Why There’s No Employment Growth in America’s Profit Centers
By Eric Fry
09/07/11 Laguna Beach, California – The financial markets seem to have caught a runny nose. But at this point, it’s hard to say if it’s the runny nose that follows a mild allergic reaction or the one that precedes a life-threatening pneumonia.
Despite a chronic case of the sniffles, the stock and bond markets of the world have performed reasonably well for most of the last of the two years. Even though the financial markets are acutely allergic to most strains of credit distress, Dr. Bernanke’s “Liquidity Elixir” has provided an effective antidote so far.
Even so, we suspect the elixir is treating symptoms, rather than the disease itself. Debt liquidation — either by repayment or default — continues to hobble economic growth worldwide, and also to terrify stock market investors.
Economies usually thrive when private-sector credit is expanding, and struggle when private-sector credit is contracting. The latter circumstance is the one that pertains today. To make matters worse, public-sector credit is expanding.
In effect, the US Postal Service and the IRS are increasing their indebtedness, while Apple Computer and ExxonMobil are reducing theirs. Unfortunately, “cost centers” like the IRS do not create employment growth; “profit centers” like Apple Computer do.
Therefore, when a country’s profit centers are retrenching, its job-creating engines will also be retrenching. And when a country’s job-creating engines are retrenching, nothing good can happen. Employment growth stagnates and credit distress accelerates throughout most parts of the economy.
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