Tag Archives: economy

WHO’S RIGHT?

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Obama has an economic track record that Republicans are going to be hard pressed to ignore.   Unemployment is down to 5.6%, the economy continues to grow at a healthy pace and deficits have plummeted.

Eugene Robinson, syndicated columnist, Lansing State Journal, 2/5/15

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If you, a family member or anyone is unemployed and has subsequently given up on finding a job, if you are so hopelessly out of work that you’ve stopped looking over the past four weeks, the Department of Labor doesn’t count you as unemployed.   That’s right.   While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news — currently 5.6%.   Right now, as many as 30 million Americans are either out of work or severely underemployed.   Trust me, the vast majority of them aren’t throwing parties to toast “falling” unemployment.

There’s another reason why the official rate is misleading.   Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager:   If you perform a minimum of one hour of work in a week and are paid at least $20 – maybe someone pays you to mow their lawn — you’re not officially counted as unemployed in the much-reported 5.6%.   Few Americans know this.

Yet another figure of importance that doesn’t get much press:   those working part time but wanting full-time work.   If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find — in other words, you are severely underemployed — the government doesn’t count you in the 5.6%. Few Americans know this, either.

There’s no other way to say this.   The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.

                                                                 Jim Clifton, CEO, Gallup

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LESSONS FROM WEIMAR

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At the birth of the euro, The Economist magazine reminded readers that one of the great lessons of history is that paper money eventually always fails.

That doesn’t just go for the euro – it applies to dollars and pounds, too.

One way it fails is through hyperinflation.

We tend to think that hyperinflation only happens in banana republics like Zimbabwe, Ghana, and Argentina, forgetting that we also like bananas.  It can happen here, too.

It happened in Germany.

After fighting and losing World War One, Germany entered a period known as the Weimar Republic.  Its constitution was written in Weimar, a city 50 miles from Leipzig.

The victorious powers made the great mistake of forcing Germany to pay reparations after the war.  The French, in particular, insisted on their neighbor paying for everything – even invading the German industrial heartland, with assistance from Belgium, in 1922.  If the Germans wouldn’t hand over their wealth, they were simply going to take it!

All the main participants in the war suffered greatly.  This does not include the United States, as America was only a factor in the closing months of the conflict.  The established order in Russia, Germany and Austria-Hungary was overthrown, replaced by chaos and confusion.  Serious financial problems also developed as somebody had to pay for the war.

In most countries it was the working class that had to foot the bill.  In Germany, it was more the middle class.  Successive Weimar administrations – and none of them lasted very long – gave in to the workers’ demands rather than try to enforce fiscal discipline.   Additionally, Germany had the most generous welfare benefits in the world at the time, introduced by Otto von Bismarck in the 1880’s.  Together with reparations, the result was a high rate of inflation.

Hyperinflation is when inflation gets out of control and prices are increasing at more than 50% a month.  Very quickly, that becomes 50% per week, then 75% and 100%.   Eventually, workers have to be paid hourly in wheelbarrows full of money, which then has to be spent quickly before prices go up even further.

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The fixed-income middle class, professionals on salaries or pensions, soon suffers.   Skilled workers can often barter their skills for food.  In an attempt to control inflation, mistakes are made – freezing rents, for example, with resultant negative effects.

This was Germany in the early 1920’s.  By 1923, the situation was out of control.

The Downfall of Money explains all this very well.  The book is written by an Englishman named Frederick Taylor.  It shows clearly how World War One led inevitably to World War Two, via hyperinflation and the rise of right-wing parties, culminating in the Nazis coming to power.

When economies collapse, people look for simple solutions – jobs and food are far more important than constitutional niceties and democracy. 

The parallels in the United States and Great Britain today are disturbing.

Our governments are recklessly over-spending, borrowing to excess.  The US is printing an extra $85 billion per month, “quantitative easing” as it’s called.  This is enabling some to take advantage and make a lot of money, while the vast majority is finding it harder and harder to make ends meet.

Part of the justification involved in QE was the fear of deflation after the financial crash of 2008.  The value of homes dropped dramatically in the crash; some commodities have been dropping as the global economy enters a slump.  Deflation is the worst thing that can happen to an economy.  It’s almost impossible to stop the downward spiral.

Hyperinflation is the second worst thing that can happen.  One can lead to the other.  As central banks print money to avoid the one, it can inadvertently get out of control and hyperinflation can take over.

The end result is that almost everybody loses everything!  Those that gain by taking advantage of the situation also lose as the people will turn on them as they did in Germany.

“The Germany of the inflation was paradise for anyone who owed money.”  (The Downfall of Money, by Frederick Taylor, page 206)  A high rate of inflation reduces the amount of debt people owe.  “By the same token, this was a very bad time for creditors of all kinds, for savers, and for investors depending on a fixed return.  That meant large numbers of the old German middle and upper middle classes suffered a drastic, even catastrophic, fall in their standard of living.” Appropriately, chapter 21 of the book is titled:  “The Starving Billionaires.”

Inflation is not something new.  The prophet Haggai wrote about it 2,500 years ago.

“You have sown much, and bring in little; you eat, but you have not enough; you drink, but you are not filled with drink; you clothe yourselves, but no one is warm; and he that earns wages earns wages to put it into a bag with holes.”  (Haggai 1:6)

We all hope that hyperinflation is not the consequence of over-spending by the US, UK and other governments.  But it’s difficult to see how it can be avoided.  It seems as if the only way we can create greater wealth today is by printing more money – a recipe for inflation.  In turn, inflation can quickly get out of control, soon turning into hyperinflation.

