Who Will Be The Next One To Lose Their Job?

I find it mind-boggling that our leaders don't seem to understand why unemployment is so high. While the “official” report places unemployment at 10 percent, it's actually much higher when you count the people who've been unemployed for so long that they've given up looking for a job—or those who are quite happy not having one. When you count those categories, we’re looking at over 20% unemployment.

One simple reason why there are fewer jobs, especially in developed countries such as the US, Europe, England, and Japan, is because wages are too high. Today, US wages are substantially higher than wages in emerging countries. Why would a business owner want to pay $20/hr to US workers when they can higher someone for $5/day in China?

Today, the highest paid workers in America aren't from the private sector—they're in the government. Although many state and local governments are letting people go, the federal government is hiring and paying wages that are significantly higher than the private sector, on average over $71,000 per year for federal workers vs. $44,000 for private sector employees. This makes our economic situation worse because in order to pay for those high-paid workers and their benefits, the government must print more money and increase taxes. This leads to inflation, and more probably hyper-inflation down the road.

In England, the new British government has declared war on middle class benefits, the poor, and parents by cutting many cherished social programs. Meanwhile, here in America, we're increasing benefits for federal workers and the poor—the healthcare bill is a good example. It seems to me that the US should learn from Britain, since Britain is about five years away from bankruptcy. If the US keeps increasing benefits for government workers, the US will go bankrupt faster.

Unfortunately, politicians see the world in terms of election to election—not in terms of the long run. They'll do whatever it takes to get re-elected, which is what the Democrats are doing today. Business people and the rich, however, need to plan for the long term. And they need to see and anticipate the consequences of politicians' short-term, reelection-oriented actions.

For now, in the US, the smart thing to do is get a federal job. That's a good move in the short term. But if you look at Britain, that choice may prove to be a bad idea.

So who will lose their jobs in the near future? I predict it will be anyone who expects to be paid more and do less work that will eventually lose their job. As the bankruptcy of Britain and the US looms, job cuts will come—and high-paying jobs will be the first to go.

For those of you who have read in this field, you know that it's the Fed and the world's central banks printing excessive amounts of counterfeit money that's keeping this economy from going into a depression. The problem is that printing money and creating multi-trillion dollar deficits can't go on forever. If our leaders don't make drastic changes, as Britain and Germany are doing today, the global economic collapse will be severe. Always remember, the bigger the boom the bigger the bust—and it’s very possible that the biggest bust in history is still coming.

Rather than look for a higher paying job, I continue to recommend starting your own business, educating yourself financially, buying some silver rather than saving cash, and preparing for the worst. If the bust never comes, you'll still be better off in the long run.

Britain has about five years to make changes, and the US has about ten. If our leaders make the appropriate changes, we'll all be better off. But if they don't, I'm afraid we're in very serious trouble.

Sources:

“Conspiracy of the Rich” by Robert Kiyosaki
“The Dollar Crisis” by Richard Duncan
“The Corruption of Capitalism” by Richard Duncan
“Guide to Investing in Gold and Silver” by Michael Maloney
“The Ascent of Money” by Niall Ferguson

July Jobs Data Is Strong Enough To Batter Mortgage Rates

This morning's jobs report is doing a number on mortgage rates, putting another dent in home affordability nationwide.

Despite the slightly flat Unemployment Rate, the government's July Non-Farm Payrolls report reinforced the notion that the recession may be ending soon, if it hasn't already.

Just 247,000 jobs were lost last month -- much fewer than analysts had expected.

Now, if it seems strange to be talking economic recovery while Americans are still losing jobs -- 5.7 million in the last 12 months, in fact -- remember that we have to take the data in context.

Job loss doesn't lead to economic growth, per se, but analysts tend to treat employment data as a lagging indicator. Business is often slow to hire and slow to fire, so the jobs report rarely reflects the "right now".

A terrific real-world example of jobs data as a lagging indicator is that the peak of recent job loss -- January 2009 -- occurred 4 months after the peak of the financial crisis in September 2008.

The same pattern was present during the Recession of 2001.

Government data shows that job loss peaked during the recession in October 2001, 1 month before the recession's official end. Meanwhile, job losses continued nationwide for the next year and didn't turn net positive until October 2002 -- nearly 12 months into the recession's subsequent recovery.

This is what we mean by lagging indicator and it's why investors are cheering today's jobs data. Strength in today's report may be signaling the end of the recession.

Unfortunately for today's rate shoppers, it pushing mortgage rates higher. As stock markets soar, bond markets sink.

