Labor Day in the United States is September 4th this year. According to the knowledgeable people at Wikipedia "it became a federal holiday in 1894, when, following the deaths of a number of workers at the hands of the US military and US Marshalls during the Pullman Strike, President Grover Cleveland put reconciliation with the labor movement as a top political priority. Fearing further conflict, legislation making Labor Day a national holiday was rushed through Congress unanimously and signed into law a mere six days after the end of the strike."
To celebrate labor's day it would seem that labor should again strike, walk on the government and demand that Congress implement policies that create jobs for the needy rather than the fat cats in bank high rises. Unemployment is terribly weak after years of stimulus and this week second quarter productivity was revised down by the largest drop since the fourth quarter of 2008. For those of you with short-term memories, the fourth quarter of 2008 was the eye of the storm in terms of market weakness. Non-farm productivity was revised down to -0.7%. Yes that is correct it is negative! This has to lead to further layoffs in the near future. Not a great way to celebrate labor's day.
To add to the hurricanes battering the East coast it appears that the economy continues to be battered and the Federal Reserve has all but given up its fight. Mr. Bernanke finally admitted that the severity of the market ills is far worse than he ever anticipated and handed over the reigns to Congress when he stated that ".. most of the economic policies that support robust economic growth in the long run are outside the province of the central bank." So let me get this straight; he spent trillions of dollars with no reward other than an overpriced stock market and now he walks away and says it is all Congresses fault? Don't get me wrong, I agree with him to a large degree, but what about mopping up the mess that he created with all the additional debt that we are now burdened with? That is the problem with this country at present, there is no leader willing to take up the helm and drive the ship into the storm. We can only run on this course for so long until either the storm catches us or we crash into rocks.
Let's turn to the Congressional Budget Office (CBO). The CBO is entrusted with estimating the growth of the economy and thereby expected tax revenues, surpluses, deficits and the like. Based on their expectations Congress makes its plans for the future of the country. Well the CBO expects that growth will be at 2.3% for the year. Considering that this number has already been ratcheted down a number of times and considering that we only grew at 1.4% for the first half of the year, there is absolutely no way that they are remotely close to being correct in their forecast. Furthermore they predict a 2.7% growth rate for 2012. It is my contention that 2012 will be the beginning of a recession and that the budget deficit will balloon just at the time when we need it to contract.
With Mr. Bernanke handing the reins over to Congress to make the right decisions (become austere) and with Congress relying on the inflated numbers from the CBO it looks like the hurricane will catch up to us before we reach the rocks! The Chinese who have lent us a significant amount of money have summed it up in the proverb at the beginning of this blog: "Borrowed money shortens time." I have said it before and I will say it again, get out of the market while it has sent you a life raft in the form of a weak bounce and harbor your cash into something safe for an extended period. Do not get sucked back into the market for at least the next 12 months.
To end this blog I am attaching a link that was provided to me by a friend. it is very clever and funny, particularly if you have spent any time in the mid-west like I did many years ago. Enjoy.
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