It can all happen very quickly as it did in Zimbabwe a few years ago and in Germany in the 1920’s.

A spiritual lesson we should remember in these turbulent times is found in Matthew 6:19-21:  “Lay not up for yourselves treasures upon earth, where moth and rust does corrupt, and where thieves break through and steal.  But lay up for yourselves treasures in heaven, where neither moth nor rust does corrupt, and where thieves do not break through nor steal.  For where your treasure is, there will your heart be also.”

The Economist was correct with its warning of all currencies eventually collapsing.  It’s only a matter of time.  The accumulation of wealth may seem important, but clearly we need to be prepared for losing it all as did millions in Germany.  As Jesus Christ pointed out, treasures in heaven are more important and more reliable than treasures on earth!

US ECONOMY – GETTING IN DEEPER

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America needs a Margaret Thatcher!

Today is the day of her funeral.  It wasn’t broadcast on any of the main channels but I was able to watch it on the Wall Street Journal’s webpage, which I really appreciate.

If you are thinking that the US economy is improving, you should subscribe to the WSJ for the full picture.  It’s not a good one.

Mortimer Zuckerman, editor of US News and World Report and a wealthy real estate investor, wrote the following for the Journal recently:

“The present phase of our Great Recession might be called the Grand Illusion because all the happy talk and statistics that go with it, especially on the key indicator of jobs, give a rosier picture than the facts justify.  We are not really advancing.  We are, by comparison with earlier recessions, going backward.  We have a $1.3 trillion budget deficit.  And despite the most stimulative fiscal policy in our history and the most stimulative monetary policy, with a trillion-dollar expansion to our money supply, our economy over the last three years has been declining or stagnant.  From growth in annual GDP of 2.4 percent in 2010, we bumped down to only 1.8 percent in 2011 and were still down at 2.2 percent in 2012.  The cumulative growth for the last 12 quarters was just 6.2 percent, less than half the 15.2 percent average after previous recessions over a similar period of time.  It is the slowest growth rate of all the 11 post-World War II recessions.”  (“The Grand Illusion”, WSJ, 4/4/13).

What about jobs?  Isn’t the decline in the official unemployment figure a reflection of how much better things are?  Mr. Zuckerman continues:

“Still, can’t we take comfort in headlines celebrating the decline in unemployment to 7.7 percent?  Not really.  If you add in all the unique categories of people not included in that number, such as “discouraged workers” no longer looking for a job, involuntary part-time workers, and others who are “marginally attached” to the labor force, the real unemployment rate is somewhere between 14 and 15 percent.  No wonder it has been harder to find work during this recession than in previous downturns.

“Though last month we theoretically added 236,000 jobs, these numbers are misleading, too, because so many of the jobs are in the part-time, low-wage category.  So the backdrop to the most recent job numbers is the fact that multiple job-holders are up by 340,000 to 7.26 million.  In essence then, all of the “new” positions are going to people who already are working, mostly part time.  It is clearly more important to create jobs for people who aren’t.  Other aspects of the jobs picture deteriorated, too.  The pool of people unemployed for six months or longer went up by 89,000 to a total of 4.8 million, and the average duration of unemployment rose to 36.9 weeks, up from 35.3 weeks.

“Moreover, the decline in the unemployment rate to 7.7 percent is shaky.  It reflects the departure from the workforce of some 130,000 individuals.  A change in the denominator makes the unemployment numbers look better than they are.  The labor force participation rate, which measures the number of people in the workforce, also dropped to around 63.5 percent, the lowest in more than 30 years.  The workweek remains short at 34.5 hours.  Quite simply, employers are shortening the workweek or asking employees to take unpaid leave in unprecedented numbers, and these people are not included in the unemployment numbers.”

So, where is the US headed?

“State and local governments owe $7.3 trillion in promises they’ve made that were never approved by taxpayers”, wrote Steven Malanga in the WSJ, March 29th.  The title of the article was “The debt bomb that taxpayers won’t see coming.”  As Mr. Malanga points out, taxpayers “will ultimately bear the burden of the officials’ misdeeds.”  Most of the problem is unfunded commitments to state employees in pensions and healthcare.

Further signs of a deteriorating economy are reflected in another WSJ headline:  “Use of food stamps swells even as economy improves” (March 27th; article by Damian Paletta and Caroline Porter).  Enrollment in the free food program has soared 70% since the 2008 recession began.  Now, 47.8 million people are food stamp recipients.  Waiting in line at supermarket check-outs, the government issued light orange EBT credit card is now as common as other cards.  Another noticeable trend at the check-out line is the increasing number of people using cash, afraid of over spending on credit cards when they may lose their job next week or take a big pay cut.

Still another sign is the continuing housing crisis.  In our own county, Michigan’s Eaton County, foreclosures are at an all time high, meaning the economy is definitely not improving where we are.  “Eaton County sees record high foreclosures” ran the headline on the WLNS, channel 6 website April 10th.  This figure also disguises the fact that many more people are underwater, where they owe far more on their home than the house is worth.

The above are good reasons for needing a Margaret Thatcher, somebody willing to take unpopular measures to reduce government spending, lower taxes and boost the economy.  Instead, the United States is headed in the opposite direction.