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Great Depression Online Archive Issue:

Getting Chumped Again and Again

Great Depression Online
Long Beach, CA
September 11, 2009 (Patriot Day)

Inside This Issue You Will Discover…

*** Looking Like Fools
*** Unemployment Hits 16.8 Percent
*** Getting Chumped Again and Again
*** And More

Looking Like Fools

Despite the abundance of nonsense being emitted by economists, consumers are on to the fact that this isn’t an ordinary run of the mill recession.  It’s a depression or – at best – a long sluggish slog through low growth and weak employment.

For this reason our fellow man should be commended for their collective action.  For they’re doing the sensible thing at a time like this…they’re borrowing less.  Much less…

“The Federal Reserve reported Tuesday that consumers in July ratcheted back their credit by a larger-than-anticipated $21.6 billion from June, the most on records dating to 1943,” reported AP.

This $21.6 billion reduction in borrowing left the leading economists of the day looking like fools.  For they “had expected credit to drop by $4 billion.”

As you can see, they were off by $17.6 billion.

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In most professions, such a miscalculation would be cause for termination or extinction.  If a contractor were to under prices a bid by a factor of 5, he’d lose his shorts…his tail…and his reputation.  One mistake like that and he’s out of a job, broke, and munching on a fat slice of humble pie.  If he can keep his wits about him, he’ll become a house painter or maybe a pool guy.

But for an economist, such a mistake garners respect, admiration, and, often, a tenured professorial position at an Ivy League university.

Unemployment Hits 16.8 Percent

We couldn’t resist pointing a finger and chuckling at the dismal science profession.  Yet while we do this for comedy we also look for instruction.  And what we discover is this…

Just because an ‘expert’ tells you something doesn’t mean it’s true…particularly when the expert is an economist.

On Wednesday the Federal Reserve released its Beige Book business survey.  Here was the gist of it, as captured by Bloomberg…

“The Federal Reserve said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, adding anecdotal evidence that the worst U.S. recession in seven decades is over.”

From what we gather such anecdotes included “signs of improvement.”  And that “the outlook among many business contacts was ‘cautiously positive.”’

While we want the downturn to be over as much as the next guy, we’re not buying it for one simple reason.  Jobs.  Where will recovery come from when there are no jobs?

“The jobless rate, at 9.7 percent, is the highest since June 1983, when it registered 10.1 percent.”

Yet the real unemployment rate, when you remove the numbers disfiguring, “the so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- reached a record 16.8 percent.”

Getting Chumped Again and Again

Still, the stock market continues to rise.  In fact, yesterday it rose for the 5th day in a row and logged its 2009 high, with the S&P500 closing at 1,044.  This is up over 54 percent since the March 9th low…yet still down over 33 percent from the October 2007 high.

Of course, all the smart money is selling out of the stock market.  The insiders know stock valuations are pure fantasy and they’re taking profits while the getting is good.

“Insider’s sell like there’s no tomorrow,” says a headline we came across on CNNMoney.com yesterday.

“Corporate officers and directors were buying stocks when the market hit bottom,” continues the story.  “What does it say that they’re selling now?”

We also came across several reports that Warren Buffett, the world’s richest investor, has been selling stocks and buying government debt.

The little guy, however, is buying stocks like hot cakes at a Saturday morning IHOP…pushing up prices along with his hopes.  Alas, he’s sure to be suckered by the stock market.  For that is how the world works.

The insiders, with upfront knowledge and knowhow, haul in the lion’s share…while the little guy gets chumped again and again.

Sincerely,

M.N. Gordon
Great Depression Online

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