Week 27 of the Quarantine
SAN MARTIN, ARGENTINA – “Perpetual recession…?” asks a Reuters headline this morning.
Most likely, is our guess.
Already, before COVID-19 arrived, U.S. GDP growth rates were the lowest ever recorded. At only 1.8% per year, the U.S. economy limped and staggered – barely making any headway.
And now, with $78 trillion of debt… a public that has been warned not to leave home… and a $4 trillion budget deficit – we’ll be lucky to have any growth at all.
Lost Jobs
What will we find, after more than half a year of quarantine in the Calchaquí Valley, when we finally get back to America? A world without growth?
What if the world we knew has been left behind… abandoned… forgotten, like an old car in a junkyard?
Yesterday, we looked at some of the used auto parts left scattered on the ground.
Waiters. Pilots. Truck drivers. Shop clerks. Whole categories of workers might be out of work for a long time – or forever.
The 2008-2009 mortgage finance crisis put 8 million people out of work. It took five years to get those jobs back.
Today, there are still 11 million Americans without jobs (according to Reuters… CNBC says there are 30 million collecting unemployment compensation).
If the economy were to re-absorb these people at the same rate it did after the last crisis, it would take (best case) until 2027 to get back to February’s job levels… or, if we go with CNBC’s figures, to 2038.
Gone Forever
But if the economy really is sinking into Perpetual Recession… they will never get their jobs back.
Airlines, restaurants, hotels, cruise lines, universities, hospitals, commercial property owners and developers – all will cut staff numbers as the customers disappear.
Then, too, employers will shift their focus to computers and robots to replace employees. Why? The electronics don’t get sick. They don’t sue. They are not disease “vectors.” And they don’t care about “diversity,” “equality,” or “white privilege.”
Why hire another bank teller if people can be forced (for health reasons, of course!) to use a computer terminal? Why bother with the expense of a physical bank at all? Why hire a truck driver… when a self-driving truck should be coming down the road any day now? What’s a parking lot attendant supposed to do when nobody comes into town?
More, More, More
But jobs are not the only things being left behind. Small governments, balanced budgets, sound money, free enterprise – all have been covered in vines.
A majority of Americans, from both political parties, now favors more government spending, more bailouts, more giveaways, and more meddling with trade, industry, and commerce.
As for the Fed’s fake dollars – they just want more of them.
Even Senator Ted Cruz, supposedly a “conservative Republican,” now probably speaks for the whole new breed. He wants central planning, where the government – not investors – decides which technology gets vital capital.
Next, maybe he’ll announce a “five-year plan” and a “Great Leap Forward.”
Old Economy Industries
The big, “Old Economy” industries are also being left behind. GE, GM, P&G, J&J – these companies make up the backbone of the Dow Industrials.
But they’ve been adding debt and losing ground for 20 years. In real-money terms… that is, in terms of gold… they’ve lost two-thirds of their value.
Our bet is that those losses will get worse.
Real Money
As colleague Tom Dyson explains in his Postcards from the Fringe, the Dow tends to move in big, long swings… as measured in gold. It registered a low – under 2 ounces of gold for the entire 30 Dow stocks – in 1980. And then it hit a high of over 40 (ounces of gold to buy the Dow) 20 years later.
Right now, it’s trending down (it’s currently at around 14)… and most likely, it will go below 5 again – probably soon.
We measure in gold because it is real money. It represents the things real money can buy – goods and services.
The Federal Reserve can’t “print” gold. So, prices of other things – cars, houses, lawn care, TVs, and even college – tend to be more stable in gold terms than in U.S. dollars.
A semester at an in-state public college in 1970, for example, cost about $350. Today, it’s around $10,000. Up 28 times.
But in gold terms, it went down, from 10 ounces (an ounce of gold in 1970 cost in the region of $35) to only 5 ounces (at gold’s current price of almost $2,000 per ounce).
Dollar Disaster
But this brings us to the most important thing of all that will be left behind – the U.S. dollar.
As you can see from the example above, the dollar has been a bad form of money for many, many years. Had you simply kept your money in gold, the cost of college would have been cut in half.
Instead, in dollar terms, it went up 28 times.
Or look at the wheels of the working man. A Ford F-150 cost about $2,500 in 1970. Now, it’s $28,000. But in gold terms, it went down from 71 ounces… to only about one-fifth of that – 14 ounces.
In other words, with the same real money – the same ounces of gold – you could have bought five new F-150s.
The dollar has lost ground. And it’s bound to lose a lot more.
For 30 years, the Federal Reserve has been committed to supporting Wall Street. Now, it is supporting Main Street, too.
And with what? Not with gold. And not with bitcoin.
With dollars… money that will be left in the junkyard.
More to come…
Regards,
 |
Bill
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