“The U.S. economy grew a sluggish 1.2 percent in the second quarter, according to government data released Friday, as businesses cut back on investments and dashed hopes for what economists had expected to be a major bounce-back.
The latest data shows an economy pulled in two directions, powered by fast-spending consumers but held back by anxious companies responding to a strong dollar and turmoil overseas.“Tepid growth between April and June was particularly unsettling because it extended a period in which the economy appears to be gradually shifting into a lower speed. For three consecutive quarters, gross domestic product growth hasn’t topped 1 1/2 percent. The nation hasn’t seen such a meager stretch since 2009.“Though some economists said Friday that the U.S. is due for a pickup in the second half of the year, the recent weakness could dampen sentiment about the country’s course and push Democratic nominee Hillary Clinton to take a more critical tone about the economy under President Obama. Where Clinton has applauded the nation’s recovery, adding that the U.S. needs to build a system that ‘works for everyone, not just those at the top,’ Republican nominee Donald Trump has said the economy is ‘terrible’ and in danger of ‘massive recession.’“The new data, released by the Commerce Department, also provides a note of caution for the Federal Reserve, which is debating whether to raise interest rates in the latter part of the year.”
“Anyone claiming that America’s economy is in decline is peddling fiction.“We’re in the middle of the longest streak of private-sector job creation in history. More than 14 million new jobs; the strongest two years of job growth since the 1990s; an unemployment rate cut in half.”
The Unemployment Rate. The unemployment rate does not measure actual unemployment; rather it measures those receiving welfare payments while “seeking employment.” It does not account for those who have given up seeking employment, those working part time who are seeking full time employment, or those for whom the welfare payments have run out (usually twenty-six weeks). Unless you are receiving welfare in the form of “unemployment compensation” you are not counted as “unemployed.” What a joke.
A better measure of the state of employment is the United States Bureau of Labor Statistics’ Labor Force Participation Rate. While that rate is published monthly, you will never hear Mr. Obama or Ms. Clinton talk about it. And for good reason. The Labor Force Participation Rate has been plunging since the beginning of the Bush/Obama recession in 2008 and has continued to decline yearly. It reached its nadir of 62.4 percent in September of 2015 – the lowest point in nearly four decades – and has experienced a minor uptick to 63.0 percent in March and has been on the decline ever since to the current rate in June of 62.7 percent. What it means is that less than two-thirds of eligible working age people (not including homemakers or those with severe disabilities) are considered “employed.” And even that number is inflated because it includes those who are not actually employed but are receiving welfare payments in the form of unemployment benefits.
The rapid rise in, and continuation of, the number of people receiving food stamps confirms that the economic picture in America is far worse than Mr. Obama’s and Ms. Clinton’s “happy face” unemployment statistics.
Job Creation Numbers. Mr. Obama and Ms. Clinton constantly talk about the “record” number of jobs created during Mr. Obama’s two terms – 14 million private sector jobs. Like Ms. Clinton, Mr. Obama is never capable of telling the actual truth. In point of fact, beginning with the day Mr. Obama took office until the date of his State of the Union address, only 9 million private sector jobs were created. To get to the 14 million you have to give Mr. Obama credit for the 5 million jobs lost during his administration and subsequently recovered – those aren’t new jobs created but rather jobs recovered. In point of fact, because of the continuing population growth, the number of jobs “recovered” during Mr. Obama’s administration has never reached the number of jobs prior to the Bush/Obama recession, adjusted for population growth. In other words, the rate of population growth exceeds the rate of job growth, thus increasing the percentage of people unable to find work. That is precisely the reason that the aforementioned Labor Force Participation Rate, having reached a four-decade low, continues to decline.
New Highs in the Stock Market. The three major stock market indices (Dow, NASDAQ and S&P)have in deed reached new highs within the last two months. If you believe the market forecasters – a dangerous thing to do – we are likely to see a continuing increase albeit with short-term retreats. That is good news if you are a hedge fund manager or a Wall Street moneychanger – that is why the overwhelming majority of them are supporters of Mr. Obama and heavy contributors to Ms. Clinton. They have gotten wildly rich during Mr. Obama’s tenure and they look to get even richer under Ms. Clinton who they know is just as greedy as they are. (She still refuses to discloses the commitments she made to Goldman Sachs in exchange for the $600,000 she was paid for three brief speeches prior to announcing her candidacy – or for that mater what commitments she made to NBC and its affiliated companies in return for it paying Chelsea $600,000 per year.)
