The Phony Economy

On Tuesday the market celebrated the profits of Wal-Mart (WMT) and Home Depot (HD). Their earnings made perfect sense in light of the recently reported large increase in balance of trade deficit, as these two companies are the biggest purveyors of Chinese manufactured goods in America. The ports of Los Angeles and Long Beach are humming with record incoming container shipments that are far outstripping outbound cargo shipments.

But is this what a healthy economy is really all about – simply more consumption and more corporate profits? Do unemployment and trade deficits, as some have suggested, just not matter any more? Or does this sound like one of those new paradigms, like the dot com paradigm where businesses didn’t need real products any more, or the paradigm that helped inflate the real estate bubble – the one where people didn’t need real incomes to take out mortgages anymore? Are we now trying out a paradigm where we don’t need real employment, or, what the hell, even a real economy anymore?

Meanwhile, real unemployment and underemployment in the US are collectively at about 20% and economic growth is slowing again at the very height of the massive government stimulus. Since a lot this stimulus money, including tax breaks, is simply directed at increasing consumption, and so much of consumption in the US is for foreign made goods, much of this stimulus money ends up flowing to overseas to factory workers and of course even more so to the coffers of the multinational corporations that employ them. Hence the corporate profits the market is crowing about. But how long can this be kept up?

The idea that the economy is growing at all when it takes 10% equivalent of GDP in Government deficit spending to barely keep the massaged GDP figures on the plus side is ludicrous. The US economy has become an entirely unaffordable corporate welfare state.

The strategy of the Democrats seems to be to just keep bailing the sinking lifeboat of the US economy and hope for a miracle. The Republicans on the other hand have a plan for when they take over in congress in November. Their brilliant plan – just quit bailing. I hope they can show us how to walk on water.

The US economy has deep structural defects that I have gone into in other posts, but suffice to say here that the biggest disconnects arise from the fact that the US has exported its technology and manufacturing base and is trying to pretend that the game is now still unchanged. Most economists still believe the great recession has just been another cyclical event. Nothing could be further from the truth. It is said that generals always fight the last war, meaning that they seldom realize when times have truly changed.

For the US economy to enter a further slowdown now will be a catastrophe with the present level of high unemployment and after the trillions spent on stimulus.

The BLS U2 figures omit so many of the unemployed that they have little relation to reality anymore and I am rather dubious of any writer or economist who still quotes them as relevantly factual. The initial new jobless claims released on Thursday mornings, although also somewhat massaged, are probably a much better indicator of the true direction of the economy. I would speculate that if the weekly claims break the 500,000 barrier (we are getting close) sometime in the next few weeks (still at the height of stimulus, remember), that the stock market will get a wake up call and maybe we’ll all begin to see what’s coming.

I wear many hats but history, economics and political observance have always been a passion. I am a graduate of the University of Cincinnati College of Business with a degree in Information Systems and Digital Business with a minor in European History. I work for a small mom-and-pop IT consulting and software design company. We deal in servicing mostly government funded non-profit mental and behavioral health care agencies in the state of Ohio. In this I deal with Medicaid and Medicare funds and have a little insight on the boondoggles of government there. Thankfully the undemanding nature of my daily profession gives me ample time to read and stay aware of our current state of affairs which I find stranger than fiction in many instances. In addition to being in the IT field, I have also been self employed with a small contracting company so I might know a thing or two about the plight of small business that employs 71% of the American workforce. I however don't draw my knowledge from my day jobs, which I have had a few; I draw it from an intense obsession with facts and observation about the world in which I live. I do have formal education in things such as history, economics and finance particularly as it pertains to global issues, but I have come to find much of what I thought I knew from the formalities of a state university I had to unlearn through much time and independent research. I hope you enjoy what I bring you which is not often heard in the mainstream news outlets. I would like to think my own personal editorializing is not only edifying but thought provoking while not at all obnoxious. That last one may be a hard to achieve.

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