Last week, notable events emerged in the economic landscape. The Labor Department announced that 163,000 jobs were generated in July. Yet, despite this job growth, the unemployment rate climbed to 8.3 percent.
“We’ve still got too many folks out there who are looking for work,” stated President Obama. Thankfully, for those in search of employment, there seems to be a solution from Obama: pizza and infrastructure.
Yes, you read that right. According to Obama, pizza and infrastructure are the keys to resolving our economic challenges. This was his message to the residents of Ohio last week. If you’re skeptical, you can view the lecture here.
Perhaps there’s merit to President Obama’s theory. Maybe pizza and roads can indeed stimulate economic growth.
The crucial question, however, is where the funding for the pizza and infrastructure originates. Does it arise from an economy propelled by savings and capital market investments, or does it stem from a government stimulus financed by debt?
Time and Hard Work vs. Quick and Easy
Unfortunately, it seems that Obama does not grasp this vital distinction. He is focused on achieving a rapid increase in GDP and an artificially low unemployment rate to secure reelection. He overlooks the fact that this interim relief, achieved through escalating government debt, takes from the future to finance expenditures that are unsustainable today.
In essence, debt-fueled economic stimulus diminishes the benefits of future productivity, burdening subsequent generations with the debt incurred by their predecessors. It’s worth noting that excessive debt is what led to our current predicament in the first place; adding more will not resolve it.
True economic growth requires time, hard work, and discipline—elements that are often sidestepped in a four-year election cycle. Quick, easy results tend to take precedence.
Moreover, sustained economic growth necessitates capital markets that reward savers. Unfortunately, due to aggressive interventions by the Federal Reserve, today’s capital markets do not benefit savers; instead, they undermine them.
The Federal Reserve has effectively maintained the borrowing cost for major banks at nearly zero. Additionally, it has manipulated government bond yields by creating money from thin air and lending it to the Treasury. As it stands, the yield on the 10-Year Treasury Note hovers around 1.56 percent.
Disgraceful and Insulting
Such extreme market distortions, driven by policymakers, deplete the wealth of savers and diminish the fixed-income returns for retirees. Ultimately, savers lose the incentive to set aside funds, and retirees may be forced to deplete their capital, leading to financial hardships in their later years.
The arithmetic of our current situation is quite straightforward…
As per the Bureau of Labor Statistics, the inflation rate, according to the consumer price index, is rising at 1.7 percent annually. Anyone who has recently paid bills or bought groceries knows that this figure is far from reality. Furthermore, data backs this up…
When inflation is calculated using methods from the 1980s, before government statisticians began adjusting figures for political reasons, the CPI is actually climbing at 9.3 percent annually. This means that when savers deposit their money in a Certificate of Deposit, currently yielding just 0.09 percent annually, they effectively lose about 9.21 percent of their purchasing power in a single year. Even worse, a typical savings account is yielding a mere 0.02 percent annually, resulting in a loss of approximately 9.28 percent.
Frankly, this situation is both disgraceful and insulting. Until monetary policy provides a fair opportunity for savers, the economy cannot achieve sustained robust growth. Instead, aside from the temporary and misleading boost from debt-based government stimulus, the economy will remain stagnant.
Undoubtedly, generations of politicians over the last half-century have burdened a hopeful populace with an overwhelming debt. To fulfill political promises, the Fed feels compelled to inflate the money supply and reduce borrowing costs, thereby depriving the economy of essential growth capital. Meanwhile, living standards continue to decline.
Sincerely,
MN Gordon
for Economic Prism
