Zimbabwe & Argentina would lead the world if... - The Daily Reckoning

Zimbabwe & Argentina would lead the world if...

Nov 10, 2014

Baltimore, Maryland

Dear Diary,

Voters don't like the Republicans any better than they like the Democrats. But last week they held Obama and the Dems responsible for the economy.

They got off easy. A hanging would have been more appropriate.

We have mentioned many times how household income is now lower than it was when the 21st century began. The median household had $57,000 in income when the big ball came down in Times Squares and closed out the 20th century. Today, it has only $52,000.

Stocks are substantially higher. So are corporate profits. Why aren't ordinary people earning more money? After all, we live in the greatest economy man has ever created. More people have more money than ever before; so there's plenty of capital to fund new enterprises. More people have college degrees too, so there's no shortage of educated people to fill office seats. And there are more scientists and engineers who are busy developing new drugs, new machines, new chemicals. Our economy should be exploding with growth, jobs, and higher incomes for everyone.

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In addition, there are more people than ever before whose explicit role in our economy is to make things better. More government agencies, more programs and more bureaucrats. These 'public' employees are all supposedly working full time to improve the lot of the 'public.' The Federal Reserve alone has 17,015 employees, almost all of them either clerks or economists. Surely the combined efforts of so many smart people have resulted in a better economy?

Apparently not. Not only have incomes for most people fallen substantially, their debt has more than doubled since the beginning of the century. True, it is a little lower than it was in '08, but it's still more than $13 trillion.

And here's something interesting. It used to be easy for a young person to enter the workforce and a pleasure for an older person to leave it. Now, it's hard for the people who need them to get jobs...and hard for the geezers to give them up. Labor force participation for people 25 - 54 years has fallen from 83% to 81%, while 40% of people over 55 now have jobs, compared to only 30% in 1990.

Since 1979, incomes of the top 1% have gone up 3 times. But when you get down to the average person, his income has actually gone down over the last 35 years. At the bottom - where you find the poorest 20% of the population - incomes have gone down an unbelievable 60%.

In the year 2000, 69% of people polled said they were satisfied with the ways things were going in the US. Now, only 23% say they are satisfied, which is hardly surprising in light of the figures we've just seen.

For some, the frustration is unbearable. In 2001, about 16 men out of every 100,000 killed themselves. Now, the figure is 25 per 100,000.

You'd think this kind of feedback would force economists and politicians to take notice. They might want to reconsider the policies of the last few decades. But no. Celebrity economists, such as Paul Krugman or Larry Summers, as well as those running the Fed, the Treasury, the European Central Bank and the Bank of Japan all share the same activist economic model...one that was developed in the first half of the last century and elaborated over the last 60 years.

These economist think a sluggish economy must suffer from a 'lack of demand' and that if they could just get demand up, growth would pick up...leading to more jobs and higher incomes.

But 'demand' is a natural thing. It comes about when people have earned money (or savings) ...and when they would rather buy something than hold onto the money.

The feds know they can't fiddle actual demand. All they can do is create phony, ersatz demand, by artificially suppressing interest rates and making it easy to borrow. If that doesn't work, they're preparing the public for two further initiatives. The first one came to light last week, when the Bank of Japan - always a trendsetter - told the world that not only would it buy more government bonds (QE)...the Japanese authorities will also be intervening directly in the stock market, buying shares themselves.

Naturally, that stimulated stock market prices... Speculators on Japanese stocks - including your editor in his "Trade of the Decade" - made money. Like every other policy initiative over the last 2 decades, it made the rich richer. But don't expect this new policy move to make much difference to the Japanese economy or its middle class workers. They need real economic improvement, not more 'stimulus' claptrap.

If you could really stimulate by creating phony demand, Argentina and Zimbabwe would have two of the world's leading economies.

And today, Harry Reid would still be majority leader in the Senate.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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