Tuesday, July 10, 2012


Braaaaains. Braaaaains. Our leaders have no braaaaains, and that’s the problem. And the evidence is coming through loud and clear from the economy, which the scurrilous wags as CNBC have declared a Zombie Economy. This is gonna be ugly.

In normal times, an economic recovery following a recession will produce real economic growth of around 4-5% and will restore all the jobs lost plus add a few more. That’s not happening this time. Instead, growth has been an anemic 1-2%, and the economy has come close to dipping back into recession three times now. In effect, the economy is stumbling along at the edge of recession. How bad is it? Well, it’s the weakest recovery since 1948!

Moreover, the jobs numbers are horrid. Just to keep pace with population growth, our economy needs to produce 120,000-125,000 jobs each month. In June, this “recovery” produced only 80,000 jobs. In May, this was 77,000 jobs. In April it was 68,000. All told, only 2.6 million jobs have been created since June 2009, for an average of 72,200 per month. That means for the last three years, 50,000 people have joined the workforce each month without finding a job. And that is on top of the millions of people who lost their jobs when the recession began. Indeed, we still have about 5% fewer jobs than we had before the crash.

And it gets worse. As people are running out of unemployment benefits, they are trying to get onto permanent benefits like disability. Remember how the economy produced 80,000 jobs in June? Well, 85,000 workers left the economy that same month to go on disability. That’s right, and that wasn’t an unusual month. Since June 2009, the economy has produced 2.6 million jobs, but 3.1 million workers have gone on disability! That’s unsustainable.

These problems are going to get worse too. To get a genuine recovery, an economy must reach “escape velocity.” That’s the point where economic conditions become strong enough that the recovery sustains itself. In other words, the point where there is enough production that enough new workers must be hired that their incomes begin to spur demand, which requires more production and creates more jobs: a virtuous circle, where good things lead to more good things. If an economy can’t hit that point, then it will slip back into recession or stumble along at the edge of recession, like Japan has done for the past couple decades.

Right now, there are four things preventing the economy from reaching escape velocity:
1. There’s just not enough good news to make people believe the worst is over. Housing and factory orders are up, yes. BUT they are weak and consumer confidence is falling at the same time. The rental-market has hit an all time high in terms of number of people renting, meaning people aren’t buying. And China has slowed its buying.

2. Uncertainty more than anything keeps people from acting, and right now everything is uncertain. Right now no one knows how much of ObamaCare will ever kick in, and until that’s clarified, people won’t hire. Add in the fact that a business would be foolish to act before the election, and you have a recipe for inaction. Inaction means recession.

3. Business has gotten hooked on handouts from the Fed and the other central banks over the past four years, and they are waiting for their next hit of free junk. Ditto on the continuing “stimulus” bills. Why buy anything when Santa keeps coming back to your house?

4. Finally, those banks Obama fixed. . . the ones who now control so much of the economy. . . well, they aren’t fixed. Dozens of them are being caught up in an interest rate manipulation probe across several countries. JP Morgan lost $2 billion in bad trades. Many of them still hold debt that will never be paid. And Greece and Spain and Italy hang around their necks like an inflated albatross.
This is a recipe for stagnation and collapse before the election, not a recipe for growth and happiness. And that’s really bad for Obama. Now the Republicans need to work to make sure they know how to fix this once they take over. For that, I would recommend:
1. Stopping the continuous stream of handouts through stimulus bills and Fed “quantitative easing.”

2. Repealing unnecessary regulations. But this needs to be done in one shot so business won’t keep waiting for more.

3. Killing ObamaCare with any means possible as quickly as possible.

4. Breaking up the big banks into component parts and keeping people’s savings (the money taxpayers guarantee) from being used for speculation.

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