2014 will likely be another year where Washington and Wall Street come up with solutions that ignore the real problems happening on Main Street.
The media is all a twitter with anticipation, waiting for Obama’s State of the Union address, which should be the first salvo for the 2014 mid-term campaigns that will terminate in November.
Media types expect a speech that will be heavy on income inequality, minimum wage increases, and unemployment benefits, none of which actually address the real problem that Main Street is having, which is a lack of jobs. A problem that Obama himself created.
In fact, each of these agenda items is an indictment of a do-nothing president, a see- nothing president and a know-nothing president.
So-called “income inequality” has risen under Obama, unemployment has gotten so bad that the official statistics --as even acknowledged by the mainstream media-- don’t actually measure unemployment anymore, and the most effective “minimum-wage” measures – job creation – is treated with almost pathological hatred by the administration.
This is an administration that would rather have freight trains full of crude oil derailing in Midwestern towns, while burning barrels of crude force residents to evacuate, than approve the job creation measure known as the XL Pipeline. The pipeline would transport oil less expensively, more safely and help fuel the ongoing energy revolution that the administration is pretending isn’t happening.
Obama won’t approve the XL pipeline over safety concerns.
I don't know about you, but the safety I'm most concerned with is preventing catching town residents on fire as freight trains of flammable liquids go through their cities. That would be a big benefit of Keystone... you know, besides the jobs.
Oh, the train thing? They have unions jobs.
So speaking of Know-Nothing presidents…
Since Obama has tackled the all-important problem of nuns not having access to safe, legal and rare abortions; and the other problem of nuns not paying enough in taxes to subsidize birth control, abortion and HPV vaccinations, he will have to change his focus in the upcoming State of the Union speech.
And so now he’ll pivot to other places that have nothing to do with creating jobs.
This leaves Wall Street in a quandary.
Traditionally Wall Street rises in proportion to the growth of earnings.
Earnings are traditionally a product of increased employment.
It is, after all, hard to sell things to people when people don’t have money.
It’s hard, after all, for people to have money – real money – when they don’t have jobs.
Cato Institute economist Michael Tanner told me on Ransom Notes Radio two weeks ago that we’re spending so much on anti-poverty measures that we could send every family of four under the poverty level a check for $60,000.
Since the poverty level for a family of four is $23,500, one doesn’t have to look very far to figure out where the other $36,500 is going.
Because, it’s hardly a surprise then that at the same time Washington DC real estate is it at record highs, only in Washington DC does the median family income allow it to buy a new car.
So Wall Street will just have to figure out a different way to make profits these days. Because the good times are clearly rolling in Washington, D.C.
The easiest way for Wall Street to make money in a slow growth environment is for more mergers and acquisitions to happen.
Fortunately for Wall Street – and to the regret of Main Street – the Federal Reserve Bank has provided a ton of corporate cash for just such mergers and acquisitions to happen.
Investors always love acquisitions, but as a recent article in Barron’s noted, management isn’t always as keen.
That may be changing as earnings become harder to come by.
“Management may be coming around to that thinking,” says Barron’s. “There have been 204 deals so far this year, and what deals they've been. The average deal size has been $1.1 billion, over twice the average in 2013.”
But here’s the rub: mergers and acquisitions don’t come with extra jobs. In fact, usually mergers and acquisitions means fewer jobs as companies become smaller, and eliminate redundant workforce in an attempt to grow earnings by making expenses lower.
Wall Street generally like this type of action. And since they have the means to make money, they aren't likely to grouse at D.C. about not creating jobs.
But here’s the problem for Main Street: This is the stage of the of the economy we get to when we’re supposed to be ADDING jobs, not getting rid of them.
Getting rid of jobs is saved for recessions.
Any questions?
Join the conversation as a VIP Member