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alstry (36.24)

Why Alstry Focus on Unemployment.....and declining income

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May 06, 2009 – Comments (18)

About 2/3 of the American Economy is consumer based.

Consumer Spending is the lubricant which drives revenues, profits, and taxes for government.

Without Consumer Spending, there would be no revenues, without revenues there would be no profits, without profits there would be little in tax revenues.

In essence....a strong consumer base is necessary for a strong economy.

A key propellent for Consumer Spending is income....and a positve outlook for future income. Without income, spending is curtailed substantially... and if spending cuts back enough....our entire economy comes to a grinding halt.

Over the past 10 years, borrowing money was a key reason consumers were able to spend.  Consumer Spending is what drove our economy and flooded government with tax revenues.  In addition, creating debt was the key reason banks and other financial institutions were profitable. 

Now, by and large, the consumer is tapped out........the consumers over borrowed and the banks over lent.....as a result spending is slowing, businesses are shutting down, and workers are getting fired by the millions as evidenced by the parabolic rise in first time unemployment claims in recent months.

No matter what anyone in Washington says, banks are now reluctant to lend and are increasingly tightening the noose around consumers.  In addition to losing their jobs, millions of consumers are losing access to credit further exacerabating the most severe slowdown since The Great Depression.

The difference was back then, consumers didn't have nearly as much debt as they do today.  So far we have only really seen the brunt of sub prime defaults......now we are begining to see Prime loans defaulting at ever increasing rates.  At this point we are probably in the second or third inning of a nine inning baseball game.

Back to jobs.....almost every company in America is either cutting workers, cutting wages, or instituted hiring freezes.  In the past, slowdowns were generally limited to one sector or one region.....not this time.....no sector or region is immune.

As a result, when a worker gets fired, it is much more difficult to get rehired....even if the person gets retrained as fewer and fewer companies are hiring.

The joke today is that our government tells us the unemployment rate is limited to only those workers collecting unemployment benefits....a small fraction of the modern workforce.  The widely reported statistic does NOT include workers who have been unemployed so long as to not be eligible for unemployment benefits, independent contractors like real estate agents or other self employed professionals not working, or service workers or commission based workers(ie salespeople and waitstaff) who have seen their incomes drop by 50% or more due to a slowing of business.

These silent suffering were injecting HUGE revenues into our economy a few years ago and responsible for billions in tax revenues.  Alstrynomics estimates that at least 10% of the workforce fits into this catagory and currently functionally unemployed (unable to meet their fixed monthly expenses) but not counted in the Department of Labor U3 stats.

If they were counted, reported unemployment rates would likely be closer to 18-19% and not the 8.5% reported by the mainstream media.  Alstrynomics is unaware of anytime in history that so many people, who were dependent on commissions have seen their incomes evaporate to the degree that so many have experienced in the past 12 months......and conditions are continuting to deteriorate.

Without a strong consumer....America  can't have a strong  economy.  Right now millions of consumers are infected or on the brink of contracting the FU virus.....once infected....the chance for recovery is slim as there is a decreasing chance of finding replacement employment or accessing credit.

When enough consumers are infected....our economy dies.  And right now....the virus has been elevated to a pandemic.  Prepare.

18 Comments – Post Your Own

#1) On May 06, 2009 at 10:32 PM, alstry (36.24) wrote:

Maybe a good ole World War would take everyone's mind off their evaporating incomes........

TBILISI (AFP) – NATO kicked off controversial military exercises in ex-Soviet Georgia on Wednesday as tensions spiked in relations with neighbouring Russia over Moscow's expulsion of two alliance diplomats.

Launched a day after Georgia accused Russia of backing a brief military mutiny that allegedly included a plot to assassinate President Mikheil Saakashvili, the exercises have strained ties between the Cold War-era rivals.

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#2) On May 06, 2009 at 10:47 PM, Buckaneer (< 20) wrote:

Alstry,

You are RIGHT. The naive bulls will won't learn till it's too late. Wow, amazed at how people ignore the obvious. I REMEMBER the drive from 11,000's back to 12500's and the same bullish arguments were bieng made. It just means we are getting close. At between 950 and 1050 on S&P I am going short.

 Bucky

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#3) On May 06, 2009 at 11:03 PM, doctorpeer (43.69) wrote:

I'm afraid you're right, on the account that employment=spending=profits=taxes.  Also, that borrowing=spending=profits=taxes.  Also, employment=borrowing.  However, unemployment=borrowing as well.

