International Forecaster Weekly

We Are not saved yet

In years past, the Fed appeared to be the savior to our economy. If things were too slow, they’d change the interest rate picture, inject some “liquidity” and in due time the economy would perk up and we’d begin to grow well again. If things then got too hot to handle, they’d pull back the reigns, tighten rates and slow down the train. Many thought they had it all figured out and nothing bad could ever happen again. Oh how wrong that is.

Bob Rinear | July 20, 2013

As any of you who might have read us over the many years know, I’m no fan of the Federal Reserve. I’m not going to use up digital space here complaining about how criminal it is, or why it’s unconstitutional, or what have you. Just know that we’d be much much better off without them. I’ll go ahead and tear them up again in another article in the future. But for today, we want to answer the question… why isn’t this recession over and growth at normal levels??

We just got past two days of Bernanke lying to us about the economy, and just about everything else. But there was one item of truth that came out of the hearings. The Government isn’t helping the situation. One of the frustrations that just about everyone has is “why aren’t we growing like we should be after all this Fed stimulus?” Good question.

In years past, the Fed appeared to be the savior to our economy. If things were too slow, they’d change the interest rate picture, inject some “liquidity” and in due time the economy would perk up and we’d begin to grow well again. If things then got too hot to handle, they’d pull back the reigns, tighten rates and slow down the train. Many thought they had it all figured out and nothing bad could ever happen again. Oh how wrong that is.

The Fed didn’t save us from recessions in the past, but by making big monetary policy changes, they could “push us” up enough until the economy got its footing and then it would take off again. So why can’t we seem to gain any traction this time?? Why are we going on 5 full years of incredible stimulus, trillions printed and the economy just barely alive, like it’s on life support?? Because in the past, we HAD an economy. Today we have the façade of one.

Just think for a moment about all the regulations that have been passed in just the last 25 years that is not “business friendly”. The layers of red tape. The ever tightening grip of the EPA and DEP. Consider the fact that just to open a new Walmart, they generally have to wait 6 years to get the okay to do it. They have to do this study and that study. They have to check and make sure no wooly moths live there, or endangered toads. Then there’s the impact study, the water run off study. Then of course the public hearings, and on and on and on. That’s all just to open a stupid retail outlet.

Try opening something to do with industry. I have dear friends that spent tens of thousands of dollars on permits just to get a small manufacturing business created in NJ. And before the first shovel of dirt was turned, the EPA changed the rules about their chemical storage and delayed it another 18 months. They abandoned the project.

OSHA must be foreign initials for Nazi. These guys come into every work area and make some of the most outlandish rules one can imagine. Common sense need not apply. For instance a well-known roofing company that does major buildings and school roofs is constantly harassed by these guys. OSHA says that they have to put up “barricades” around the rooftops so no one inadvertently falls off the roof. Okay fine. The barricades go up. But when it is time to load the roof with materials, they take down that one section, so the crane boom can clear. The minute they take it down to load the material, they are fined. It doesn’t matter that everyone is off the roof where the material is loaded. It doesn’t matter that it’s ONLY for the period of the moving crane. Sorry, here’s your 30 Grand fine.

Between taxes, health care, EPA regulations, OSHA regulations, Insurance, disability insurance, Lawyers, etc., etc… it is almost impossible for the small man to build anything today. Is it any wonder why owner operated small business is at the lowest level since records began?? Nope. No wonder to me. And without those start ups, and some of which would grow and prosper, there’s no entry-level jobs. No upward mobility. Nothing.

So one of the biggest reasons we aren’t seeing a booming economy is because the Government has killed the engine of all growth. Hell they even kill the basic desire of striking out on your own. Years and years ago, you could bake cookies in your kitchen and sell them door-to-door. If they were really good you could then open your first bakery and then eventually become the next Entenmans’s or Hostess. But today? Ha. You’ll go to jail. You have to install commercial appliances, and get all manner of inspection. Then there’s the issue of door to door which is illegal now. They arrest kids for lemonade stands in America now. A lady was arrested for cooking dinners for homeless folks in the Philly park. Sorry, can’t do that you’re not permitted, inspected. Couple all that crap with offshoring and outsourcing to foreign countries and you have no incentive for someone to even “try” and open a business.

Next up we have demographics, and they aren’t pretty. If you go back to the 60’s and 70’s when America was the creditor to the whole world and anyone that wanted a job could find one in a matter of 5 days, a lot of the demographics were much different than today. After the WWII all those GI’s came home, bought houses, and opened all manner of business. Many grew rich, and then they had kids. They wanted their kids to have it all too and bought cars and educations. Money was plentiful. But Americans often go a bit overboard. Many spent too much. Many took on too much debt.

Today thousands of baby boomers are trying to retire and can’t. Each day almost 4K boomers reach 65 and that number will grow for the next 8 years. But there’s a problem. Because of the Fed’s “2%” inflation rate (which is really around 8%) everything costs too much. They didn’t save enough. It is incredible but true that 45% of all working households have NO retirement assets. None. Another 20% don’t have enough to last a year. Now add on the age factor and the loss of productivity that brings. The medical increases.

In the 60’s, 70’s, and especially through the bulk of the 80’s and 90’s people considered their home as their savings account. Houses had only gone up for all those years. But today we now know that housing can indeed go down. Spectacularly down. Down to the point where we still have over 7 million houses “upside down”. We still have millions of foreclosures still lurking. So at just the same time that millions of baby boomers are facing old age, they have no money and their house can’t save them. The biggest demographic “group” in our country is rushing headlong into a working retirement, which squeezes the already lousy job market even more. 18 year olds shouldn’t have to fight with a 70 year old over a cashier job at Kmart. They do now.

So, why isn’t the Fed’s pulling of levers and pushing of buttons fixing this recession? Because they can’t. This is not solely a monetary problem, this is a much bigger problem. No longer will printing money and cutting rates spur big jumps of economic activity. The economy has been changed at its roots and QE can’t fix that. We’ve never had almost 50 million folks on food stamps. We’ve never had so many on disability. We’ve never been so in debt. We’ve never lost so much manufacturing, we’ve never had more regulations. We’ve never had an entire generation as big as the boomers all facing retirement with no means to retire. We’ve never had a housing market drop so far, and recover so slow. We’ve never had prices so high with wages so stagnant. I can go on and on.

This recession is not over. Forget the stupid stock market that is no reflection of anything but Bernanke bucks being jammed in their tidy system so Wall Street and the bankers can get bigger bonuses. Detroit has just declared bankruptcy, the biggest city so far to do so and joins 35 other municipalities that are busted flat. Chicago’s ratings have been slashed 3 notches with the outlook “negative” and announced they’re laying off 1000 teachers. No matter where we look, we see something that has huge negative implications.

Bernanke can keep us alive like the respirators in a tuberculosis ward, but he can’t fix the underlying disease. That makes for dangerous times. Be safe folks.