Posts Tagged ‘recovery’

Why hasn’t the economy recovered? Why are there still issues? This week I want to give you an economics lesson. If you can get an understanding of economic cycles, you can get a sense of where we are today.

We can get some insight by taking a look at how a normal economic cycle works. A normal economic cycle goes through 5 stages. The economic cycle starts at the bottom with a recession. Then you start a recovery that leads to a period of prosperity. When the period of prosperity hits a peak, a period of contraction occurs. During contraction, the prosperity period (economic growth) starts to slow down. If the contraction is severe then the slow down becomes economic loss. Economic loss leads to the next stage – recession. The recession acts as a detoxification period. The Government intervenes and then the recovery starts again which leads to a period of prosperity. The economy has been doing it that way for decades.

During a normal economic cycle, the government is effective in providing solutions. The government can intervene, fix things, and shorten the time it takes to get back to economic growth. In order words, the problems that created the recession can be easily fixed.

If we are not in a normal cycle, the cycle has grown much larger, meaning that it takes longer to move from stage to stage. This type of economic cycle is full of structural problems. For instance, the debt feuled prosperity period for this economic cycle was much larger and because of that the downturn is much larger. If that circle gets pushed far enough out, then the economic cycle could result in a much worse scenario like a depression or hyper inflation. It is an economic cycle that has gotten out of balance.

When you get into an abnormal economic cycle, you find the economy has structural problems. Said another way, it is the structural problems that create the abnormal economic cycle. With our current scenario, an irony exists. The very thing that created the growth in our country is the very thing that is creating the problem – DEBT. We were fueled and are being destroyed by the same thing. That creates more and more structural problems. A debt fueled recession or worse is the toughest thing to fix because in an abnormal economic cycle the Government cannot just fix things. They are ineffective as we have witnessed over the past few years.

The problem is only fixed through the destruction of debt. Either the debt is paid back or someone takes a loss. Since the government refuses to allow this to happen, the circle gets bigger and bigger pushing real recovery off into the future.

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I feel like I have been writing about the jobs problem now for a long time.  I keep coming back to the same question.   What are the politicians doing to solve the unemployment problem in America?  I always come up with the same answer – very little. 

To be at this stage of a so-called recovery and to have pumped into the economy 100’s of billions of dollars, we shouldn’t have jobs numbers like we received last Friday. 

All of those jobs that Joe Biden said were going to be created before last month’s job report are now quickly going away as quickly as they were created.  This past month the government gave the pink slip to 225,000 census workers.  What we are the most concerned about is private sector jobs.  How many people are being hired by small business or corporate America?  There is where you want to see your strength.

Unfortunately, only 83,000 jobs were added.  I guess that is a positive.  However, were they really added?  You also have to look at the mystical estimate the Government throws in there of how many jobs they estimate are being created each month. Yes, they are at it again with their government accounting of jobs that were made up out of thin air.  It is the birth/death ratio or the jobs that the Government said were created or lost in a given month that the jobs report missed.

For this month – Poof! 147,000 jobs were added.  I wish that I could add $1,000,000 to my bank account due to a bank error that I assumed happen and be able to spend it.  I know – each month I get on my soapbox about these numbers.  It is just ridiculous. 

Remove the government estimates and you have a net loss of -67,000 jobs.  So where do you think the bulk of those estimated jobs were created?  54% of those jobs were said to be added in the Leisure and Hospitality industry.  Of course, that makes sense to me.  The tourist business is booming on the Gulf coast and the American Consumer has a ton of money to spend traveling. 

How about the unemployment rate?  It went down.  Isn’t that a good thing?  It would be good if it went down for the right reasons.  Unfortunately, 625,000 people feel out of the system and are not being counted. The unemployment rate will remain pretty useless data sense it doesn’t count everyone.

I wrote a blog about the possibilities of a double dip recession this morning.  I just don’t see how we are going to avoid it.  The question is going to be how bad and low will the stock market go?  Sorry to paint the best picture.  However, the vast majority of the media doesn’t get that we have a problem. I just want you to see the other side.

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