Gold Understands that Liquidity Rallies Do Not Create Jobs
Portions of this commentary were originally published for subscribers to MurkyMarkets.com on October 3, 2009.
Outside of minimum wage jobs and Wal-Mart poverty line work, today's US economy appears unable to create good jobs. If the US economy cannot create new jobs, Americans will be in no position to save and invest for their futures, nor will they have any purchasing power that would boost the economy.
This is what the government doesn't seem to understand. Talk of deficit spending, stimulus packages, rebate checks, etc, helping to boost demand, is nonsensical, for demand is not the problem. Demand is infinite. People will always want things. The only way to get those things is by working hard and earning enough money with which to make the purchases. With no job or marketable skills, demand might still be there, but the means is lacking.
A government going into debt, and sending Americans a rebate check with which to make the purchase, only makes matters worse, for the right to make that purchase has not been earned, and the lack of productivity will not yield a net positive for the economy that would allow for that debt to be repaid. Therefore, demand is not the problem. The problem is supply. We need to supply ourselves with the means that would accommodate our demand.
What this country needs is for entrepreneurs to think up ideas and create new products that will be in demand, worldwide, like green-energy, perhaps. Those products then need to be manufactured in the US, providing American workers with the purchasing power this country needs to pull itself out of this mess.
The US has experience with building great products. In the 1950's, US made products were in high demand worldwide. American workers earned the highest wages in the world. It was all about quality, and there was nothing better than a product stamped "Made in the U.S.A." We need to go back to that model.
But that can only happen if government gets out of the way, slashes spending and onerous regulations, and by cutting taxes. And, in a parting of the ways with rabid free-market thinkers, let's go one step further. It is understood that a return to the old model will take years. For one, the US dollar would have to fall to where the market determines its value should be, helping to reverse the off shoring trend. That will take time - time unemployed Americans do not have.
In the meantime, we need to fight this free-for-all when it comes to the assault on those US workers. This is an emergency. Just like mortgages should never have been issued to anyone with a pulse, work visas should be severely restricted where there are qualified, unemployed Americans who can perform the work.
Similarly, entire regions need not be torn apart, the social fabric of this country destroyed, via the off shoring of entire industries. What good does it do to enforce immigration laws, when corporations dodge those rules by off shoring the jobs instead? That is akin to guarding the front door, while you are robbed blind out the back.
Why even have immigration laws and restrictions on the employment of foreigners, when you then allow corporations to stick it to you by simply relocating and hiring them overseas? Immigration laws might not be broken in such cases, but surely the spirit of those rules are violated one would think.
Can we not be believers in free-markets while also respecting immigration laws?
Even Adam Smith believed that some government intervention, if it benefited the economically disenfranchised, was indeed necessary. And it is necessary on the jobs front. Sorry, but you just can't allow a Wild West mentality to rule the day, country be damned!
In the meantime, a strong to steady US dollar policy and strong job growth appear to be mutually exclusive positions at this time. And with no meaningful job growth in an era where positioning for the next election takes precedence, government will be forced to plug the spending hole, and that means more of the same inflationary money printing/quantitative easing that continues to fuel these so called "liquidity rallies" in the US stock markets. Rallies that will surely end in tears.
This is what gold understands. And this is why gold is going higher.