I'm not very optimistic about this year. The government has repeatedly cooked the books in order to make things seem better than they are, but most people know the truth: millions of kids are graduating from college with no jobs for them, record amounts of people are on assistance, and salaries (except for our wealthiest citizens) have either gone stagnant or dropped.
Underneath, I will take various issues and talking points and dismantle each one. Much of what I'm writing is from memory, but if anyone is interested, I can provide sources to where I learn this stuff from. I also will cite some people I get my information from, if people want to learn from them as well.
"Unemployment is under 6%, and more jobs have been created under Obama than under Ronald Reagan."
Okay, several things wrong with this:
1) The only reason that unemployment reads so low is because the number doesn't include those that have dropped out of the labor force and are on assistance.The labor force participation rate is at the lowest since the late 70's, during which unemployment was in double digits, even using government statistics at the time. (I say this, because the government tends to lie to make itself look better.) Many "baby boomers" want to retire, but can't afford to. Many are staying in the workforce, and some have even come back into the workforce out of retirement.
2) It is true, that many jobs have been created, but that is misleading. If they say "200,000 jobs have been added this month", that often really means something like "400,000 jobs were created but 200,000 were lost."
3)The other major factor here is the quality (or lack thereof) of the jobs that have been created. The vast majority of the jobs that have been created in this last 5-6 years have been mostly temporary, part time, and minimum wage jobs. The only good paying jobs that HAVE been created have been in the energy sector, but many of these are only temporary. (More on this below.)
"The stock market has hit record highs!"
That HAS happened but in my view, for the wrong reasons.
All the money that the Federal Reserve has created (read my blog about the Fed, if you want the numbers) has either sat in the banks, or is being used by speculators to buy stocks. The money is being loaned out at 0% interest, (for the last 7 or so years) but it's not going to small businessmen. More and more buyers of financial assets, has been what's driving up the values, but that can't go on indefinitely. The only way it could would be if more and more buyers kept entering, which will be harder and stocks become more and more expensive.
We saw a similar situation with housing in 2008: The only way home ownership and home values would have kept going up, would have been if more and more people kept buying and selling houses, but there is no way that could have happened indefinitely... since people would need to either be earning more money to pay for those houses, or be loaned it... which would become riskier and riskier over time.
We had a stock market crash in the late 90's (The "NASDAQ Bubble"), which was only replaced with the Housing Bubble that burst in 2008.
One other important point here:
Many people, especially on the Left, talk all the time about how the gap between the rich and the poor has widened (I hate to use the term "income inequality" because there's no logical reason in my mind that incomes SHOULD be equal.).
The late 1920's saw a similar situation. Lax credit standards and an expanded money supply, caused much of that money to flow into the stock market. The gap between the rich and the poor widened then, and you have to ask... who had the most money invested in stocks and real estate?
You notice too (and even mainstream history books depict this) that many millionaires became paupers overnight when the market crashed in '29, and that income gap narrowed again substantially. To blame such a disparity on "capitalism", "greed" or "the free market" is nonsense. It was/is the Federal Reserve fueling another bubble.
"Prices haven't risen"
More BS.
The "Consumer Price Index" (For those that don't know, it's a source that is supposed to show us if prices have gone up, down, or stabilized.) has been revised a total of 9 times since 1996.
Food prices have been left off, but most people know what's going on there. Prices have gone up, and often times there is less in the package than there used to be. Several studies have been done on this, citing various items and what used to be in them say 10 years ago, versus today.
I remember, even from the early 90's when potato chip bags and cereal boxes used to be filled to the top. Now you get a bag that is half full, maybe. Yet, you don't see a drop in the price, and wages have remained flat.
Another prediction that has been made, is if that money the banks are holding gets out into the "Main Street" economy, we will see prices go up dramatically. Since it's only going into stocks and other investments, only those have risen so high.
Shale, Fracking, and Cheaper oil:
The price of oil has dropped tremendously, and it is showing at the pump. While cheaper gas is generally a good thing, part of the reason for this is bad.
The price of oil, like anything else, is determined by supply and demand. More oil has been produced, especially via fracking on American soil. Some have tried to credit this with Obama's policies, but I don't believe that's the case: According to Bob Murphy, most of the drilling has been done on private lands not government lands, so it seems to be IN SPITE of our current policies, not because of them.
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| Bob Murphy |
The Saudis, Russians, and others have also upped their production to compete with us.
Unfortunately, another part of the reason for the price drop is also that demand has dropped. This is a sign that the economy is slowing down. Which makes sense, when you realize that people that are unemployed are less likely to be driving around, traveling, etc. They will also buy less, which means less shipping of goods, which in turn means companies needing less gasoline.
