The recent report from the Labor Department indicated that consumer prices rose by 0.3 percent in March. More significantly, when considering the inflation rate, worker earnings actually dropped by 0.4 percent during the same month. This decline translates to wage earners effectively losing ground at an annualized rate of 4.8 percent.
In today’s job market, many employees are just relieved to have a job. Observing the numerous capable individuals who have been laid off creates a stark reality. However, as workers wake early on Monday mornings to face another week of toil, it can be disheartening to realize that their efforts are resulting in an annual decrease of nearly 5 percent.
The interplay of rising prices and a sluggish job market serves as a clear indication of the economy’s slow recovery amid rampant money creation. The unemployment rate recently reported a decline to 8.2 percent. At first glance, this appears positive—the unemployment rate is decreasing. Yet, a closer look uncovers a more troubling reality.
A troubling trend is the sharp drop in the labor participation rate. As individuals cease searching for employment, the Bureau of Labor Statistics conveniently excludes them from the unemployment calculations. Consequently, even though the unemployment rate may decline, actual unemployment figures remain misleadingly high. In essence, the reported unemployment rate is deceptive.
What Does All This Really Mean?
The National Bureau of Economic Research asserts that the Great Recession ended back in June 2009. However, for countless individuals, conditions seem just as bleak—if not worse—than they were in 2009.
Generally, an economic recession is followed by a period of expansion, characterized by increased business investment, rising corporate profits, and significant hiring. Yet last month saw the U.S. economy add a mere 120,000 jobs—the lowest count in five months. Clearly, the economy is struggling to gain and sustain momentum.
Wall Street, as noted last week, is beginning to register that the situation is not as rosy as it seems. Following a six-month rally that pushed the S&P 500 up nearly 30 percent, it experienced a 2 percent drop—its sharpest decline of the year.
Heightened borrowing costs in European credit markets and a report from China indicating that first-quarter growth reached its slowest pace in almost three years raised alarms for Wall Street. Even more concerning was the recent University of Michigan report, which indicated a drop in consumer confidence.
In summary, Europe is facing severe challenges, China’s economy is slowing, and a fragile job market, coupled with a volatile stock market and escalating consumer prices, is causing consumers to reevaluate their financial situations. But, what do these observations really signify…
The Consequences of Lard
At the Economic Prism, we analyze the latest economic reports and community discussions to gain insight. However, our true focus lies beyond the reports; we aim to understand the underlying forces driving these economic outcomes. The weak job market, inflated stock prices, rising consumer costs, and declining consumer confidence are not root causes—they are symptoms of deeper issues.
From our perspective, the crux of the problem lies in the overabundance of “lard,” not the kind derived from pigs, but rather the excessive debt burden. The reality is there is far too much debt—and nothing seems to alleviate it.
The economy requires additional government debt to foster growth; yet, governments are financially constrained. It needs greater consumer debt to expand; however, consumers are also financially strained. Additionally, it depends on the Federal Reserve to generate money from thin air for purchasing government debt. Meanwhile, gas prices are soaring to $4 per gallon.
Regrettably, there is no reverting to a previous state. More “lard” is essential to sustain the current system, yet the influx of more debt will ultimately exacerbate existing issues. Without it, the entire economic apparatus could come to a standstill. However, any further application of “lard” merely greases the pathway leading to systemic failure.
This illustrates the pitfalls of depending on central planners and their repeated reliance on “lard” to improve conditions. It also highlights the consequences of a planned economy that undermines principles such as limited government, private property rights, and individual liberties—where diligent workers, savers, and responsible citizens face penalties for their efforts and self-reliance.
These are the consequences of “lard.”
Sincerely,
MN Gordon
for Economic Prism