So?  I hate to say the same thing I've said 20 trillion times, but I will anyway.  It's high time that government as a whole did something useful, stopped putting quick bandaids over severe life-threatening injuries, and stepped back and though about the problem before beginning serious surgery.  What?  Yea, try thinking about the problem, the overall problem, before proceeding with short-term futile solutions.  How do you keep unemployment down?  Create employment.  Ok, so the short-term futile solution was shovel-ready make-work programs, which is basically paying people to not riot.

  What about removing obstacles to employment?  We don't make anything anymore.   Why?  Because making things in USA is at the least stupid, at the best expensive.  Pollution controls, unionism, NIMBY, tax rates, OSHA, all contributors to outsourcing.  Why not look at these factors, and how redicing the impact of each can attract manufacturers?  Manufacturing is generally the lowest common denominator, i.e. little education is needed, and most people could obtain and keep that job.

  What about removing obstacles to limiting credit?  So borrowing=spending, as we've agreed, but overborrowing simply means that sometime in the uncertain future, there must be paying back, which reduces spending sometime in the future.  Why not create some equilibrium, put severe penalties on bankruptcy, default, foreclosure, such that excessive borrowing (and the future impact on the overall economy) is very dangerous for the individual.  Right now, if you default, you get a bad credit rating.  So you get a loan from someone who has lesser standards, and perhaps ultimately the government.  If you default and go to prison (maybe manufacturing something), it might be likely there would be less overall debt.  You give up some deficit spending now in exchange for more certain future spending.

Also a World War always is a good stimulus package. 

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#4) On May 06, 2009 at 11:13 PM, alstry (36.24) wrote:

Bucky,

What we are dealing with is something far more serious than simply an S&P at 900 or 1200....or 200

tens of millions of Americans have recently been confronted with substantial wage reductions.....business owners, auto salesmen, mortgage brokers, real estate agents, plumbers, carpenters, electricians, lawyers, plastic surgeons, waiters and waitresses, pilots, auto workers.....etc......

many of these people are very leveraged and are simply spending down their savings or tapping credit lines to meet budget......soon their savings and credit lines will end and tens of millions of Americans are on the brink of contracting the FU virus....

when they do become infected, it will affect other businesses and millions of additional employees.

Our banking system is now insolvent and simply functioning because it is on life support from the government.....while few life lines are being extended to anyone but banks.....

As a result, we have foreclosures rising to record levels....week after week an additional 600K workers filing for unemployment for the first time.....and wages decreasing for millions of additional workers...

Now government does not have enough money to meet budget, citizens don't have enough to make minimum payments, and business is slowing to levels where fixed costs can't be met.

Basically, the service based economic system of America is broken.....we cannot grow our way out of this mess through exports like Japan.....and we can't do it through domestic consumption due to leverage being maxed out.....

If we continue to maintain the Zombie Bank policy......the banks will suck all of the funds out of the economy and little will be left for the consumers or commerce in America....in effect...
America will shut down and few will control all the resources of our nation......whether we like it or not.

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#5) On May 06, 2009 at 11:18 PM, nuf2bdangrus (< 20) wrote:

Employment is dropping at the local government level becauuse they cannot carry defecits to finance hiring.  Those defecits are because they have too many contingent liabilities which were based on projections of ever increasing tax revenue.  Trouble ahead.

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#6) On May 06, 2009 at 11:18 PM, alstry (36.24) wrote:

doctor,

What is the penalty for dispensing trillions and trillions of toxic loans to borrowers you know or should have know couldn't pay you back?

How about trillions and trillions in compensation from your buddies at the Fed and Treasury as citizens are cancelling health insurance and selling jewlery to survive.

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#7) On May 06, 2009 at 11:19 PM, StopLaughing (< 20) wrote:

One small problem. You can get Keynesian Econ to work in the short run. When consumers and businesses are not spending, the government can spend to take up the slack. They can do that until they run out of borrowing power or destroy the currency. 

The government can hire. They also can inflate. By definition you can't have classic deflation and inflation at the same time.  The goverment can buy time by trading deflation for stagflation.

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#8) On May 06, 2009 at 11:23 PM, doctorpeer (43.69) wrote:

Bad part about hiring (or not hiring) based on projections is that internal systems (like workforce retention) fall apart when that hiring doesn't happen.  At my company, very late winter is historically the time that we hire.  Usually we hire 20% of the staff at this time, and it replenishes losses from the winter due to voluntary quits, firings, layoffs that never returned, etc.  Of those hires, at least 20% become long-term (5 years and more), and 5% become champions that stay a very long time and find themselves in high levels with the company.  Without that initial pool, you still have all the anti-retention forces, and needs to promote, all of which leave you with a broken growth system.  Not good for cyclical hiring companies.

