(ThyBlackMan.com) “You can make your mouth say anything, but your actions reveal your true intentions.” James Davis
The premise on which this economy expanded in the last seven years is based on a United States Federal Reserve Bank (Fed) program called Quantitative Easing (QE). The central bank financed the debt of the federal government starting back in November of 2008 and accumulated a balance sheet of United States securities totaling $4.48 trillion dollars when it ended the program in November of 2014. The program was instituted to keep long and short term interest rates low. The idea was if you kept interest low, coming out of the financial downturn of 2008, it would help businesses under severe economic pressures recover and create jobs. This meant these businesses and corporations could get financing or refinancing at very low interest rates. It was for the lack of any other term, “a period of ease money,” which continues to this very day.
It appears, based on the number of jobs created as announced by the Bureau of Labor Statistics (BLS), the Fed’s cheap money policies are leading to businesses and corporations expanding hiring as the Fed had anticipated. The BLS reported 252,000 jobs were created in December. It also reported monthly job growth averaged 246,000 jobs during 2014. The black unemployment rate dropped to 10.4 percent in December from 11.0 percent in November. The national unemployment rate dropped from 5.8 percent to 5.6 percent. These are excellent numbers as the BLS even adjusted upward job growth for the months of October and November.
However, we know that many businesses and corporations took the low interest rated money that the Fed provided through its Quantitative Easing program and used it to tidy up their balance sheets by rolling over long term high interest rated debt to cheap low interest rated debt. Many corporations used the inexpensive money to initiate stock buy-back programs to increase the price of their stock. Overall, corporations did not invest in expanding and buying new equipment; new products and hiring. This led to reduced manufacturing orders to the Chinese manufacturing floors which caused the Chinese economy to falter and lose strength. We saw advanced economies in Europe also reduce orders to the Chinese manufacturing floors as their economies slowed as a result of the United States’ economic downturn.
Therefore you have to ask, from where are the new jobs primarily coming and if these new jobs will be permanent? This is the question investors are also pondering and mulling over. They know the Chinese manufacturing floors which are used by advance economies to do their labor intensive manufacturing are still in the doldrums. Additionally, “investors know no long term job creation plan” (http://thefixthistime.com) has replaced the bond buying activities (QE) of the Fed. They also know that Congress has not initiated any major long-term capital improvement programs when it comes to our infrastructure, such as repairing bridges and roadways.
Therefore, the reaction of investors during the stock market’s first full week of business in January was negative. The first two days of trading saw a 500 point drop in the Dow Jones Industrial Average. Investors knew that the drop in oil prices which continues was “initially due to the slow down economically of the major advanced industrial and emerging economies.” In other words, since production has fallen in the economies of Europe, Great Britain, Japan and the emerging economies of Brazil, India, China and Russia, the decrease in the demand and price of oil followed, as when demand falls in these countries for goods and services, there is less demand for energy. Therefore they sold off the stock market, anticipating lower profits for corporations.
Nevertheless, most investors knew the job creation numbers would be good for December, as indicated above, because of holiday hiring, but they also expressed their concern about where the economy will be in the next six months. As a result, two camps of investors are evolving and exerting their imprint on the stock market. There is a schism developing within the investment community. There are those who are buying the federal government’s, the Corporate Oligarch’s and the One-Percent vision of how the economy is improving, which is based on ease money, low wages and future low paying jobs. This is their version of how the economic recovery from the 2008 Downturn should look. Traditionally, the construction of affordable housing and long term government spending on major capital projects have led the economy out of economic downturns.
This is why the traditional economic prognosticators, who are in the other camp are suggesting “this recovery does not have strong enough legs to sustain itself.” The traditionalist were the sellers in the 500 point downturn and continue to be the sellers today and the One-Percent crowd were the buyers, forcing the stock market back up after the sell off in January. The federal government with Mr. Obama at the lead, the Corporate Oligarchs and the One-Percent crowd in essence believe the American economy has to be “dumb-downed in terms of wages” in order to compete in the global economy.
Hence, Mr. Obama’s recent executive order on comprehensive immigration reform which he signed at the urging and blessing of the corporate community. The Congressional Budget Office projects lower wages will result initially as immigrants compromise the wages of all American workers as they seek employment in this anemic job market. There is no question the Corporate Oligarchs and the One-Percent have brought home to America the philosophy and policies of a low wage type economy which was exported to other countries through trade agreements. They are having good results as they are doing a bang-up job of creating new jobs as the numbers indicate, even though many of those new jobs are service related and not high paying.
This is our future, if the federal government which is presently controlled by Mr. Obama, the Democrats, the Oligarchs and the One-Percent prevail. This is not much different than the Republican Party’s vision, except Republicans are demanding stronger border security and more tax cuts for the wealthy and the Corporate Oligarchs (the haves), as we see real wages when it comes to the 99 percent (the have-nots) being held in check, barely keeping up with inflation. They are literally selling out and betting against African Americans, who have the highest unemployment rate of any worker group and the American middle class as we know it!
So what will the economic recovery of the future finally look like? I am placing my bet on the traditionalist and the American voter as they have already won round one. Middle class voters abandoned and rejected in the mid-term elections Mr. Obama’s and the Corporate Oligarch’s notion of a successful economic recovery! Investors have yet to definitively weigh-in, however. Once they do, look for the Dow Jones Industrial Average to drop dramatically in the coming weeks and months, perhaps as much as 10 to 15 percent in a very short period of time. That could signal the start of a new recession.
Staff Writer; James Davis
You can get this brother’s latest books titled, “The Fix This Time” Expanding Social Security Benefits to Create Jobs and Spur Demand @ http://www.amazon.com/dp/B00MI3PD2M and “Hey…God’s Talking To You” The Study Book @ http://www.amazon.com/dp/B00GYI3VQW.