Economy and Debt: America on the Brink?

New job creation is down and unemployment is up. All those trillions spent to stimulate the economy, all those “too big to fail companies” that were bailed out. Did all that money really make a difference? Sure it did. It ballooned our national debt to $14.3 trillion. What's going to happen with our economy next?I’ll try my best not to be sarcastic this morning…

But what happened to all we were promised were headed our way? The Labor Department reported this morning that only 18,000 new jobs were created in June 2011, the lowest monthly job growth in nine months. The median Bloomberg estimate called for 105,000 new jobs for June.

The unemployment rate; it’s going the wrong way, up this morning to 9.2%—the highest level in six months.

All those trillions spent to stimulate the economy, all those “too big to fail companies” that were bailed out. Did all that money really make a difference? Sure it did. It ballooned our national debt to $14.3 trillion. Now the Obama administration has new ammunition. It can go to Congress and say, “See, jobs are not being created; the economy is so fragile, we need to spend more money to stimulate it. Increase thatU.S.debt ceiling.”


It is just me, or is all this starting to sound more and more likeJapan1991-2000?

According to Canada’s Globe & Mail (7/8/11), theU.S. economy needs to add 125,000 to 150,000 jobs a month just to keep up with people entering the labor force for the first time. We are nowhere near that type of job growth.

What happens next? My thinking leans towards the Fed continuing to increase the money supply, keeping short-term interest rates artificially low, and coming up with a new version of QE2 (all which are inflationary measures). No wonder gold prices are jumping higher again this morning.

Why did I start today’s issue by saying, “I’ll try my best not to be sarcastic this morning?” Many economists believe that the way to solve our economic issues, the way to stimulate the economy, is to have the government throw taxpayers’ money at the problem.

From the early days of the credit crisis, I have been in that other group of economists; the minority that believe that economic contractions should follow their natural path, as economic expansions do—unabated by government intervention that eventually leaves its citizens with an overabundance of debt.

Let’s look at it this way. During the real estate and mortgage boom years of 2003 to 2006, did the government do anything to slow the boom down? No. It actually spurred the boom on by reducing interest rates to historical lows. Now that the economy has gone bust, we are throwing money (we don’t have) at the problem. It’s an ironic situation.

Michael’s Personal Notes:

Talking about jobs…

Our neighbor to the north,Canada, a country with a population less than one-tenth of that of the U.S., reported this morning that it had created more jobs in June than the U.S.!

Canada created 28,400 new jobs in June (twice what analysts were expecting), pushing Canada’s unemployment rate down to 7.4%—the lowest jobless rate inCanada since 2009.

The Canadian dollar remains my favorite currency. I believe that, as the U.S. dollar continues to devaluate, the Canadian dollar will be a winner.

Where the Market Stands: Where it’s Headed:

We got to within 280 points of Dow Jones 13,000, and bang—the patheticU.S.job numbers report comes out, knocking stocks back down again.

In reality, the stock market could have taken it a lot worse today. Yes, it was a very poor June payroll growth number. Add that to continued woes inEuropethis morning with more pressure on the stock prices of Italian banks—and the market is taking the negative news in stride.

If this bear market was over, today’s bad economic news could have easily pushed the Dow Jones down 300 or 400 points. Hence my belief this is a stock market that very much wants to keep rising.

What He Said:

“There is no mixed signal about this: Foreclosures in the U.S.will continue to rise, the real estate market will get weaker, and the U.S.economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.” Michael Lombardi, Profit Confidential, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.