keynesian economics was eliminating the recessionary side of the business cycle.  So it is interesting that some of our worse recessions have been in the era of Keynesian economics.  I mean, that’s what the New Deal was.  Keynesian.  And what did it give us?  The Great Depression.  Why?  Why are the recessions so painful in the era when they were supposed to be less painful?  Because all Keynesian economics does is to delay economic corrections.  By delaying the onset of recessions.  And because it delays the correction it allows a bubble to grow greater.  So when the correction comes prices have farther to fall.  Which makes a recovery in the Keynesian era more drawn out.  And more painful.  Unless you like your recessions to last a decade.  Or more.

So while Main Street America continues to suffer under President Obama’s Keynesian policies Wall Street is doing just fine.  As rich people always do when partnering with government.  Only Main Street suffers the fallout of their Lost Decades.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , ,

Wall Street doing Very Well under President Obama while Main Street Continues to Suffer

Posted by PITHOCRATES - May 18th, 2013

Week in Review

The Dow Jones Industrial Average is at a record high.  The unemployment rate fell one tenth of a percentage point in April.  Nonfarm payroll employment rose by 165,000 in April.  And interest rates are still so low that they are almost negative.  Good news for Wall Street.  And rich investors (see Revised Wall Street Forecast: We’re All Going to Be Rich by Kyle Stock posted 5/13/2013 on BloombergBusinessweek).

Whether, the country’s 500 biggest companies are collectively worth that much is another question. Goldman says most of its own valuation engines show the market is currently at or above where it should be trading. In other words, eager buyers are keeping it high. Low interest rates are spurring things along, as investors borrow increasingly large sums to place bigger bets.

That’s not to say some people aren’t nervous about the recent gains. “It’s one big carry trade, and all it’s doing is setting us up for a bigger correction,” says Joseph Saluzzi, partner and co-founder of Themis Trading, an institutional brokerage firm that specializes in equities. “Whether it’s going to be a week from now or a year from now, I don’t know; but it’s going to be ugly.”

President Obama has been saying for years now that the economy has turned around and things are getting better.  But better for who?  Wall Street.  Not Main Street.  The 1%.  Not the 99%.   Things are still pretty horrible for the 99%.  The unemployment rate may have fallen in April but the labor force participation rate hasn’t budged from March.  It’s still at record lows.  You have to go all the way back to President Carter’s Seventies to find so many people unable to find full time work.  That’s right, even George W. Bush had better economic numbers throughout his presidency.  And he suffered through a couple of recessions.  And the greatest terrorist attack on American soil.  So things aren’t getting better.  They’re only getting better for the 1%.  Who are borrowing that cheap money the government is printing to make more money.  While the general economy languishes in the worst recovery since that following the Great Depression.

And it gets worse.  Once the markets correct all of that irrational exuberance the economy is going to crash.  Hard.  Just as it always does after artificially low interest rates push stock prices into the stratosphere.  And “it’s going to be ugly.”  As it always is.  And the longer they keep those interest rates artificially low the uglier the inevitable correction will be.  When the correction comes it will be the 99% that will suffer the most.  As they always do.  As even more people will be unable to find a full time job.  Pushing the labor force participation rate even lower than it ever was in the Seventies.  This is what President Obama is doing to the 99%.  While he and his 1% friends are living large.  And will continue to live large after the crash.  Just as Hugo Chavez was able to live large in a country that couldn’t even make enough toilet paper for its people.  Because rich people and those in government always do well.  No matter what they do to the people.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , ,