In 2006, when I first let the cat out of the bag on the "world wide web" that I had a bit of "psychic" ability, one of the very first things I started talking about was the economy. At the time, the United States was flying high but I felt (oh blasphemy of ALL blasphemies) that soon, within the next year or two, the economy would not only slow down but would go in to something of a free fall, like a drunk after an all night bender. This, as you might imagine, was (at the time) not well received.
Fast forward -- 2012. My take on what comes next is rooted in my analysis of what went before. Without understanding the seed, you cannot fully grasp the growth pattern of the plant and the seeds that were planted back in 2001 have already taken root . . . the weeds have eaten the garden and much as we may boo hoo that the rose bushes were overrun by dandelions, the fact remains that, as economic gardeners, we all kinda suck. We, at least within the United States and certainly, too, in other parts of the world, allowed the wool to be pulled down tight over our unfocused eyes and, as a result, we have allowed a beautiful patch of ground to go . . . untended and therefor prey to whatever forces were strongest.
Those forces were, systematically and intentionally, looting the seed bank.
They were also working hard to reverse long-standing policies within the United States and replace them with a more "laissez-faire" approach -- one that saw basic services as entitlements and the Capital "G" Government as an enemy of the people. When someone tells you what they plan to do, it is often wise to actually listen to what they say and I heard what they were saying -- and what that MEANT -- but I was in the minority as others cherry-picked the parts they liked and ignored what didn't "fit" in their pre-conceived world view.
Not a good plan.
So . . . what do we expect next? First off, unemployment at these levels WAS (as I said in 2007) the AIM of this little hokey-pokey square dance . . . it was DESIGNED to drive down labor costs and "inspire" a big chunk of people to get off their "high horses" and roll in the dirt a bit. Driving down labor costs was and is the "end game" of the controlled implosion of the United States economy and it has been a painful 4 years but now the tide is turning. People are desperate to work and not so "unreasonable" as to expect a living wage. They are hungry and, as such, primed for the next phase of the economic turn of the wheel.
Not only are Americans desperate to work they are also, relatively speaking, uneducated and poorly equipped to meet the vocational needs of the 21st Century. There is a large skilled labor force well versed in professions suddenly obsolete and a young, unskilled labor force without the critical thinking skills necessary to effectively adapt on the fly. Asia and India have a work force more suited "to the times" and, much as this must pain so many, the United States will soon see Asia come knocking on our door to answer customer service calls for banks and phone companies in the Far East. This is going to happen --- sooner, I think, than later.
We are not quite third world but not quite superpower either. A military force with a very heavily divided work force from which to draw. The best of the best mingled with a large hodge podge of Honey Boo Boo's . . . something has got to give and the trend, as far as standard of living goes, for the avarage American is continually downward.
YET -- I continue to predict that the economy is on the upswing. How can this be, based on what I just said?
It's easy. Employment opportunities are going to rebound and jobs will be more plentiful. As more money circulates, more skilled people will be needed and "real wages" will increase -- so, for those who "work", the economy will get better.
The past 10 years have been a giant hot potato and the question is "who ends up with scorched fingers?". For me, this has always been an easy thing to see. The people who lose most are those who have fixed incomes or pensions. They are the sacrificial lambs, (along with anyone who bought a house between 2005-2008), of the eonomic re-"arrangement".
EXCUSE ME BROTHER, CAN YOU SPARE A LITTLE OINTMENT? I'VE GOT A BAD CASE OF QUANTITATIVE EASING !!
QE3 -- it looks so benign. Is this an abbreviaton for 3rd Quarter earnings or a new pimped out superliner? No, it is neither. It is an abbreviation for "Quantitative Easing 3" which, for those without a degree in economics, suggests something nice and warm and soothing. And, for a select group, there could be no better pill for all the aches and pains of a thousand lifetimes. But for most, this is a slow poison; one I predicted, years back, would happen and, not so surprisingly, the inevitable actually WAS inevitable.
So, what exactly is "Quantitative Easing" and why do I link QE3, along with QE1 and QE2, with the assessment that the true "losers" are all those who invested in fixed-income retirement packages? Why is that group, more than all others, the one with the biggest stick in the most inconvenient space?
Quantitative Easing, in a nutshell, goes something like this: the Federal Reserve buys financial "instruments" from commercial banks -- like a bond -- so the bank has a greater "reserve". Boiled down to its simplest element, it means that the Federal Reserve simply, out of thin air, "makes money" and gives it to the bank . . . meaning, boys and girls, that there is more money than before and if the same amount of goods and services existed as the day before, with more dollars floating in the economic turd pool, the cost of a good or service might very well go up, since there is suddenly a greater supply of money to bid for that service or product.
In reality, this serves as a flat rate tax against everyone but since the poor, in theory, are better served by a tiered tax this serves as a double whammy against them. They are seeing their "dollar supply" eroded and, as a function of mathematical progression, their buying power is diminished -- literally both coming and going.
Let's say Grandma Jones has a fixed monthly Social Security check of $1000. Over the last 4 years, the Federal Reserve has simply "added" money to the overall supply (through their assistance to banks to increase their reserves) and the relative purchasing power of income to buying power will likely stay the same . . . however, that adjustment is happening "real time" while G. Jones is unable to see those adjustments take place within the "market". Her $1000 is not amped up by the new money supply so therefore her relative buying power goes down.
Let's say that QE1, 2, and 3 added approximately 10 %, per annum, to the supply of money. Over 4 years that would add up to 40 % which would suggest that Grandma J's buying power, with her $1000 was now, instead of $1000, really only about $600 yet the market would adjust upward for those earning a $1000 over the same period to approximately $1400.
So Grandma Jones' true buying power hasn't diminished 40%, instead it has dropped closer to 60% (600/1400). This is what has happened to people on fixed incomes with set annuities or fixed pensions . . . they have seen the relative value of that money literally stolen from them, by design. This doesn't even take in to account the crisis in home mortgages. So, those who purchased artificially inflated homes also saw the fruits of their labor stolen.
But that is past. That group, I hate it for ya, has already been fucked and there is nothing that is going to fix that.
However, soon those who are in the work force will see their worlds begin to improve. Jobs will be more plentiful, all these empty houses will soon (once again) be on the market and filled with young hopeful families working towards a brighter tomorrow. The damage has already been done.
I warned it would happen; I warned HOW it would happen but . . . people could only see "tax rate"; they couldn't understand the back door fallout which so greatly surpasses the tax burden of the average American. Going forward, things will improve. But --- for those who blindly went along with all the policies of the past 10 years, perhaps you win, perhaps you lose. But it is a certainty that if you were not part of the wage earning elite over the past 4 years, you were shaken down in broad daylight and robbed. You may not know it yet -- but you soon will.
The economy will soon start hitting on all cylinders. However, many former "workers" are dinosaurs and technology has left them behind. Ironically, the ones shouting the loudest for welfare reform are demographically most closely aligned with my "dinosaur" pool and they may see that attitude return to haunt them.
Final statement: it will do no good to complain about the past. Look forward and do your best because tomorrow has the potential to bring a sunny day. The recent past is a dark cloud and filled with darker tales; it is best to remember yet move ahead, worse for wear perhaps but still hopeful for a brighter future.