You Call this a 'Recovery'?

53 economists surveyed by Bloomberg this week said that ‘the worst is over’ for the economy…clearly, the stimulus is working. Hmmm…let’s take a closer look.

The Reuters/University of Michigan index showed that consumer sentiment declined in early August to 63.2 from 66.0 in July. It is the lowest reading since March, and is significantly worse than the 69.0 reading that economists surveyed by MarketWatch had expected.

“From a consumer finance position, people are still struggling,” said Scott Hoyt, senior director of consumer economics for Moody’s Economy.com. “Wages have fallen from the previous year and consumers [still] don’t have alternative sources of cash.”

Keep reading to see what Bill has to say about this so-called ‘recovery’…

Guess how many jobs the US private sector has added over the last 10 years? Almost none. Private sector employment is back to levels of 1999. There are more jobs in restaurants and health care…but many fewer in manufacturing. Net gain: zero.

The only job gains have been in the parasite sector – government. On the evidence, this trend is going to continue. Now, the feds have a new post called “pay czar.” As near as we can tell this is a busybody who undertakes to control salaries in the industries that the feds have bailed out. There will be a lot more jobs running the regulatory/bailout apparatus. Then, too, there are all the make-work jobs of the shovel ready boondoggles the feds began in an effort to replace private spending.

Back in the private sector, 72 banks have failed so far this year. And a record 34 million Americans are getting food stamps.

Naturally, incomes are falling. Now, imagine the consumer…he’s already paying 15% of his disposable income to debt service…and then his income is cut in half! This means that 30% of his remaining income must be used just to service the debt. Impossible to do without big cuts in spending…

The poor consumer hit the wall in 2007. He was spending all he earned…and paying more of his income in debt service than at any time in the last 60 years. He couldn’t continue to living on future earnings – there just weren’t enough of them. That is why the finance industry has topped out. It loaded Americans up with enough debt already.

And it’s why the credit cycle has turned. All of a sudden savings rates are back up to 7%. Consumers are cutting back…raising chickens in their back yards…driving less…planting gardens and squeezing their nickels. The private sector is de-leveraging. And there won’t be any durable economic boom or lasting bull market on Wall Street until this process is finished.

The above is just an excerpt from Bill’s standout essay from this week. You can read it in its entirety here.

That’s it for us this today. Enjoy the rest of your weekend,

Kate Incontrera

The Daily Reckoning