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The Economy and 2010: What is your Resolution?

December 31, 2009

E.J. Manning

With the recent unexpected drop in jobless claims, an uptick in consumer spending and New Year mirth, you might expect that recovery is truly in the wings. Saner voices still ring the bell of reality. The U.S. Government and many others focus on percentages, which don’t paint the real picture at all. Just look at the unemployment situation on a month-to-month basis in the U.S. and what this really means for Americans and you will begin to get a clearer picture of economic reality beyond having millions of Americans use their credit cards for a month to spur the illusion of economic growth.

Nobel laureate economist, Joseph Stiglitz says that the U.S. economy will be permanently stunted if the government doesn’t do much more to create jobs and to invest in the nation’s potential. In recent testimony on Capitol Hill, Stiglitz said the economic crisis is far from over. Stiglitz believes that government must step up to the plate with another government stimulus including extending jobless benefits, aid to states, tax credits, direct government hiring, writing down of mortgage principle, and an obligation by banks to lend prudently to small businesses. The financial sector must be re-regulated and downsized which is still being strongly opposed by the banking community.

The nation is hardly out of the woods with a huge number out of work and some 49 million Americans hungry. The unemployment rate is hardly a real indicator of the jobless rate, nor of the pain and stress that Americans feel. We still live in a world of global deflation with large fiscal deficits that are likely to put pressure on dollar inflation. A massive wave of liquidity because of easy monetary policy is likely to stoke inflation further. Dollar-funded trading is pushing the US dollar sharply down, and there is an inverse relation between the value of the dollar and the dollar price of commodities: the lower the dollar, the higher the dollar price of oil, energy, and other commodities – including gold. Some economists like Nouriel Roubini believe that gold holds no “intrinsic value” and that investors would be better off stocking up on Spam to line their pantries.

Nouriel Roubini does have one tidbit of advice that seems to hold true. Smart people are going to be practical. They will use caution, keep their shelves stocked with what they really need while avoiding whimsical spending, often what is socially popular. This will sustain them for the near term while the recovery is under way instead of biting off on the notion that America should go back to acting like it did in 2007.  Perhaps when considering an important resolution for the New Year, 2010, you might consider that you will be “more practical” during the upcoming year as you continue to take measures to protect yourself and your economic health.

Economist Paul Krugman points out that recoveries don’t seem to be what they used to be. In the past, rising capacity utilization resulted in a quick end to any “official recession”. Before 1990, the end of recessions were marked by immediately falling unemployment. That is no longer the case as America no longer has the firm job base that it once had since literally millions of jobs have been globalized. According to Krugman, later recessions have been ended by overextending credit and overbuilding. Demand lags. Most economists are public advocates of “the bubble theory”. The economy finds a hot spot which it exploits to its maximum until it collapses from overuse. For example, gold seems like a great hedge now. In the same way that gold collapsed in the 80’s, the gold bubble will collapse again which is little different from the exploitation of the housing market by bankers and profiteers.

All this suggests a long period of jobless growth. Combined with the fact that the world is in an international crisis only strengthens the crisis. To me, indications are that any word of recovery is more likely a temporary inventory bounce, part of a double-dip recession. This isn’t exactly pleasant, but then again, we aren’t living in most pleasant of times. Don’t be deceived. This nation is no longer in the position to save itself except by a statistical slight of hand. The national economy needs to be reinvented and reconsidered. We need a new vision and push for real prosperity. In the meantime, a little practicality goes a long way. Be smart and protect yourself. ~ E. Manning

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