Employment Friday
July 3rd, 2008 by 
reality
The employment report was pretty much as expected (-62,000, 5.5%) and so the index futures are up. Or maybe it is because oil is a few pennies lower. Not that it matters. The birth-death model contributed 177,000 new jobs for the report, including an increase of 29,000 in construction. The last two months employment reports were revised downward (bigger losses than originally reported) and, perhaps more tellingly, the weekly jobless claims number popped over 400,000. That’s a bit of a magic number for recession.
Anyway, despite the waterboarded statistics, unemployment is clearly on the rise. We’re going to see how the “services” economy holds up under stress. Not well, I expect. What needs to be done for recovery, in my not-so-humble opinion:
- Replace the income tax with a consumption tax to encourage saving and investment and eliminate the huge adminstrative overhead.
- Change the Federal Reserve’s mission to solely that of providing a currency with stable purchasing power.
- Stop the wars and drastically reduce the defense budget so that the resources used by the military are re-allocated to the consumer.
- Stop sending money to thugs. Reduce energy consumption by taxing transportation fuels at levels similar to those in Europe, and quickly clear the way for development of the domestic oil shale resources. The technology is ready, politicians are the problem.
- Develop the equivalent of the Resolution Trust Corp. to take over the assets of failing banks and S&Ls, to protect depositors. The FDIC is not up to the task.
Edit: The ISM Services number came in at 48.2, indicating that service businesses are contracting. No surprise.
Posted in Employment, Stocks, Strategy & Scenarios | 
July 3rd, 2008 at 7:43 pm
I and Milton Friedman and Rose Friedman all agree 100% with you.
However, as an investor, my/our challenge is to predict not what should happen, but what will happen, and plan accordingly. The chances of Ron Paul winning in November is zero. Rather, the country is moving fast to the left.
IMHO, we are fast becoming Canada and Europe. How very sad.
Assuming Obama wins in November, what are smart investor moves?
July 5th, 2008 at 9:32 am
I plan on converting my IRA to a ROTH IRA in 2010 in order to take advantage of the one time opportunity to split the tax burden across two tax years. Then if things get really crazy tax-wise (e.g. forced IRA investment in treasuries) I will take the 10% penalty for an early withdrawal.
If Obama wins I may accelerate this schedule :(.
P.S. Financial planners say that paying taxes on tax deferred savings is foolish but I wouldn’t be surprised by any government action including confiscation via rapacious taxation under the guise of “fighting terror”.
July 7th, 2008 at 4:08 am
“Change the Federal Reserve’s mission to solely that of providing a currency with stable purchasing power.”
Stable purchasing power of what?
July 7th, 2008 at 5:04 am
Big Macs would probably work.
Failing that, a basket of goods and services weighted according to actual spending, including raw materials and industrial goods, without “hedonic adjustment”.
July 7th, 2008 at 8:25 am
Big Macs? Funny idea. For practical purposes they should even change they name to Federal McDonald’s.
July 7th, 2008 at 12:54 pm
The Economist newspaper has for many years used the local Big Mac price as an estimator for purchasing power parity. It has worked quite well.
The argument is that Big Macs represent a wide spectrum of costs (materials, labor, rents, etc.) and are the same everywhere.
July 7th, 2008 at 5:19 pm
PPP theory is only useful in effective markets. To my understanding “money supply” in todays markets consists of ~1% currency (or money base) and possibly ~99% of credit.
I am absolutely sure nor modern financial markets, nor regulating authorities are effective and/or capable to determine a right price (the moneyness) of contemporary credit instruments. So “providing a currency with stable purchasing power” of anything (except some metal/commodity stock kept at the vault) is impossible for any authority, be it the FED, IMF, World Bank or Burger Federal. But for any such authority is usual thing to beg for bigger powers, to obtain them by means of “modern” political process ant then to misuse that powers. (That is well described by Cyril Northcote Parkinson)
I’m your reader for quite a long time, so I’m confident You don’t want manipulating central bank. You insist it should abolish its’ “economical stability mandate” and act more traditionally (say like central bank of Canada).
It’s your right to insist, but providing them the (even single) mandate for currency management, you provide them with power, which is/will be and should be used against You. Up till the point, where You refuse them to manage anything yours.
–
So, I on principle disagree with second point of your NSHO. Central banking should be abolished worldwide. Instead, free market for credit clearing houses, rating and insurance businesses must be developed (worldwide).
–
I would recommend to You and your readers Market-Ticker post “Who Are They Trying To Fool?” http://market-ticker.denninger.net/archives/61-Who-Are-They-Trying-To-Fool.html
Disclaimer: I am not informed enough to agree or disagree with Denninger’s graphs and forecasts. I’m also very skeptic on any calls to fight for better regulations in current political system.
–
From my point of view, the single possible way out of current political-financial mess, the only ~rational personal choice/position (and even not very high risk investment) is to try to create money-like instruments (IOU’s) independently by yourself and to use them as widely as you can for your own economic purposes. Create barter-nets without asking anybody a permission.
Sounds unusual? Looks impossible? Wait for a few years.
OK for now.
Vytas
anarchistas.lt
P.S. Reality, would it be difficult for You to install a couple of WordPress plug-ins, for the purpose of better comments management and “community building” around your blog?
I would suggest
SezWho http://wordpress.org/extend/plugins/sezwho/
RelatedPosts http://wordpress.org/extend/plugins/related-posts/
Google XML Sitemaps http://wordpress.org/extend/plugins/google-sitemap-generator/
and possibly something to support authentication through OpenID.
July 7th, 2008 at 6:06 pm
Well I can’t disagree. If you look at the hundred years before the Fed was created you find monetary stability.
A government monopoly on money generally leads to inflation, the temptation to debase the coinage is overwhelming.
I’d be happy to get rid of the Fed. Unlikely though, although one can hope. Getting rid of the dual mandate might be possible.
I’ll check out the suggestions. Thanks.