Mish's Global Economic Trend Analysis |
| Posted: 17 Sep 2010 01:12 PM PDT The latest Gallup Survey shows U.S. Unemployment at Highest Level Since May Unemployment, as measured by Gallup without seasonal adjustment, increased to 9.4% in mid-September from 9.3% in August and 8.9% at the end of July. This finding makes it far more unlikely that there will be a significant decline in the U.S. unemployment rate prior to the midterm elections.The discrepancy between the Gallup survey and the BLS survey can partially be explained by the fact Gallup does not seasonally adjust numbers but the BLS does. Moreover, the BLS discards "marginally attached workers" (those who want a job but did not look in the last month), but Gallup does not. Please see article for additional charts. Because employment has hit a brick wall, as expected, I also expect to see a slaughter in November with Republicans picking up 45 seats or so in the House, enough to take the podium away from Nancy Pelosi. Thank God! Bear in mind, I am not a Republican. Rather I am a Libertarian backing candidates who closely align with those philosophies. I wrote in Ron Paul in the last presidential election. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Myths About "What's Economically Important" Posted: 17 Sep 2010 10:23 AM PDT Day in and day out I hear it from readers who insist that we are not in deflation and will not be in deflation because prices are rising and continue to rise. Still others tell me it is illogical for a deflationist to like gold. When I counter with a discussion about credit conditions I tend to get a blank stare or a comment like "I do not care about credit conditions. I own my home. What I care about are rising prices of food and energy." When I counter with falling asset prices and zero percent interest rates on savings accounts I am likely to get as statement like "Who cares, I rent?", or perhaps "The poor have no assets or savings, all they care about is food prices." Really? Such comments come from those who are not thinking clearly about what's important. Here's why:
So, What's Really More Important? Expanding credit (inflation) created an enormous housing bubble, a commercial real estate boom, a rising stock market, and an enormous number of jobs. Contracting credit (deflation), burst the housing bubble, burst the commercial real estate bubble, burst the stock market bubble, resulting in millions of foreclosures and bankruptcies, millions of broken homes, millions on food stamps, 26.2 million unemployed or partially employed, and countless additional millions who are underemployed. People notice food and energy prices because they tend to be somewhat sticky. Everyone has to eat, heat their homes, and take some form of transportation at times, but is that what's important? No! In the grand scheme of things, nominal increases in food and energy prices are but a few grains of salt in the world's largest salt-shaker compared to the massive effects of rising or falling credit conditions. Yet, every day, someone writes to me complaining about the price of milk (or something else) going up 30 cents or whatever telling me that is "inflation" or that is what is most important. Inflation/Deflation Definitions Once Again
Conclusion Those who think prices are what matters, even those who have no debt and no assets, are simply missing the boat about the importance of credit expansion and credit contraction in fiat credit-based financial system. As shown above, a credit contraction affects everyone, in many ways, and in far more important ways than simple price changes. The stimulus and bailouts helped the financial economy (for a while), but not the real economy. Because credit dwarfs money supply, trillions of dollars of so-called stimulus vanished into thin air, with no lasting impact on the jobs market. The inflationists and hperinflationists who ignored credit and focused on money supply alone (or consumer prices) never saw the plunge in interest rates coming or the massive pounding in global equity markets. Those who knew a credit implosion was coming, got treasury yields correct, the equity crash correct, the rise in the dollar correct, and the strength in gold correct. Gold does well in times of economic stress, especially in the senior currency - in this case the US dollar. It is the only commodity whose long term trendline is intact from 2000. Gold is money and as money it should do well in deflation in the country of the senior currency. It did. In credit-based system, especially where credit dwarf money supply, credit itself (and the value of credit marked-to-market on the balance sheets of banks) is of paramount importance. Those who insist inflation is about prices, as well as those who view inflation as an increase in money supply alone (ignoring credit), are going to continue to get the economic picture wrong. If you are focused on prices or money supply alone, you are focused on the wrong thing. In a fiat credit-based economy, where credit dwarfs money supply, changes in credit is what's important, not changes in money supply, not nominal changes in prices. It's as simple as that. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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