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alstry (35.52)

Where are we going?

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September 15, 2009 – Comments (4)

It seems strange that government and banking officials would even utter the words "jobless recovery" when we have become a domestic consumer based economy dependent on jobs tp function.

It would be one thing if we were an export economy and produced stuff to sell to others, like Japan...we used to be, but we are not anymore , we are an economy almost exclusively dependent on our citizens and government to consume.  We can only consume if we have jobs.

If Americans don't consume, America has basically no economy and the world has serious issues.

BAE Systems to Cut 1100 U.K. Jobs

JAL to Cut 14% of Work Force

Chrysler sales are expected to fall sharply in September

Volvo Aug. truck deliveries down 52%

The above are merely a sample of headlines in today's news.  Based on recent headlines, it appears the job cuts are accellerating...not just in America, but around the world.  The declining tax receipts seem to support this thesis.

The more jobs that are cut, the fewer that can spend...and with many who own homes, pay property taxes and health insurance, own autos etc...the minimum monthly expenses in America can be burdensome with no employment and little prospect for income.

We are seeing mortgage defaults growing rapidly, this does not only distress the home with the defaulting mortgage, but impacts all the homes in the neighborhood.

Something just seems strange, we are constantly told things are getting better while the evidence directs that conditions are getting worse.  Not only that, as fewer are working, the tax receipts to government are continuing to decline as the expenses for government are government are growing.

Unless we lower the expense level of America for Americans...it seems like fewer and fewer will be able to make ends meet as more and more lose their jobs....any thoughts as the banks hoard money and interest rates are increasing for tens of millions of families?  The banks that we taxpayers bailed out and allowed to mark assets to myth.

Whatever you want to believe, it is getting clearer that as economic conditions deteriorate, stress and anger is rising.  It is important to be aware if this as sometimes less than rational behavior can result.

Again, this is not the end of the world...simply the end of the consumption economy and how do we deal with it?  Bail out Wall Street and let the people starve?

4 Comments – Post Your Own

#1) On September 15, 2009 at 7:12 AM, alstry (35.52) wrote:

Maybe this is where we are going???

WASHINGTON -- After a year of extraordinary interventions in the economy, the federal government is starting to pare its support for the private sector. It doesn't look that way to Peter Lansing, president of mortgage firm Universal Lending.

The Denver home lender sees every day how dependent the housing market has become on the government. At the height of the boom, just 20% of Universal's mortgages were backed by the Federal Housing Administration, an arm of the government that guarantees loans to borrowers who can't afford big down payments. Today, the FHA accounts for more than 80% of his business. For Mr. Lansing, this represents a new way of life -- more government, more paperwork, but also a lot of sales that wouldn't have happened otherwise.

"Over 29 years in business, we've always thought of ourselves as being in the free-enterprise system. Today I think of myself as a government contractor," Mr. Lansing says. "My business strategy is to get more of my employees to embrace that idea. Plan B would be to sell pencils on the corner."

The problem is if we are all government contractors, who is going to pay the government?

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#2) On September 15, 2009 at 7:57 AM, alstry (35.52) wrote:

Jobless recoveries only occur in production economies, NOT consumption economies.  Jobs come FIRST in consumption economies.

America used to be a production economy..then in the last ten years we switched to a borrow and consume economy.  Borrowing drove spending and spending drove jobs.

Banks are cutting off credit and raising interest rates...we used to borrow trillions of dollars per year in mortgages, HELOCs, credit cards, municipal loans, private equity deals, auto loans etc....

That borrowing drove trillions in spending, trillions in profits, and trillions in tax receipts...NOW it is gone and everything is crashing around us.

Very few industries are profitable any more...and those that are depend on government spending to earn profits.  Airlines, Autos, Banking, Home Construction....all money losing businesses.

If consumers aren't spending, we have no economy.  And if consumers can't borrow, they MUST have jobs.

From Manpower Survey:

When seasonal variations are removed from the data, the results suggest that employers expect a slight decrease in the rate of hiring when compared to Quarter 3 2009.

Employers across all regions anticipate a considerable decrease in hiring activity compared to one year ago.

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#3) On September 15, 2009 at 8:30 AM, alstry (35.52) wrote:

HERE IS A GOOD PERSPECTIVE FROM DENNINGER

Gee, it took this long for someone over on the other side of the pond to figure it out?

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

You're the one who's mad.

The problem isn't lending capacity.  Lord knows with a doubling of base bank reserves at The Fed there is plenty of "money" (credit or debt) available to be lent out.

The problem is that there are no qualified borrowers.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

It is unclear why the US Federal Reserve has allowed this to occur.

Bernanke has no choice.

He would (certainly) prefer this not occur.  What would you call a zero percent Fed Funds rate and printing new bank reserves like a madman?

But just as occurred in the 1930s, Bernanke cannot change the dynamic because there are no willing and able borrowers left.

THAT is the dynamic that sets off deflation and makes it pervasive.  This is the condition that Bernanke has ignored and claimed does not exist, but the fact remains that it does.

It is the dynamic that I identified more than two years ago in April of 2007 when I showed analysis right here on The Market Ticker talking about the "terminal shift" of consumer borrowing onto credit cards in a desperate attempt to keep the game going.

Bernanke, Geithner, Paulson, Bush, Obama.

All have gotten this mess dead flat wrong.

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#4) On September 15, 2009 at 8:45 AM, jason2713 (< 20) wrote:

But retail numbers are sky rocketing, even without cash for clunkers, not all hope is lost :)

The market chug, chug, chugs along.

Dow 10,000 here we come. 

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