The economy of the United States, despite many reports to the contrary, has never been in a recovery. To call the present economic situation a recovery is like saying a wounded soldier has recovered use of his legs because his comrade is carrying him around. The U.S. economy is not moving on its own and hasn’t been since Obama took office. Carried by FED money, the movement of the economy has been an illusion. Nothing more than a distorted appearance of growth and minimal growth at that. If the FED stopped pumping cash the economy would crumple to the ground and likely be in worse condition then if the FED had done nothing at all. That is not a recovery.
The real condition of the economy is unknown, buried under the FED easing program. What is known is the program has not worked (as if there was ever any hope it would). The participation rate is stuck to where it was when Carter was President and the real unemployment rate is still around 14%. Income per capita has not been this low in 15 years. While there was some employment gains in May it was nothing to crow about and in fact April’s jobs numbers were adjusted down and unemployment went up. Add to this that inventories are up and manufacturing is flat and you have more evidence that, despite the FED, things are getting worse. There is nothing in the latest news to change this site’s earlier assessments that things are headed downhill. Increasingly economist and analyst are saying the same thing.
The economy, such as it is, has been lifted aloft by the Federal Reserve easing program. Unfortunately or fortunately the easing cannot go on forever. Inflation (a product of the amount of money in circulation and the speed it’s being spent divided by the goods available for purchase) for now has not been a problem. This is because the money coming out of the Federal Reserve has, for the most part, not entered into the economy. Instead it has ended up on the balance sheets of banks and stock brokers. The little that has made it to main street has artificially propped up housing, car sales and a few other industries. A situation that will can’t go on forever.
Sooner or later the cash will have to start to filtering into the economy in a more substantial way. If the FED lets the trickle become a flood things would get out of control quite quickly. Bernanke seems to think that point is approaching and has signaled he wants to pull back. If he lets it go on too long inflation, market bubbles and/or greater distortions in the economy will break the legs of Federal Reserve stimulus program. This will leave both the monetary system and the economy flat on their backs.
What is needed is real substantial growth, something that will take a change in attitude in Washington. The truth is an economy does not grow by trying to manipulate consumers, it grows by getting out of the way of people working to better themselves. The best government can do is find what is distressing the economy and impeding businesses and remove it. At this point it is uncertainty that is driving the economy more than any other factor.
Former FED chairman Paul Volcker, no shrinking violet when it comes to market interference, has stated that excessive regulation is what is undermining confidence. Small Business seem to agree. According to Gallup a full 30% of small business, the backbone of the economy, do not know if they will around at the end of the year. The leading worries on these entrepreneurs’ minds are ObamaCare and Regulations. Eighty percent had no real hiring plans, instead were considering staying pat or even cutting back this year. In such an environment is it any wonder employees (AKA consumers) are not out spending?
Unfortunately there are no plans to change the present course in Washington anytime soon. In fact the latest nomination of Jason Furman, the architect of the failed stimulus program, to Chair the Council of Economic advisers signals the future holds more of the same. This means there is also little for businesses or their employees to look forward to. Quite to the contrary things are likely to get worse before they ever get better. To paraphrase a famous sex symbol, buckle up gentlemen it looks to be a bumpy ride ahead.
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