Unemployment - Permanent

Here's a stark view on unemployment from Jim Willie CB, "The Golden Jackass" (I've bold-typed key phrases):

"LABOR ABSOLUTE DISADVANTAGE

"Much hubbub has been made of "comparative advantage" and how the United States benefits from round after round of creative destruction. The hollow message has that in free trade, both sides win, and where a job is lost, new jobs are created. Few if any advantages can be identified in the present framework, whereby lost jobs seem to be replaced mainly by debts inside the USA. Economists badly misinterpret the labor market here in the USA. They incorrectly label the delay in domestic job creation as "short-run friction," when the entire business cycle clearly has been altered, perhaps permanently broken. David Ricardo's doctrines, outlined in 1817, are misunderstood. The US has an absolute disadvantage on labor costs, across the board, which affects manufacturing, service, and more. His principles are discussed in today's light in the May issue, and shown why wealth is lost in the USA and gained abroad.

"As the work of John Maynard Keynes has been misapplied on federal stimulus, so now the work of David Ricardo is being misinterpreted on exported labor. Expect the entire topic of job export and its misconstrued benefits to become a raging explosive issue."

British readers might ask, how is it different in the UK? And where is the sleuth of British bears, growling their warnings?

What is Alan Greenspan doing?

Recently, ex-Federal Reserve Chairman Alan Greenspan has been sounding warnings about the US economy and is now aware that his back-seat driver comments may affect the market (see end of this article). It must be irritating for Ben Bernanke to deal with a boat-rocker whom some blame for creating the problems that Ben now faces.

And what is Mr Greenspan now doing? One of his new roles is as an adviser to investment managers PIMCO - see here for their latest US report. The style of the report is an uncomfortable combination of stuffy and jazzy, but the substance is interesting. Here's a few extracted phrases:

Currently there's a "virtuous circle favoring capital at the expense of labor", which only "a global financial bubble popping of sorts, an accelerated decline of U.S. housing in the short run, or a U.S.-led trade policy reversal that could precipitate counter-attacks from Asian exporters" could stop;

there are "inflationary pressures" in the US and an "asset bubble";
if a housing slump hits the American consumer economy, "anti-trade [i.e. protectionist] legislation may or may not become a reality";

"The emphasis on emerging market currencies rather obviously suggests relative weakness of the U.S. dollar. We continue to believe that U.S. growth will descend towards the lower quartile of countries within a broad global composite. Such U.S. growth, despite relatively favorable demographic labor force trends spiked by immigration, will suffer due to reduced U.S. consumption and the need for higher savings. Even in the face of resistance by Chinese authorities vis-à-vis the Yuan and the Japanese via artificially low interest rates, this lower growth speaks to a weaker dollar and lower relative asset price appreciation in comparison to the rest of the world. PIMCO portfolios will therefore likely feature increasing international diversification in foreign currency terms.";

PIMCO thinks that "sustainable global growth with perhaps an early cyclical slowdown appears to be the likeliest outcome. Those who “own” this growth as opposed to those who lend to it will benefit."

Not hard to boil this down. But potentially rewarding for an alert and adventurous investor. And Mr Greenspan the poacher will act as your gamekeeper, if you go with PIMCO.

China: a turning point?

Please read this news article, about US-Chinese economic relations. It's a rehash of an essay by China's Vice Premier Wu Yi in yesterday's Wall Street Journal. To me, the very polite tone and careful emphasis on mutual benefit make it clear who's wearing the trousers now. The subtler they are, the more they mean it.

Listen with your inner ear to the statement "Attempts to politicize trade issues should be resisted," bearing in mind who is making it. I sense some kind of turning point. If you play the oriental game Go, the term is "sente", meaning that the initiative has passed to the other player.

Martin Weiss: bull in a China shop

Martin Weiss' 14 May newsletter reminds us of the big picture: wealth transfer from the US to China - and the opportunities for investors.