Unemployment Still Rising Because Feds are Trying to ‘Do Something About It’

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It’s gray, cold and snowy in Paris this morning. We were supposed to be on our way to warm India, but a change in visa procedures caught us off guard. Our passage to India will have to wait until next month.

And so we turn to our Daily Reckoning, as we do everyday. Our goal is not to make readers rich. Nor is it to win a Pulitzer Prize for financial journalism. No, we set much lower targets. We just don’t want the cleaning lady to be embarrassed to work for us. Even in that, we frequently fall short…

“Mr. Bonner… I spotted another split infinitive in the DR…” said Clara.

“I’m sorry,” was our response. “I will try to always do better.”

(Mistakes are inevitable. But, rather than try to catch them all, it’s probably easier to get a new cleaning lady. One who is not an intellectual.)

In the meantime, what a recovery! If the economy keeps recovering like this we’ll soon all be busted…

House sales are falling…unemployment is rising…and people are getting poorer!

The Dow rallied a piddly 23 points yesterday. Oil is selling for less than $75 this morning. Stocks are in trouble. As we said yesterday, this could be the beginning of the end for this bear market. We’ve seen the first leg down. We’ve seen the rally. We’re ready for the next big plunge.

Yesterday, the latest numbers on existing house sales for December came out. They were disappointing – nearly 17% lower than the year before.

Unemployment is still rising, as near as we can determine. It is rising for two reasons. Because we are in a depression. And, because the feds are trying to ‘do something about it.’

In this regard, we refer to three different phenomena. They are inter- related…they all show the same thing: an economy going downhill.

First, initial jobless claims surged last week…with 36,000 more claimants.

This also from Bloomberg:

“Employment dropped in 39 US states in December, seven more than in the prior month, indicating job losses were widespread.

“Payrolls in California showed the biggest decline, falling by 38,800 last month, according to figures issued today by the Labor Department in Washington. Texas followed with a 23,900 decline and Ohio was next with a 16,700 drop.

“With the national unemployment rate projected to average 10 percent this year, state budgets may continue to be strained by limited tax revenue and jobless insurance payments. While the pace of firings has eased over the last year, the time it is taking to find a job rose to a record 29.1 weeks in December.

“Employment is ‘still very weak, which is why we think the unemployment rate is going to continue to rise,’ Marisa Di Natale, a director at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. ‘There are some states that are in pretty big trouble, fiscally speaking. 2010 is not going to be a good year.’

“The jobless rate in the US held at 10 percent in December, the Labor Department said on Jan. 8. A jump in the number of discouraged workers leaving the labor market kept the rate from rising…

“Employment in all 50 states dropped in 2009, with Wyoming, Nevada, Michigan and Arizona showing the biggest percentage decreases. The District of Columbia gained jobs, adding 6,200 in the 12 months to December.

“Nevada and West Virginia had the biggest increase in joblessness among states last year, each climbing 4.6 percentage points. Alabama was next with a 4.5-point gain, followed by Michigan’s 4.4-point increase.”

An analysis done by the AP shows that stimulus spending has no effect on employment. The AP looked at counties that got a lot of stimulus money to repair roads and bridges, and those that didn’t. They found no connection between the spending and employment rates.

Even we are a bit surprised. We knew that stimulus spending was a waste of money. But we figured the feds could force a little extra hiring here and there if they really put their minds to it. Apparently not… At least not on the scale of the present stimulus spending program.

Stating the finding a bit more broadly: stimulus spending doesn’t really stimulate at all. In fact, it retards. And then it debilitates…by taking capital out of productive uses and squandering it. Instead of leaving the private sector alone so that it can find new ways to put resources to work, the feds take the resources and waste them in the old-fashioned, unproductive ways. Result: money spent; no stimulus; people poorer.

Second, the Brookings Institution came out with a warning yesterday. It said 30% of the nation was either in poverty already or headed to it. The US is becoming like a ‘developing nation,’ said the report, with 39.1 million people living in poverty.

Many cities have already reached the 30% poverty rate – including Cleveland, Detroit, Youngstown, Buffalo, Syracuse, Dayton and Hartford, Connecticut. But poverty is increasing fastest in the suburbs, says the report.

We add a footnote. About 40 million Americans are also living on food stamps – a new record.

Third, while the feds take money away from productive enterprises and honest savers, they also encourage people NOT to work. How is this possible? Alan Reynolds, writing in The New York Post last month, explained how the feds had probably added two points to the unemployment rate simply by stretching unemployment benefits from the traditional 26 weeks to the current 79 weeks.

“When you subsidize something, you get more of it…” he writes.

That is how the feds operate. They punish success and reward failure. If a man is lucky enough to get a good job and earn a lot of money, the feds tax it away from him. If he fails to find a job, on the other hand, they give him money. The longer he stays unemployed, the more money they give him.

If a banker runs his bank well, he gets nothing but trouble from the feds…paperwork, bureaucracy, pettifogging regulations. But if he runs it badly, he gets billions of dollars worth of bailouts.

If an automaker takes the best business in the world and runs it into the ground, he gets the support of the federal government. If he runs his business well, he gets nothing but headaches.

The feds’ recovery program pays for failure. Naturally, they get a lot of it.

Breaking News: Expert researcher reveals urgent, once-in-a-generation market opportunity…

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Ben Bernanke seems to be sailing to another term as the nation’s chief central banker. Obama gave him a big push. When it looked like that might not be enough, Tim Geithner tried blackmail.

Failure to return Bernanke to the Fed could cause market instability, he told the Senators.

These poor dumbos…all of them. Larry Summers, Ben Bernanke, Tim Geither…Barack Obama…and all the House and the Senate (the only exception we know of is our old friend Ron Paul)…

..None of them has a clue. They warned Congress in September ’09 that the world would come to an end unless Wall Street was bailed out. They got their way. Wall Street was bailed out; and the world didn’t come to an end. So, they must have been right about it.

None of them knows what is going on. And none of them has any interest in finding out. When it comes to the feds, ignorance pays.

Who wants a Fed chief who admits the truth?

“I’m sorry,” Bernanke should tell a televised joint session of Congress. “Our economy is de-leveraging. There is nothing we can do except get out of the way.

“If we bail out failed enterprises, we will have more failed enterprises.

“If we pay people not to work, we will have more people not working.

“If we provide more credit, we will have even more debt.

“If the government uses more resources, the private sector will have fewer resources.

“Forget it. There’s no way out. So, let’s stop all this gimcrackery. Let’s back off and let the markets do their work: let failed companies go broke…let homeowners who can’t pay their mortgages lose their houses…let speculators lose money…let the chips fall where they may, so that the next generation of entrepreneurs can pick them up and make something with them. Let it be.”

Mr. Bernanke would be lucky to make it out of the Capitol alive.

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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