Fear Factor.

April 12, 2013

Give me back my broken night
My mirrored room, my secret life
It's lonely here
There's no one left to torture
Give me absolute control
Over every living soul
And lie beside me, baby
That's an order
-Leonard Cohen, The Future

. . .
Markets hit rock bottom in March 2009. They have purred like happy kittens ever since.
The economy, however, has been mired in a recovery that can only be described as tepid.
As winter turns to spring, the economy appears to be shifting into lower gear. Payrolls are down. Jobless claims are up. Industrial activity measures below expectations. Taken together, the message is simple. Growth, already less than spectacular, is slowing.
Yet, the Fed, and much of our elected leadership, continues to promote the idea of a slow, upwardly rising tide.
Do not believe them. Our politicians may be living the vida loca (click here). Main Street, on the other hand, is trying to survive.
Cited as evidence of economic expansion, the unemployment rate fell to 7.6% last week. Yet, data that is less capable of being manipulated reveals an entirely different scenario.
The job participation rate, showing how many Americans of working age and in good health are currently employed, fell 0.2 points to 63%. This is the lowest participation rate seen since 1979. The Carter era.
The employment-to-to population ratio fell 0.1 point to 58.5%, which happens to be the average since the recession ended in June 2009. In other words, there has been no gain in this ratio whatsoever throughout the entire recovery. In fact, the ratio is actually three points lower than the average throughout the 2007 to 2009 recession.
That's recovery?
Since World War II, it has typically taken 24 months to achieve a new employment peak after the start of a recession. Today, we are 60 months away from the previous 2007 peak. The economy remains down 3.2 million jobs from that year.
At the nation's current job creation rate, it will take seven years before we restore all of the jobs lost during the recession. That's 14 in dog years.
The last 13 years have seen two bubbles, tech and housing, both bearing disastrous results for the American economy. Both bubbles saw the stock market crash. Households lost $5 trillion after the dot-com bust, only to lose $7 trillion in the housing crash.
Today, in its effort to foster our grindingly timid economic turnaround, the Federal Reserve has flooded the economy with phony money. And while those funds have found their way to the liquid caverns of Wall Street, they've done little if anything for the struggling masses on Main Street.
The Federal Reserve, fully committed to this money printing madness, has seen a sixfold expansion of its balance sheet, from $500 billion to $3.2 trillion.
And for what? Economic output has averaged 1.7 percent a year, the lowest such rate since the Civil War. Business investment has improved by only 0.8 percent per year. Payroll has increased by 0.1 percent annually. Real median family income growth has fallen 8 percent, while the number of full-time middle class jobs has dropped 6 percent. The net worth of the bottom 90 percent of the population has been cut by 25%. While those on food stamps and disability insurance have doubled, now including 59 million Americans, or about one in five.
Main Street is in decline. The welfare state is soaring. Washington seeks to maintain the status quo by collecting more tax dollars, printing more money, and perpetuating class warfare.
And even as D.C. and the Fed collaborate on what could potentially be the next catastrophic bubble, massive amounts of liquidity promoting an enfeebled dollar and hyper inflation, the Federal government continues its quest to see every American in hoc, enslaved to large lending institutions by the need to attain a bachelor degree and home ownership.
Further, the government takeover of healthcare could result in massive healthcare cost increases for most Americans. The Society of Actuaries just released a study predicting that healthcare costs could rise an average of 32% by 2017. Worse, the report states that insurers in some states, like Ohio and Wisconsin, would rocket up by 80 percent. States like California, Idaho, Maryland and Indiana may experience 60 percent increases.
Do you think the healthcare insurers will absorb these costs, or pass them along to you and me?
We have not seen a government expansion like this since FDR's New Deal or LBJ's Great Society. This expansion, like those, has not been economically beneficial. Some economists argue that FDR's erroneous policies served only to extend the consequences of the Great Depression until the nation began gearing up for WWII. LBJ's policies? Well, one need only recollect the seventies and you get the picture.
Let's spread the blame like marmalade, because both parties share the blame. There's a reason why the Federal government breaks up monopolies and duopolies. They negate choice, deprive consumers of the benefits of competition, and result in a complete loss of imagination. Yet, here we are with two political parties that, even when capable of passing sweeping legislation, seem to constantly miss the mark.
Both parties, and their endless pandering to a hopelessly confused electorate, end up placing a higher premium on public relations successes than they do societal benefits. While slowly, our problems spin out of control.
Entitlement spending is unsustainable. We will soon reach a point where our gross Federal debt will soar past $20 trillion, and over 100 percent of our GDP. And then will come a point at which we can barely afford the interest payments.
And yet, the solutions to our problems remain completely unpalatable to most politicians, who have less will power than my five year old son in a donut shop. They would require a complete divorce of the state and the market economy. A renunciation of Keynesian economics, crony capitalism, statist growth policies and the politics of class warfare.
Wall Street would suffer. Government would shrink. U.S. exports would contract at the hands of a strengthening dollar. The only beneficiaries? You and I. Times would be tough. But a system reset would eventually sweep aside the detritus and pave the way for a brighter future.
Of course, our politicians will never have the courage to undertake such a reformation. They'd just assume close the castle gates as the kingdom crumbled into the fault lines.
If I sound fearful, that's because I am. Our system is broke. Our political class is blinded by hubris. Our electorate is high on the opiates of satellite television, movies on demand and playoff sports.
Somewhere ahead, a day of reckoning awaits. Eventually, we will recognize it. Like bugs on a wind shield.

Securities offered through Dempsey Lord Smith LLC – Dempsey Lord Smith LLC, Rome, GA Member FINRA / SIPC / MSRB.

Advisory Services offered through Dempsey Lord Smith, LLC, an SEC Registered Investment Advisor. Clearing through and accounts held at Charles Schwab & Co., Inc.

Dempsey Lord Smith, LLC nor Hyde Park Wealth Advisors LLC provides tax or legal advice and you should consult your accountant and/or attorney if considering an investment of this type. Hyde Park Wealth Advisors LLC is not controlled by or a subsidiary of Dempsey Lord Smith LLC. Investing in Alternative Investments come with a variety of risks that could result in a complete loss of principal investment.

Alternative Investments offered as private placement securities are offered only to qualified accredited investors via confidential private placement memorandum. Income and returns are not guaranteed and there are no assurances investments will meet their stated objectives.

© 2024 Hyde Park Wealth Advisors. All Rights Reserved