Unfortunately, the same cannot be said of the average working family who, according to the Bureau of Labor Statistic has just now recovered to the average household income (adjusted for inflation) that they experienced prior to Mr. Obama taking office. Of course, those figures don’t take into account the huge increases in medical insurance under Obamacare.
The Investment Club members (Wall Street bankers, hedge fund managers and investment houses) have been the primary beneficiaries of the Obama Administrations version of the Federal Reserve System. Mr. Obama has politicized everything else – the State Department, the Justice Department, the Federal Bureau of Investigation, the Internal Revenue Service, the Department of Labor, the Environmental Protection Agency, and on and on and on – why not the Federal Reserve System? He has done it by appointing political acolytes – chief among them is Janet Yellen, the current Chairman of the Board of Governors for the Federal Reserve System.
Under the former chairman, Ben Bernanke, the Federal Reserve System reduced the interest rates on funds available to commercial lending institutions in an effort to combat the massive Bush/Obama recession. It worked in so far as it stabilized the financial markets. But it has continued for over seven years and, like most things done to excess, it is now causing problems.
The ancillary effect of reducing interest rates to near zero over an extended period of time was to drive investment out of bonds – particularly government bonds because of their marginal returns. Investment advisors for decades have relied on the 60/40 rule – sixty percent in equities and forty percent in bonds – as a standard for prudent investment. With no return available on bonds, that money was driven towards the equities market. Couple that with the virtual free money now available to financial institutions from the Federal Reserve System, financial institutions had additional incentive to invest.
With a limited supply of equity investments and a plethora of cash to invest, the result was to artificially inflate the stock market. Historically the stock market has traded at a P/E ratio (price to earnings ratio) of about 17:1. Today, the S&P 500 composite ratio is 24.9:1; and the NASDAQ is 24.7:1 The effect is similar to when the federal government intervened in the housing market by implementing subprime mortgages creating a demand for in excess of supply. Which, in turn, superheated and inflated the housing market until it burst.
The secondary effect was to leave the Federal Reserve with few tools to counter the next recession – where do you go when rates are already near zero. Ms. Yellen recognizes that the rate must go up but is reluctant to do so because of the impact it will likely have on the financial markets.
Thus the federal government once again finds itself facing the dilemma of trying to fix a massive problem that it created. If interest rates remain low there is little that can be done to combat the next recession – and recessions follow expansions like night follows day. As interest rates are raised, money will be driven from the equities market back to the bond market and those using cheap money to invest will be forced to cash out. In both instances the stock market is likely to experience a significant correction.
I have no way of knowing what will happen but my bet is a very, very slow set of increases to minimize the impact on the Investment Club (see above) who are financing Ms. Clinton’s campaign (and Mr. Obama’s retirement – library, speeches, travel, etc.)
No matter how you cut it, Mr. Obama has failed at providing an economic climate that will benefit the middle class. The rich have gotten richer, the poor have gotten poorer (particularly among Blacks), and the middle class has shrunk. Race relations are worse. Welfare recipients have increased dramatically. And the public discourse is raw, partisan and, at times, frighteningly violent.
And for Ms. Clinton, she has promised to fix the anemic economy that she helped create – God bless her. She is going to create the biggest stimulus package we have ever seen. When FOX News’ Chris Wallace reminded Ms. Clinton that Mr. Obama promised the same thing and then spent a trillion dollars that did nothing, she said the problem was that we just didn’t spend enough and that her program was be directed toward infrastructure – exactly what Mr. Obama promised but instead gave to the public employee unions for raises and increased benefits and to favored political supporters – green energy, community advocates, and other supplicants feeding off government largesse.
And in eight years when Ms. Clinton has failed for the same reasons that Mr. Obama has failed, Sen. Elizabeth Warren (D-MA) will announce her candidacy and promise the biggest stimulus package we have ever seen.
Insanity is doing the same thing over and over again and expecting a different result.