No, not the CEO of Apple, but
as in employment. The jobs report for June was another disappointment,
but that is a lagging indicator. The economy will have turned
up before the unemployment rate peaks. The real number to
watch is the monthly report of new layoffs and this number
has been dropping. The group that decides when a recession
ends will be looking closely at the peak number of new layoffs
and this number may well have been put in place already. The
silver lining with the employment picture is that corporations
have cleaned up their balance sheets and income statements
and put themselves in position to participate in the economic
recovery. As this occurs, new and better jobs will be created.
Other economic indicators are mixed and the press can put
any spin they want on these numbers. The price of oil recently
approached $72 a barrel and has retreated to $60 a barrel.
Some in the press view this negatively as it would indicate
a lessening demand hence slower economic growth. There are
other factors at play here, notably speculators betting on
short-term moves in the price of oil. Western cultures (USA)
tend to look at things in short time periods (weeks and months)
while Eastern cultures have a longer viewpoint (years and
decades). The economic recovery is happening but will not
be recognized until well after the fact.
Speaking of China, what’s happening there? It’s
hard to trust their numbers, but they certainly are not growing
at double digit rates now. In fact, China may be using another
(unfair) tactic to bolster their economy. They have begun
restricting exports of certain raw materials used to manufacture
goods. This will give them an (unfair) cost advantage. The
US and the EU (European Union) have filed a complaint and
Japan will likely follow. It is estimated that Chinese exports
to the US have dropped 25%. Russia recently dropped out of
the WTO (World Trade Organization), possibly a protectionist
move and other countries could follow suit.
China has been talking tough in other matters also. They
are the largest foreign holders of US
Treasury bonds, and they are concerned that our huge Federal
deficit will bring on uncontrollable
inflation. This in turn will threaten the buying power of
their Treasury holdings. They are threatening to dump all
of their US Treasury holdings on the market. This would collapse
the US
dollar and severely damage our economy. This is not likely
to happen as it would pull down the
economies of the rest of the world including China.
Federal Reserve Chairman Ben Bernanke has been on the hot
seat lately, being grilled incessantly by Congress over his
handling of the economy. There is even talk that he will be
replaced in January when his term expires. We believe his
term should be extended. He is a brilliant man and understands
the causes of the depression in the 1930s and the mistake
the Fed made by tightening monetary policy during that period.
He also understands the role of money, and he stated recently
that control over the money supply was his top priority. The
Fed was created in 1913 to be an independent body, reporting
to Congress only, to pull the levers on the money supply so
that there is not too much or too little in the economy. Our
recent travails were not caused by the Fed alone, but by a
“perfect storm” of events that have been discussed
at length here and elsewhere. The objective now is to prevent
a depression and get the economy rolling again. Many economists
fear that the Fed has created too much money that will lead
to runaway inflation. However, Bernanke has stated that the
Fed is not printing too much money, but that the money they
have injected into the economy has come from the vast cash
reserves at the Fed, and that these “loans” will
be called in when he is sure the economy has righted itself.
We feel Bernanke has done a good job of walking the tightrope
between depression and inflation and that to change horses
in mid-stream would have disastrous consequences.
Random thought for July 2009:
“The purpose of government is to protect us from our
enemies. The purpose of the Constitution is to protect us
from the government.” - Richard Russell |
