Great Depression Online Archive Issue:

How You Create Wealth

Great Depression Online
Long Beach, CA
January 12, 2010

Inside This Issue You Will Discover…

*** Much Worse than Expected
*** The Real Unemployment Rate
*** How You Create Wealth
*** And More

Much Worse than Expected

Jobs growth is a lagging indicator say the economists.  When an economy recovers new jobs are the last to show up, they claim. 

Perhaps they’re right…perhaps an economy can recover without creating any new jobs.  But can an economy grow when it’s losing jobs?  Anything’s possible we suppose.  Caterpillars somehow become butterflies. 

Nonetheless, any which way you look at it, last Friday’s unemployment report was much worse than expected…

“Gripped by uncertainty over the economic recovery,” reported AP “employers chopped 85,000 jobs last month.

“Analysts had expected the economy to lose just 8,000 jobs in December.”

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“The Labor Department’s monthly jobs report suggested employers will remain wary about hiring and skeptical of the economy recovery.”

Here’s what we make of it…

The Real Unemployment Rate

At the GDO we remain skeptical of the economic recovery too.  We read about it in the papers.  We hear about it on the news.  The stock market sure thinks it’s upon us… 

Yet when we look at the world around us we see an economic model that’s broken: An economy based on consumption that’s still grossly overloaded with debt…and a government hell bent on stimulating new demand by artificially suppressing interest rates and borrowing lots of money from the rest of the world.

And because of the government’s wacky way of reporting unemployment, when the jobs market does finally improve the unemployment rate will not go down; it’ll go up.  Here’s what we mean…

While 85,000 jobs were lost in December the unemployment rate stayed at just 10 percent.  How does that work?  How can the economy lose jobs while the unemployment rate stays unchanged?

Here’s how.  If you give up looking for work because you know there are no jobs, you disappear from the labor force and are no longer counted as unemployed.  Last month, you see, the labor force shrank by 661,000 people because those people stopped looking for work.  If they were counted, the unemployment rate would be 10.4 percent.

But it’s actually much worse…

“Counting the people who have given up looking for work and the part-time workers who would rather be working full-time, the so-called underemployment rate edged up to 17.3 percent in December.” 

How You Create Wealth

Production, of course, is how you create wealth.  Producing things and selling them to others.  It’s how the United States – and the United Kingdom before – came to economic and military power. 

Nowadays, it’s not that America no longer produces anything…for we do.  Food production is still a net export and industrial supplies and production machinery are still top exports.

The problem is that the U.S. imports so much more.  For example, in 2008, the total U.S. trade deficit was 695.9 billion.  In other words, the U.S. transferred $1.9 billion of its wealth to the rest of the world each day of the year.

So how do you close the huge trade deficit?  You spend less than you make…you save more than you spend.  By doing so, you effectively produce more than you consume.

But that takes hard work…and discipline.  The government would rather devalue the dollar, in the hopes that it’ll make U.S. exports more competitive overseas than to encourage savings at the risk of stifling consumption.

Yet the economic model of debt based consumption has been shown to be a farce.  So far the recession’s wiped out 7.2 million jobs.  Still the government pursues a consumption economy with the zealot conviction of a Chicago Bears fan.

In other words, they’re more thoughtless than the shirtless chest beater…foaming at the mouth from the sidelines in the snow.

Sincerely,

M.N. Gordon
Great Depression Online

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