Tuesday, September 06, 2011

Zero Gain Economy

Well, the jobs report came out riday, as usual. And as usual, it was a cold slap of reality in a warm fuzzy market that usually thrives on "you tell me no bad news and I will tell you no bad news" in order to look up.

There was zero gain, zero loss, in the overall jobs. The almost (well, not quite almost) bright spot is private hiring was up by 17,000 (we need more than 200,000 each month). The really dim spot is that manufacturing fell by 3000.
Another zero in the news was the interest rate. It is axiomatic that lower interest rates encourage economic growth, but fuel inflation. Chairman of the Federal Reserve Board Ben Bernanke recently stated the federal funds rate will remain at or near zero for the next two years.

While Bernanke may have prevented the US (and maybe the world) from going into the dreaded "double dip" in this recession, (and I have, from time to time, said he is probably the only guy in charge who actually know what he is doing) he doesn't have the tools to pull us out of the recession. Especially when most of those in Washington are busy trying to hang a millstone around our necks. We are still in the same condition as when I wrote, last month, that "gloomy just doesn't convey a strong enough message."

On the other hand, the assurance that interest rates will stay at or near zero for the next two years will likely be the factor that will start us into an inflationary cycle. One problem with keeping interest rates low (from a US standpoint) is it leads to a Dollar Carry problem. This is when investors can borrow money from the US at a marvelously low rate, and use it to buy bonds or other investment vehicles in Europe or Asia that pay a higher rate. To compensate for the flow of monies out of our economy, we will have little choice but to print quite a bit more, thus leading to inflation.

I am not qualified to predict how much or when this inflation will take place. It could be a year or three, and it could be 5% or 35%. I could guess two years and 20%, but that is just a guess. I will guess, also, that shortages of raw products will become a factor in a year or two, and they will lead to both inflationary pressures and slowing of the economy.

The downgrade of our national credit rating first by Moody's threat (even though they may deny it), and then by S&P, has had little impact on the overall economy. It seems they dragged their feet long enough that all the investors had already downgraded us in their minds. Still, the US treasury bond is considered the safest (really, there is no thought in the market that it is anything but 100% safe) of all investments, even though return is next to nothing.

And there is another serious threat however: public opinion seems to turn against anyone who attempts to fix our economic problems. There is two reasons for that. One is man's natural tendency to avoid anything that requires sacrifice. I mentioned this in a previous posting. The other is the press, which is doing Satan's bidding, to keep the liberals in power.

Of course, all of this seems to be in preparation for the end times. There are many who say they can see the US in prophesy. Well it is there, but not where they are looking. We are a bit player, a nobody. We are found in Ezekiel, complaining and doing nothing. A has been. Broken and sunken into depravity, we will sit on the sidelines and whine during the end times.

I don't know this for certain, of course. The timeline looked all set to go (rapture and war of Magog and all) once before, but then God raised up Ronald Reagan, and used him to set the timetable back more than 20 years. No man knows the day or the hour (and while I find it fun to guess the decade, I don't even know that for certain).

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