As the grizzled old man of 2005 comes to an end, and the baby 2006 is born, maybe we should examine what’s happened in 2005, and what to expect in 2006. I cannot predict the immediate future, but I can surely examine the past. The D.C. gang insists that the US economy is rosy. They say they have ’created’ 2 million new jobs, and all is going extremely well. They say more Americans are now working than have ever worked before. I am delighted! Except that is hogwash with a capital “H.”
Two million jobs ’created?’ Who did all this? Government? Yes, because of Homeland Defense, Iraq, Afghanistan, and of course those tens of thousands of jobs ’created’ to check your shoes and baggage before you board the planes, plus an air marshal on most flights. Government stooges check out and examine every train wreck, plane crash, truck accident, and anything else they can conjure up on which to spend money. Government grows as if it were fertilized and in rich soil with ample water. Sort of like bamboo, which can grow 18 inches a day. Government is growing so fast naturally to protect us that we should all be glad; correct? Uh huh, but I don’t think so. Since all the National Guard boys are in Iraq, a lot of replacements have been hired to take their jobs while they are away. When they come back, their replacements will lose their jobs, which have been ’created.’ Government ’created’ jobs are not prosperity. Government produces nothing, but stands in the way of producers. No one from D.C. tells us how many ’created’ jobs are for National Guard replacements, or plain government jobs, which milk the budget as if there was one anyway. The last balanced budget, debt free US government, was in the Presidency of Andrew Jackson. So much for ’jobs created.’ It’s a fraudulent use of English terms.
And then there is the so-called ’service economy,’ which has proven to be a gigantic dud. A man gets laid off of a good paying factory job, because the stuff is now being made in China with quarter an hour labor, and he has to get two, or even three ’service economy’ jobs, to equal his old factory job. The factory is closed, and either rusting or arsoned, the machinery is sold for scrap. The scrap steel is sold to China, so they can build new machines to make for a pittance, what the US factory used to make. This is progress? Is it progress, when you call your bank for a figure, or a travel agent to travel, and someone from India with an accent answers? I got a new Woolrich Shirt for Christmas. Woolrich is a fine old American brand name. Know where it was made? China. This is a healthy economy? The ’service economy’ jobs are flipping hamburgers or working for an average wage at China Marts for about $8 per hour. At a local hardware store, which I patronize regularly because I refuse to go into China Marts, Gary has been there for 7 years, knows the store backwards, and is a great guy. He makes $8 per hour. $8 times 40 hours is $320 per week. After deductions, he may take home $250? $250 times 52 weeks is $13,000 a year net income. Who can live on $13,000? No one, so the whole fam damily has to work, just to slither by, and then three jobs are ’created.’ How I hate it all.
The stock market is almost exactly where it was at the beginning of the year, and the P/E ratios are still far too high to make buying stocks a good deal. Still, the year-end “Forbes Special Edition” on how to invest, indicates that all is well. It tells you what stocks to buy, which ones to sell, which mutual funds to buy, how to beat your broker, avoid taxes, and all those neat things that have to do with dollars. Remember my ’ant farm’ column of a couple of weeks ago? Go to the bottom of this, click on other columns I have written, and check it out. That explains the suggestions on what to invest in for 2006. At least according to Forbes. I wouldn’t do that for any amount of dollars. We measure our wealth in dollars. Dollars are our measuring device, which indicates wealth, prosperity, and affluence. Just like a ruler measures inches. Distance is measured in miles, yards, and feet. The dollar, euro, and every other currency on earth, are being printed pell mell, and their subsequent values (purchasing power), are declining all over the earth. No exceptions. I won’t bore you with prices that used to be, but aren’t any more. Cokes and butter are the same. They just cost more, because the measuring device of our wealth, has lost purchasing power. This is known as inflation. We aren’t doing too good in the year 2005, as far as inflation is concerned, regardless of what the D.C. gang says. It does cost $50 to fill up your tank, remember? And just wait till you get your new heating bill for verification.
The D.C. gnostics say that it is ’consumer purchases,’ which make the wheels of the economy go ’round, and consumers do indeed spend, and are spending. Therefore the economy is prospering. OK? Not OK, as far as I am concerned. Why? Look at it this way. If a consumer buys a new TV, sofa, car, or appliance, and he pays for it with a credit card or signs a note, what has been accomplished? He has technically ’bought’ the thing, but he has not paid for it. He has traded the purchase for debt, and the economy has not benefited, except in the eyes of the Washington D.C. nutcakes. A new refrigerator for $2,000 and $2,000 on a credit card, equalizes each other, to me anyway. Not only is this not a true consumer spend, because an equal amount of debt has been created, but the purchaser has probably libeled himself for huge interest to boot. Where is the booming economy? American consumers who are ’buying,’ for the most part are simply creating debt for their purchases. Watch any department or other store when purchases are rung up, and you’ll see few cash transactions. Mostly they are in plastic.
If consumers bought and paid with saved cash, or simple cash, that would be a true economic benefit. It would make the economic wheels turn legitimately. Trading a purchase for debt, is a fake economic figure. American consumers have hundreds of billions in credit card debt and financing for cars and other things. Bankruptcies are at all time highs, as are late payments and defaults. Is this a sign of a healthy economy? Not to me.
Then there is the housing situation. A house, which was bought for $100,000, now will go for $500,000 in some places. Most have re-financed their homes to match the increased ’value.’ What have they done with the cash raised? Bought consumer stuff, which makes the economy look good, but it is a fake look. Merely increased debt, exchanged for consumer goods. So now the home is hocked for a huge amount, and all the cash has been spent on consumer goods, which makes the economy look good. Debt, debt, debt, is not a healthy economy. Exchanging debt for consumer goods, is not healthy, but today almost universal. The property taxes and insurance will go much higher as well on the newly mortgaged home as well.
“Gee Mabel, look at us, aren’t we doing good. We have a new car in the driveway, new appliances, lots of great plastic toys for the kids at Christmas, and I just got a 3% raise.” Ugh. Did that 3% raise, which is far below the actual cost of living increase, place him in a higher income bracket, so he has to pay more taxes? Probably. If the real estate bubble deflates, and the house is not worth what is owed, will hundreds of thousands walk away? If your car is worth $5,000, and you owe $10,000 on it, would you continue to pay, or give it back voluntarily to the finance company? Of course most people lease cars now, as it is cheaper. They never even own their cars any more. Americans don’t make what they consume, and their consumption is on credit. Their standard of living is about where it was in 1960, and going back further all the time. The economy is robust? If you say so Mr. Greenspan. Protect yourself and have a happy New Year.