Also, much of the growth in the domestic energy sector has been built on credit, which very well might not be paid back. (Canadian CEO, Keith McCullough of "Hedgeye" said "it's one of the most financially leveraged things I have ever seen.") As the price of oil falls, producing oil will no longer be profitable, and many of these producers will shut down facilities and lay off workers. This means the economy loses many of its only breadwinner jobs that have been created in this last few years, and the creditors will not be repaid the money that they loaned out.
One more fact that's kind of scary: The price of oil plummeted like this right before the crash in 2008. Peter Schiff and others, have pointed out that it's common right before a economic downturn, to see commodity prices drop (like oil) followed by stocks and real estate. Schiff predicted the crash in '08 and got laughed at and made funny of on TV for it.
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| Peter Schiff |
The "Education Bubble"
Student loan debt has passed $1 trillion dollars. It has surpassed the credit card debt, and may soon very well rival the mortgage debt.
Most people can tell, just by talking to friends and neighbors, where this is headed.
Mike Rowe (From "Dirty Jobs") said it best: "We're loaning money that we don't have, to kids that won't pay it back, to train them for jobs that we KNOW don't exist."
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| Mike Rowe |
It drives me nuts, how people don't realize that government is THE MAIN REASON that college is so expensive.
Here's why: The government guarantees student loans to everyone. This enables every kid to go to college.
Although I believe that a population should be well educated, I don't think that everyone SHOULD go to college, especially right away (I really wish that I had worked a few years before heading to culinary school. Oh well, water under the bridge.)
Too many people are there just to party, socialize, and hangout, and not really learn anything. The schools offer tons of worthless degrees and classes that have no real world value. ("gender studies", classes on the Simpsons, classes that teach "Ebonics", classes about Beyonce, etc.). Just a way to make money off of ignorant people.
Colleges need more money to pay for all these students, and also get greedy in the process. They jack up tuition rates, knowing that the government will just guarantee higher loans for them. College tuition has risen by 500%, even adjusted for inflation since the mid Eighties.
Of course, the jobs aren't available when people come out. Tom Woods cited on his show that in 2009, there were as many people graduating with psychology degrees, as there were TOTAL psychology positions overall in the U.S. And in this lousy economy, you can be sure that most of them were filled already.
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| Tom Woods |
I also read something recently, stating that 30% or so of the current loans have either defaulted, or are in forbearance. We are beginning to see this unravel.
Dallas Mavericks owner Mark Cuban made the prediction that several colleges will go out of business, as we see more and more people default on their loans, and the banks tighten up lending standards.
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| Mark Cuban |
Obamacare
The so called "Affordable Care Act" has thrown millions of people off of their previous plans, and seen premiums shoot up for nearly everyone that I have talked to.
The reason for this? The premium increases are used to subsidize people that can't afford the higher rates. So it's not that the cost is being lowered, it's just everyone has to pay for everyone, essentially.
This is the first year that those who don't have insurance will have to pay 2% of their taxable income as a fine. It is scheduled to double for next year.
I have also read that people who got the lower cost plans proportionate to their income, will also have to pay fines this year to make up for it. That's according to H and R Block, which is not a biased source of information, but time will tell.
I'm all for healthcare becoming affordable, but how/why this plan still can be praised by people (especially after Jonathan Gruber's comments were made public) blows my mind.
People have tried to defend this by saying "Europe has done this already!"... leaving out the fact that the most European countries (Especially in the South) are basket cases. (I plan to write a blog about the world economy in general soon.)
The Housing Market
Mortgage applications are at a 20+ year low. The reality is that housing prices NEED to come down for housing to be affordable again, but the banks don't want them too. This is because many of the banks hold the houses as collateral, or they are owned by wealthy investors that hope to make money off them at the best price they can get.
Conclusion:
Things are not looking good. I wish I could be more optimistic, but I know what the facts are, and I see through the lies and propaganda that the administration wants everyone to believe.
Financial crises have happened on average, every 6-7 years, and the last one was in '08 so that's not a good sign.
The stock market is propped up by printed money, and the Fed may have to resume printing money in order to keep the game going a bit longer.
The only problem is that it just delays the day of reckoning, which will be even worse when it comes.
I think the only real solution here is that whole sections of the government will have to be disbanded, entitlements (like Medicare and Social Security) will have to be dramatically reformed and means tested. The government will have to relax taxes and regulations to make economic growth easier.
We will have to bring many of our troops home, and shut down a lot of our bases.
We are $18 trillion in debt, and we have unfunded liabilities of over $150 trillion by conservative (financially, not politically) estimates. This can't go on forever. Reality is that someone has to be honest with the public, but everyone is too busy acting in their self interest to do anything. Somebody has to have the courage to say no.
Thank you all for reading! I apologize for any doom and gloom that I may have caused, but the truth needs to be heard.
-STK
