Taking Stock

According to Robert Reich, a former Secretary of Labor in the Clinton administration, what passes for business reporting in the U.S. is too often a series of breathless reports about the stock market. Whenever the stock market shows a positive gain, the media tells us that the Great Recession is winding down. Then when the Dow plummets, all the prognosticators tell us that the Great Recession is taking a turn for the worse.

Pay no attention to it, advises Mr. Reich. The stock market has as much to do with the real economy as the weather has to do with geology. Next to nothing.

The real economy is jobs and paychecks, and what people buy and sell. Why should a rise in an obscure measurement of China’s Purchasing Managers Index, for example, – which had been in decline for several months – cause stock markets in New York, London, Tokyo and Frankfurt to rally? Because those manipulating the stock market figures have nothing else to go on. China seems to be the only reliable source of global demand. There’s certainly no positive “demand” elsewhere – like in New York, London, Tokyo or Frankfurt.

The Dow will show an occasional upward swing because some of the larger American firms have been showing profits as a result of an increase in the amount of business they’re doing with China. These companies can then enhance their bottom lines by laying off American workers, with the result that the newly unemployed, without paychecks, are unable to buy, or demand, anything. So while unemployment numbers are going up, so does the Dow. Such irony.

Americans are still trying to get out from under a huge debt load. The latest surveys show that there are more consumer debt delinquencies now than there were last year, and a consequent surge in personal bankruptcies. The U.S. housing market is growing worse, auto retail sales are dropping, and all the while the ranks of the unemployed continue to increase.

In much of the rest of the industrialized world the situation is pretty much the same. The stock markets could plunge tomorrow or the next day because the world’s economic fundamentals are so precarious. Of course, if China’s Purchasing Managers Index shows an up-tick, so will the Dow. Go figure. No, don’t bother. Wall Street is nothing more than a still-legitimate Ponzi scheme.

We’ve stated in past commentaries that the world’s economies are being carried on the shoulders of the U.S. buyer. When Americans had buying power, they demanded goods. These goods were manufactured by low-salaried (but employed) overseas workers, and these goods were transported by ship across the oceans and made available to the employed and demanding U.S. buyer.

Even a school kid can spot the break in this economic chain. The world’s economies are declining because Americans are unemployed. It’s that simple. But because overseas pay scales are so much lower, Americans will remain jobless, unless someone in Washington decides to end our Great Recession by revitalizing our shipyards the way FDR did in the 1930s. There is no alternative.