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#9) On May 06, 2009 at 11:28 PM, doctorpeer (43.69) wrote:

Irresponsible lending is as bad as and should be penalized the same way that irresponsible borrowing ought to be.  Two forces that contribute to irresponsible lending are greedy lenders and treehugging hippie government types that wish that everyone can live in a house no matter if they can afford one or not.  Both things need to stop or be stopped.

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#10) On May 06, 2009 at 11:31 PM, alstry (36.24) wrote:

There is no way for the federal government, 1/3% of GDP to make up by spending more for evaporating revenues affecting 2/3% of the GDP....especially when the 1/3 gets most of its revenues from the 2/3.

If our government attempted to pursue such a path....the dollar will implode, interest rates will skyrocket, and practically every citizen in the nation will starve to death as a result of hyperinflation.

 

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#11) On May 06, 2009 at 11:41 PM, MikeMark (29.52) wrote:

It's interesting (and disgusting) to me that people think that war has any kind of stimulus effect. How can destroying assets both human and physical have any kind of stimulus effect? People seem to believe that the US was strengthened economically because of WWII. However, consider that it has been at the expense of every other country in the world!

The only way a world war makes a good stimulus package is when every economy except your own relatively good one gets destroyed. Since we currently don't have a relatively good economy and our weak economy is heavily dependent upon other economies, that option won't work. 

It is time to return to a properly functioning economy with a properly functioning government. It's time to  remove the warfare/welfare state. Government should do very little: protect the people, protect private property, protect freedom, ensure the rule of law, otherwise get out of the way. Really government shouldn't even have any control over monetary systems, other than to eleminate fraud, because government always wants to abuse the monetary system in its favor. When it does that, it eventually creates economic slavery. The middle class disappears, the rich rule and the poor work. The Constitution of the united States of America was created to prevent that.

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#12) On May 06, 2009 at 11:56 PM, StopLaughing (< 20) wrote:

Two small problems.

The government gets it's money in the short run from several sources including deficits so it can make up for reduced spending by the 2/3 who pay into the government (most don't pay much). Besides consumer spending is down very little and government spending is up a lot. Most of the recent GDP decline in is business. They got very lean very fast and are doing better than expected (profits) and are also starting to restock.

Those are just the Keyensian effects (the weak left arm). Money theory  (the strong right arm) is just starting to kick in solidly now. The economy is not dependent on unemployment except in the very long run.  At worse we have high unemployment with inflation (review the Reagan years). You could also see parts of Carter and Bush 1. 

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#13) On May 07, 2009 at 12:51 AM, ralphmachio (26.83) wrote:

A dramatic reassessment of the situation is approaching, but the economy is only going to be a part of it. Nobody seems to be ready to question the necessity of taxes, employment, or the dominator culture that has been crushing the human spirit, so my guess is, everyone will catch the FU, most will perish, and whoever is spared will create a new happy culture, where debt is not even a word worth uttering. Those left will not be concerned with labels, such as tree hugger, or any other inane label, because those that would use such a label would be remanded to a fenced in work facility in wyoming, powered by wind. Someone would have to make TP for the enlightened ones of the new golden age, and they seem to have a good work ethic.

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#14) On May 07, 2009 at 1:25 AM, StopLaughing (< 20) wrote:

Alstry's major premise is basically Marxist. It is a variation of the labor theory of value.

In other words his theory is woefully incomplete and leaves out a lot of major variables and interactions. It is an over simplification of reality (most theories are).

There are a lot of things the help to create GDP beside labor (employment). You can have both high unemployment and high GDP in both the short and longer run. 

The stock market is not directly connected to labor (unemployment). You can have relatively high stock prices due to labor saving productivity gains and high unemployment at the same time.

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#15) On May 07, 2009 at 1:41 AM, awallejr (79.57) wrote:

Alstry is a Marxist!!!!!!!!!!

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#16) On May 07, 2009 at 3:23 AM, kaskoosek (79.63) wrote:

Alstry

Why does the government care about the revenue side?

 

They can print it and cause inflation. That is how it works with qauntitative easing. 

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#17) On May 07, 2009 at 12:05 PM, jddubya (< 20) wrote:

What just happened?  I agree with most of this blog - it clearly explains Alsty's thinking... but it lacks that certain style that only Alstry can bring to the table.

 

Hmmmm... what a... conundrum?  That character that many love to hate has powered down?

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#18) On May 07, 2009 at 2:52 PM, alstry (36.24) wrote:

Not for long....it is sometimes hard to stay in character.

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