This is a particularly tough episode because it’s about economics, the economy. I’ve been asked over and over again to do this. What’s hard about it is it’s very difficult to really show how you can benefit, which is a little strange compared to the rest of the episodes. Maybe you can benefit by being better informed and protecting yourself from some of the things that you hear out there.
One of the key things I want to stress and make important here is that the economy is completely different than it has been in the past. Most of everything that you’re hearing today is not very good. I don’t mean not very good about the economy; it’s not well-founded. There are a lot of people who are saying things about the economy and about how things are going that seem to indicate that it’s either good, or improving, or something else. I not only want to show you that it is wrong, but also why it’s wrong, and how you can see underneath it a little bit.
First of all, how do these people get these ideas that I’m considering or saying to you are wrong? One is that, over time, macroeconomics, what it does is it looks at trends, it looks at how the interest rate has occurred in different times through history, and how the economy was when the interest rate was down or up. It shows unemployment, and employment, and labor participation, and growth, all based on historical trends. The problem is that if the underlying assumptions change, then their results and their analysis are a fallacy.
A little bit into the numbers. Take a look at it. The assumption is that all the trends analysis and things haven’t changed that affect the relationship between those trends, but we know they have. How do we know that? Take a look around, what’s going on. Take a look at how the interest rate is right now. The idea was, historically, as the interest rate goes down, home sales will go up, and people will purchase more cars, the economy will boost. It’s not happening. The interest rate is just about zero.
I had an economics professor many, many years ago that used to say: “The lowering of the interest rate was kind of like pushing on a string.” If the demand is there for somebody to do something, they’re more likely to take that action because it saves them money because the interest rate is lower. But to stimulate by lowing the interest rate, when the underlying desire and demand is not there, then there’s no reason to invest, no matter how supposedly free it seems to be.
What about unemployment rates? They’re saying the unemployment rate is down to 5.3/5.4, etc. last month or this month, but at the same time, what is that really going? What is unemployment? It used to have a different definition. Yes, they’ve changed the definition. They changed the definition about 15-20 years ago, but it doesn’t matter when they did it. The idea was that they no longer call for long-term unemployment as part of the unemployment rate. If you’re out for a long time, over a year, it doesn’t count. As you’ve probably seen, a lot of people have been unemployed for a long period of time. On top of that, the number of people that are out of the workforce. What that means is they’re no longer trying to find a job. If they’re no longer trying to find a job, they’re not counted; they’re not considered part of the labor force.
On top of all of these, you have part-time workers. What happens with part-time workers? It turns out that the way they count it (part-time statistics are really bad) is by total hours. You’ve heard me say it over and over again, life unsettled, people who are older, etc. are being laid off or replaced by younger workers, people’s hours are being cut back, etc. In this case, people are having to get jobs that may be part-time jobs. They may have to get two part-time jobs, which doesn’t even add up to the amount that they would get as a full-time employee. Now what happened? The economy created two jobs, the person’s not even paid as much as they were before, and they’re counted as full-time employment. Why? If their total hours for the two jobs is over 35, they’re counted as a full-time worker. That’s not a desirable situation that they want to be in.
Right now, the part-time unemployment rate is around 18.3%. It varies a little bit, so it might be 18.1, 18.4, etc. right now, but just say 18.3%. The low is about 13.5%. That’s up by 50%. Keep in mind that that does not include all those people having to work two jobs in order to make up for the family expenses. If they have a house, they have other things – they have to get that extra job in order to meet their obligations. There they are, they’re working two jobs, they’re not counted in that part-time employment rate of 18.3.
You may have heard of the economist, Walter Williams, he has something that he puts under John Williams, which is basically his middle name, called “ShadowStats.” He seems to be a very good economist; I’ve listened to him several times. He’s calculated, and says: “When you count in the long-term unemployed into the unemployment rate as of July 2015, it was roughly 23% unemployment.” That’s close to the rate of the Great Depression. That’s really sounding dire, and you say: “Yeah, but we’re growing a little.” During the Great Depression, there were times we were growing a little bit, too, but people couldn’t find things. The government kept on spending money to stimulate employment. The Tennessee Valley Authority, there was tons of money in worker programs that was put in place “to employ people.” It didn’t incentivize them, and of course, as soon as the project was done, they were all unemployed again. Nobody had the drive to go out and start buying lots of things, and create demand. Why? Because they realized the tenuous nature of it, just like today.
