It is nice to step back from the world of mainstream media, where I have been making the case I made in my book, The Bull Hunter. The mainstream media is reluctant to embrace the ideas I've outlined, or at least to follow them through to their logical conclusion. And what is the logical conclusion, you might ask?
America created over 207,000 jobs last month, according to the Labor Department. But when you look closer, 50,000 of those jobs were in the retail business. Most commentators viewed this with anxiety, but for the wrong reason. The conventional wisdom is that the report indicates inflationary pressures and that the Fed will have to keep raising rates. In reality, the bigger concern is that American jobs are being created, on average, at lower average hourly wages.
This is the vaunted shift to the 'service' economy, driven by spending. Step back for a second and ask yourself this simple question: How does a nation get rich spending money?
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If you have a good answer to that question, let me know. In the meantime, the other big drivers of employment growth were construction and government. In fact, since 2001, over two-fifths of new jobs have been in housing related industries (construction, real estate, mortgage lending).
This is just one example of how housing-centric the U.S. economy has become. In a healthy economy, business investment creates new employment, which in turn creates new incomes and jobs. Business spending (out of the pool of available saving) comes first. Consumer spending comes next.
In an economy run by economic illiterates, consumer spending (through debt and home equity extraction) is praised. Savings fall to zero. No mention is made that the main drivers of employment and GDP growth are based on debt.
No mention is made that American wages are in a soft, slow motion swan dive as a result of a globalised labour market.
No mention is made of a study by McKinsey & Co. that up to 9 million white-collar jobs may be outsourced, in addition to the 3 million manufacturing jobs that have already left these shores.
And no mention is made that Great Britain and the United States did not get rich by consuming and spending. They got rich by producing and trading.
At the national and the personal levels, you accumulate capital by producing more than you consume and deploying the accumulated savings on new capital and income-producing assets.
It's not rocket science. In fact, economics used to be called moral philosophy. It was, and is, the study of choices people make with money. But the choices people make with money are driven by values, and those values, even when exercised in the economic realm, are essentially moral choices.
I've been asked what America can do to turn things around, to get competitive, to fight back. My suggestion is that the most American thing of all to do is to take care of yourself and your family.There are some economic and monetary policies that could help. But I wouldn't count on getting that help. Not anytime soon.
In the meantime, paper assets driven by low interest rates are going to keep going down. Hard assets, driven by intense global demand for scarce resources, will go up. You will see rising prices in hard assets (like $64 oil) and falling prices for financial assets and stocks. This sorting out (or 'reckoning,' if you prefer) is just now getting started.
By Dan DenninFor The Daily Reckoning
Ed. Note: Dan is the mastermind behind the Bull Hunter phenomenon that is setting financial bestseller lists ablaze. Click here for a 30% discount.
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