September 15th, 2008, a day that will live in infamy. Famous words, much the same, made in 1941 by our President Franklin D. Roosevelt. As the one year anniversary of the Lehman Brothers collapse approaches, I find myself looking at the economic picture and wondering if we really dodged a bullet or if we traded in our single shot rifle pointed at our head for an semi automatic? Did we really just blow up the asteroid, on a crash collision with Earth, or just shatter it into a million more deadly pieces? Our government, Treasury and Federal Reserve all claim we have averted disaster, apparently the recession is over. I would be thrilled to believe this, I truly would, but let us look at the facts.
As I look over my notes and calculations I find some interesting issues and facts popping up. For instance, would it surprise any of you that far more banks are in trouble now than 6 months ago? The markets are up more than 50% from March, we have been told the recession is over, but more banks are in trouble than ever before. Last year a total of 25 banks failed, this year so far 89 have failed and hundreds more will most likely fail. When I first learned of that fact, it shocked me. If the economy is almost out of this mess, out of recession, how is it that far more banks are in trouble than at the height of the financial crisis?
The recession has been called the worst since the Great Depression. However, the most depressing part of it and what should make everyone of you angry is how the recovery is being portrayed. The term being used is “jobless recovery”. As my readers, do you truly know what that means? What is a jobless recovery? How can you have a recovery without jobs (consumer spending)? Simply put, a jobless recovery is one where the jobless consumers do not spend (because they are out of work); therefore the government must pick up the slack and spend for them/us. OK, that is very nice of them, but wait; government spending is actually your and my dollars at work? So in reality a jobless recovery is just another term for the government printing trillions of dollars, mortgaging the future, creating another bubble in order to bail us out of this mess. When the government spends money, they must sell bonds/treasuries. In order to do that, they must get other countries to buy them. Other countries buy these treasuries, then give us money; this money is then spent recklessly due to pet projects, lobbyists and ignorant politicians. Should the “jobless recovery” takes hold, it means we have spent ourselves into a future mess that could even be worse than this latest debacle and as long as it is jobless, the only way to SUSTAIN itself is to have the government continue to spend!
You may ask why? Why is government debt so bad if it gets us out of this horrible recession? Well, for starters, the more debt a country runs up, the less their currency is valued out. In other words, each of your and my dollars is worth less. Take this example, if you have one apple and auction it off as the only remaining apple on planet earth, how much money is it worth? Now, what if you had a trillion apples, how much is each one worth? Of course, the last remaining apple is worth much more than one of the trillion apples. This is the same with the dollars. As strange as it may seem, causing the devaluation of a currency acts as a tax on each member of that country. Think about this. Someone has a 401k with $100,000 in it. That can buy 100,000 apples. Now the dollar’s value is cut in half because of massive government spending and deficits. All of a sudden, your $100,000 401k only buys 50,000 apples. If you want to see people suffer? Think about that wealth destruction of that! Not only does this have a taxing effect on a countries people, but in the long run, the US government must raise taxes to in the very least, pay the interest on this debt. No doubt about it. These foreign countries eventually will need to be paid back. To do so, the government must raise taxes. There is NO free lunch over the long term.
The scary thing is what is coming in the next decade. What happens between 2010 and 2020? If we thought this was bad, what happens when taxes spike or the dollar collapses….or both? Like Germany, after WWI, what happens if it ever takes a wheel barrow full of money to buy a loaf of bread? Could this ever happen? This course we are on is scary. Just another bubble in the making after the last 10. We have been told we are finally out of the recession, yet the tracks we are laying could be even more deadly for this country. A “jobless recovery” is just another term for YOUR dollars and debt on each and every one of YOU being used to finance a “fake” recovery. If you understand one thing, understand that!
Gareth Soloway,
Chief Market Strategist
InTheMoneyStocks.com
