Thursday, July 03, 2008

Bad News - Good News

This morning I read a good article, written by Bob Willis, about the Economy, on Bloomberg.com.

Once you get past the Mumbo Jumbo that the quoted “economic experts” were saying, it is a very informative, but frightening, article. You have to read between the lines with most economists (notable exceptions were Milton Friedman and Paul Samuelson).

The article’s headline read: U.S. Loses 62,000 Jobs (in June), Jobless Rate Holds at 5.5%.

Bad news and then Good news! But is it really true?

The gains in employment mainly came from returning UAW Strikers and the Federal Government hiring practices. This does not take away from the fact that 62,000 people that had jobs, no longer have them.

And now a word from the Federal Reserve Bank:

“Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters, Fed policy makers said last week, when they kept their benchmark rate at 2 percent. Central bankers had also signaled that inflation was an increased risk.”

What is inflation? Basically, it is the rise in the cost of goods and services without the increase of wages. Some economist believe that a rise in the money supply will also cause inflation (they cite Nazi Germany in the 1940’s where one had to carry a wheelbarrow full of money to go shopping for non-existent goods), but I do not adhere to this theory.

Our current inflation is being caused by two things. One is the price of oil and two the outrageous government expenditures on the War in Iraq (Middle East). And Congress just voted for greater expenditures to fight Bush’s “War on Terrorism”.

But as I have said before we are in a recession and heading into a depression. All the indicators are there. A recession is basically a slow down in consumer spending coupled with a high unemployment rate. It is all based on disposal income. When you barely have enough money to pay your bills, the logical thing to do is to not spend it on extras. With gas prices being the way that they are currently or rising, I don’t see things getting any better.

What does $4 per gallon of Gas mean to the average working stiff? It means at least $150 per month less in their disposable income. Plus they are now paying more for the food that they buy at the Grocery store. At this point they are digging into their savings, if any, just to keep afloat and to pay their bills. No extras.

Is there a solution? Not as I see it. But I have always looked at the glass as being half full.

The Beach Bum

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8 Comments:

Blogger Delightfully Imperfect said...

I believe we are diving into the D-zone as in depression. I believe it may be able to stalled off for a brief time but can not be stopped.

Thu Jul 03, 03:49:00 PM  
Blogger alfredo_tomato said...

We might get to see if the New Deal reforms will lessen the impact of a Depression.

Tuesday I got to talk with our Lt Governor. During our talk he mentioned that oil could be at $300 a barrel by Sept.

Sun Jul 06, 12:30:00 AM  
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