|The Daily Bell |
Issue 401 • Saturday, September 05, 2009
US economy has lost almost 7 million jobs since recession began
Alex Wong/Getty Images
Unemployment in America jumped to the highest level in more than a quarter of a century last month, bringing to almost 7 million the number of jobs lost since the recession began. The jobless rate in the world's biggest economy climbed to 9.7%, higher than the 9.5% expected by economists and up from 9.4% in July. President Obama has said that he expects the unemployment rate to reach 10% before beginning to fall. The figures from the Labor Department underline the challenges facing the leaders of the G20 countries who will grapple with when to pull back the stimulus given the global economy in the past 12 months. Timothy Geithner (pictured left) , the US Treasury Secretary who is in London for the meeting of G20 finance ministers, said this week that there is a long way to go before the global economy can declare a durable recovery. "The labour market's healing process is agonizingly slow," Joshua Shapiro, chief US economist at Maria Fiorini Ramirez, told Bloomberg. "We expect the improvement to remain a very slow one, and therefore for the household sector to be contending with a weak labour market for some time." - Telegraph
Dominant Social Theme: Worse than thought?
Free-Market Analysis: We return to one of our favorite (though saddest) themes. No, we don't believe unemployment is a lagging indicator. As we have pointed out, there is plenty of evidence that pump priming is a most inefficient way to go about aiding economies during a central-bank initiated economic crisis. Since Western leaders cannot admit this, they have come up with the respectable sounding term "lagging indicator" to conceal the reality of how modern economies operate during such downturns.
During the kind of crisis we have just experienced, Western fiat money went into a kind of meltdown. There was so much of it around that it caused first a reckless boom and then a terrible bust. By immediately setting the printing presses into motion once again, Western democracies managed to avoid a thorough shakeout of mal-investments and a sharp breakdown of worthless banks and institutions themselves. This has kind of trapped Western economies in amber. Unable to purge mal-investments - especially important in fiat economies which are routinely deformed - Western economies face a long, slow trudge toward economic vitality. On top of this, Western economies might be facing additional blows from commercial mortgage defaults and derivative defaults.
The optimal way to deal with a fiat money meltdown is to let it occur, but that is impossible for meddlesome Western governments. Another way to deal with such a large meltdown is to rush paper money back into the hands of those individuals and entrepreneurs that will immediately put money back into circulation. This doesn't address the larger issue of unpurged mal-investments but at least it would circumvent the current lending gridlock that always occurs after one of these debacles.
Conclusion: In truth, Western democracies support central banking economies not free market ones. When central banks overprint money and generate first a boom and then a bust, their top bankers scramble to support the banking distribution system - which is therefore in a constant bubble. (The West is horribly over-banked.) Billions and in this case trillions are disbursed in days, weeks and months as necessary to staunch the financial bleeding. But this does nothing to help the real economy, nor should it, as the real economy is not the initial, nor even the ultimate concern of central banking. Central banks are put in place and maintained to create wealth and power for the state and those who control its levers. It is for this reason that we get the bizarre spectacle of US vice-president Joseph Biden boasting that his administration's financial stimulus is beginning to take hold. How much was it? Approximately US$200 per person.