I’m not saying it’s as bad as the Great Depression, I’m not saying that. However, we’re doing some of the same things. “Why are interest rates so low and why is the stock market up?” everybody’s talking about. Keep in mind that the interest rate is being kept low artificially, and the stock market has tons of money – $4 trillion dollars have been pumped in over the last couple of years in order to finance things and to incentivize the economy. That’s a humungous amount of money and capital put into the system.
One of the things they’re saying about the labor participation rate and part-time employment, but mainly labor participation rate is they’re saying that a lot of people that are leaving the workforce are retiring over 55, and that’s why it’s happening. However, while they said this, there was actually growth in the 55+ group. Plus, remember the Baby Boom is in the upper 60s now, is the top end of it. The peak was born in 1957, so the peak is basically 57 years of age today. Those people aren’t retiring. Many of them are being, as we said, replaced by younger workers, etc. and taking second jobs. It turns out that the payroll job gains were all in July of 2015, just last month, all of the gains were from the 55+ group. The 25-54 year age groups lost 131,000 jobs in July of 2015. I’m saying all of this basically to emphasize the fact that we are in a very bad situation.
Here’s what makes it really hard, is: What do you do in this? It’s not like there’s some great opportunities, necessarily, but there are opportunities there if you can find them. Be careful what you’re finding, and if you have something, you don’t want to just give it up for something that may turn out to be bad. Yes, the world’s changed, as individuals and families must then adjust to it. You need to figure that you have to weather the storm. How long it’s going to last, we don’t know exactly. My guess is a couple of more years, a year and a half to two years, and then I think we should be on a better side, but that’s only if things change.
Because what’s happened? The government is spending too much money, way too much money – we know that, that’s got to stop. The fed, which is in a very dangerous situation, is supporting basically zero interest rate; there’s nothing else it can do to stimulate. Because of government regulation and Obama Care—and I don’t care whether you think it’s good or bad; that’s irrelevant—the fact is the way it’s administered, the way it’s put in and all the regulations slow down the growth of business, and because of the restrictions of age groups, etc. there’s very, very strong, severe cut back on hours and employment. Most jobs are created by small to medium size business, particularly small business. With most jobs being created by small business, those are the ones that can keep themselves potentially under the limits so they’re not subject to Obama Care, so they can restrict and then they can combine that with part-time workers.
What do you do at this time? If you have a job and you hope to keep it… That’s why people are working late and everything else, that’s why that happens. Any way they can get extra income, side businesses. Be careful: if you earn and what you earn, if setting up a business, you don’t want to write guarantees at this time in particular. You don’t want to be writing guarantees if you’re a bit older. If you’re over 50 years of age, you don’t want to be guaranteeing your home, or your savings, or other things to start that business no matter how wonderful you think it is.
Almost anyone can earn some extra cash. One of the key things is reduce debts. You want to save for retirement. What happens if this last little while, and you get into retirement, and you don’t have any savings? Do you want to live to 90+ with all of that hanging over you? Yes, it requires discipline and some extra effort. If you’re able to start a business, or expand or target your current business better – think of it this way: When the market does return, you could really accelerate your business. The key thing is: What can you capture now, and what can you do? Market share right now, and when slow times are there, the best and most important factor is to look at market share. You want to be in a position to benefit big time when the economy returns.
Everything we’re doing should be a lifelong training process and a combination of success principles. After all, we’re looking at people, some 50 years of age, if you’re going to live past 90, you have another 40 years. Plan well, but take a longer-term perspective. Notice I said: “When the economy gets corrected.” That is: “Not comes back,” it gets corrected. Be careful and ask the whys for all those things you hear. When you hear: “The economy is growing a little bit.” If you were an F student with a 50 average, and you went up to 55, you could say to your mom and dad: “Oh, wow, I’m getting better!” I don’t think it would go over very well. Right now, the economy is in the F category.
As I’m saying here, the main thing you want to do—and it’s very important—is be a little bit more protective at these times. Take advantage of opportunities, but protect yourself. Tried to keep this as short as possible, but you can see that it’s a fairly complicated topic and there’s so much to it that I couldn’t really get into the depth that maybe it deserves, but then we don’t have a semester to do this; we only have a few minutes.
Thank you very much. Questions, I know you have some. Feel free, send them over. Give me a voice message or a note, whatever you want to do. Comment below. I’ll be glad to hear from you, and hopefully I can answer your questions. Thank you very much.
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