How Losing 533,000 Jobs Helps Mortgage Rates Improve

According to the government, American businesses are cutting staff at an accelerated pace, most recently eliminating this past November.

It's the largest one-month decline since December 1974 and raises the year-to-date job losses to 1.9 million workers.

However, there is a silver lining in the data for all Americans -- both employed and unemployed.

With each piece of negative news about the economy, Washington is more likely to pass new stimulus packages to the benefit of household budgets.

On one front, Federal Reserve Chairman Ben Bernanke has already alluded to further Fed Funds Rate cuts at the Fed's two-day meeting starting December 15. Because the Fed Funds Rate is directly tied to Prime Rate, any cut in the benchmark lending rate would lead "floating" interest rates lower on home equity credit lines and other revolving debt.

And this talk from the Fed comes on the heels of its $500 billion pledge to buy mortgage-backed bonds. That demand-shifting move was announced last week and drove mortgage rates lower. It also marked the official start of the refinancing boom.

And, lastly, Capitol Hill is already responding to the jobs data with calls for "urgent action". It's a vague term, to be sure, but history has shown that Congress could pass any number of measures, each meant to put more money into household budgets nationwide.

The U.S. is in a verified recession and Washington is throwing the kitchen sink at it.

The end result is that today's job data is a non-event of sorts for active home buyers. Mortgage markets expected a poor reading and they got it. Normally, data like this would cause mortgage rates to spike but this is not a normal market.

Now, with markets expecting additional stimulus, mortgage rates are edging lower today with hopes of an economic rebound.

How Job Losses in the Economy are helping Home affordability

On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.

More commonly, it's called the "jobs report".

The jobs report is a sector-by-sector look into the U.S. economy and whether businesses are hiring -- or firing -- workers. This is one of the reasons why its release is so hotly anticipated each month -- the jobs report can reveal a lot about the state of the U.S. economy.

Last month, the economy shed 62,000 jobs.

Now, many people will assume that job losses like this are terrible for the U.S. economy. Sometimes, that's true.

This month, it's not.

Given the ongoing tug-o-war between inflation and recession, markets are somewhat pleased with the June job loss figures because job losses reduce the likelihood of inflation in the U.S. economy.

Inflation is considered by many -- Ben Bernanke included -- to be among the top threats to the U.S. economy -- it devalues the dollar and leads to increases in the Cost of Living.

Inflation also threatens home affordability because mortgage rates tend to rise when inflation is present.

June's job losses -- while bad for those impacted -- is helping to relieve inflationary pressures on the economy and that is boosting markets performance this morning. Stocks are slightly up, and mortgage rates are slightly down.

Measuring The Statistical Insignificance of the Monthly Jobs Report

The economy shed another 80,000 jobs in March 2008, according to this morning's Non-Farm Payrolls report, and was 60% more than the initial estimate of 50,000.

Add that to the revised January and February losses of 76,000 each and it appears that Fed Chairman Ben Bernanke was spot on when he said that the economy likely contracted in the first quarter of 2008.

But, weak employment data today means that consumer spending should suffer later this year and less consumer spending makes rate-cut-fueled inflation less likely.

That is spelling good news for mortgage shoppers today as rates are down about 0.125% from market open.

But should they be?

Mortgage rates are a prediction of the future and news about the economy -- positive or negative -- is always "baked into the cake" well in advance of the news actually happening.
In stock broker parlance, it's "buy on the rumor, sell on the news".

In mortgage bond circles, it means that expectation-meeting data will not change rates. When expectations are wrong, however, rates can move a lot.

So, let's compare the expectation of the March jobs report to the reality of the jobs report. What we'll find is that the variance is a drop in the proverbial ocean.

Consider the following (subject to revision in April and May 2008):
30,000 fewer jobs were created in March 2008 than was expected
67,000 fewer jobs were created in January and February 2008 than previously reported.

Adding it up, today's news is that the economy is 97,000 working Americans weaker than expected.

But the real story is that 97,000 workers is a statistical nothing. It's less than nothing. It's the depth of the Phillies middle relief corps nothing.

Put 97,000 against the total work force of 153,784,000 and, in percentage terms, it's 0.063% of the overall workforce. That's tiny.

Let's put that 0.063% into perspective:
0.0063 percent is one more player in this NFL strike
0.0063 percent is one more step from Stagecoach Museum to Niobara County Fairgrounds
0.0063 percent is one more person in this Colorado brewtown.

Statistically, 0.0063 percent is insignificant. And yet, mortgage rates are falling on the news. If you're buying a home this weekend, that's good news for you.