Today’s slight rise above 10K was a brief flirtation that was reversed in just minutes as it receded to 9989. Nonetheless, having seen the Dow Jones industrial reach the level that it did, was a positive psychological event. It would seemingly seem to be an indication that the economy is on the rebound.
Or so it would seem.
Other economic indices do not offer much hope. While games are played with statements touting that jobless claims occasionally drop, the actual unemployment rate continues to rise and many retailers are still posting lower than average sales. None of this bodes well as we enter the holiday season which is the traditional period of time that retailers make the bulk of their profits.
As we stand now, the market could actually close at or above 10,000 when the trading bells ring at 4 p.m.. If it does what will that mean. In truth, not that much. Whether we want to accept it or not, the United States is entering into a transitional economic era. In it no one is very sure about anything. Combined with looming congressional acts that threaten to have government transfer wealth at unprecedented levels and data that shows that the government is creating public sector jobs at a rate more than twice that of the creation of private sector jobs and what we have is a road to economic ruin.
As our government creates more jobs that cost us money money than they make and the growth rate of private sector jobs that generate revenue decreases, we are headed for a structural imbalance in expenses over profits. That is nothing new. We have been existing under government deficit spending for far longer than we would like to admit. The difference here however; is that the diverging growth rates of public and private sectors job is not a temporary spending policy. The type of policy that changes from one administration to another. The shift from private sector job creation to public sector job creation is a long term trend being built into our system. As such it is a structural deficiency that inevitably places the American economy on line to create more jobs that take money out of the government than jobs that generate profits which drive money into government through tax revenues.
This means that slowly but surely we are creating a public sector job market that will cost us more than the government has. That is what will happen if current trends continue.
What is the solution? Creating an atmosphere that allows for the creation of more private sector jobs than public sector jobs is part of the answer, an important part of the answer. But there is no indication that we are beginning to do that. In fact all indications are that we are doing just the opposite. The historic stimulus packages of late are designed to create jobs through government employment (the public sector). This is making the population become more and more dependent on government. In this case, government employment.
So does reaching the 10,000 in the Dow actually matter much?
The Dow is based on an average of 30 different stocks. Today’ s spike is largely based on three stocks which fared far better than anticipated. The one most responsible for the better than expected earnings was Caterpillar. The heavy construction machine giant is certainly seeing a rise in business but it is not due to any expansion of the economy. It is based on federal stimulus dollars being thrown into infrastructure projects. This is not a long term source of income for Caterpillar. It is short term federal deficit spending. Hardly the type of financing that anyone can bank on.
So although pandemonium broke out on the floor of the stock exchange when the Dow briefly flirted above 10k, it was strictly a psychology boost based on no enduring indexes of reliable economic indicators.
The truth is that the trends behind the trends indicate that we are headed for economic troubles beyond any that we can imagine.