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David Stockman: More Reasons to Be Pessimistic About the US Economy

By   Follow Me on Twitter     Message Richard Clark     Permalink
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Some point out that the unemployment rate is falling and companies in the Standard & Poor's 500 are making more money than ever.   But that's going to be a very short-term phenomenon.   Why?   Look at the data that really counts:   The 130 +/- thousand jobs created each month over the last 12 years -- which are nowhere near enough to get the real unemployment rate back down to an acceptable 5%.   That's barely enough jobs to provide work for all the new members that join the labor force each month.

 

Another real measure of the health of our economy is the rate of investment in new plant and equipment.   Yet today there is zero sustained net investment of this kind (in our economy).   The rate of growth since 2000 (in what the Commerce Department calls non-residential fixed investment) has been 0.8% -- hardly measurable.   (Non-residential fixed investment is the money put into office buildings, factories, software and other equipment.)

 

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In other words, this economy is stalled out and stuck

 

Our 10-year Treasury bonds are yielding about 2% interest, but that's a totally artificial return on investment.   It's purely and simply the result of massive purchases by not only the Fed but all the other central banks of the world.  

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What's wrong with that, you might ask.   The answer is that the earnings on a treasury bond don't come out of savings.   It's made-up money.   It's printing press money.   It's money created out of thin air by the Fed.   Understand that when the Fed bought $5 billion worth of US treasury bonds this morning, which it does periodically, it simply creates the $5 billion out of thin air and deposits it in the bank accounts of the several dealers it buy the bonds from.

 

What are the consequences of that?

 

The consequences will eventually be horrendous.     Clue:   If you could make the world rich by having all the central banks print unlimited amounts of money, then we would have been making a big mistake for the last several hundred years by expending so much human toil and work.  

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How will it all end?

 

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)
 

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