Today, Friday, the Dow plummeted, losing 250 points. Why is that? Because of the Nonfarm Payroll Report. This Report was bad. Really bad. It was the first time jobs declined since July, 2003. What’s even more dismal — the Nonfarm Payroll Report not only kicked the dollar in the toilet against all other global currencies today, it pulled the handle.
So, what is “Non Farm Payroll?” It’s a number that tracks job creation in the U.S. If this number comes out below the 100,000 mark and unemployment ticks up a bit, then the Fed will be more inclined to lower rates than if jobs hold up strongly. Bernanke has stated that the Fed will be monitoring this data closely.
Here’s what happened: U.S. nonfarm payrolls fell 4,000 in August instead of the 112,000 gain that was anticipated, driven by major losses in the goods-producing, manufacturing and construction industries.
This is going to affect your life. I’ll explain below the fold.
In the past, when there were large failures that could impact financial markets, Alan Greenspan would just ride to the rescue. Remember the Long-Term Capital Management bailout of ’98?
In contrast, Ben Bernanke has said he doesn’t think it’s the Fed’s job to offer bailouts. But is Ben just blowing smoke, or if “push comes to shove,” would they really bailout Wall Street as Greenspan did in the past? We may know the answer to this next week.
One of my favorite currency analysts, Jack Crooks, notes:
The Fed is being “encouraged” by the government to persuade banks to assist sub-prime borrowers with their mortgages. The government wants banks helping borrowers for the next couple years as mortgages reset to higher interest rates and cause another round of mortgage problems.
On top of all of the sub-prime/credit crunch problems, the Fed is also tuned into the latest economic activity like never before. For instance, many want to know if the Fed is likely to reduce interest rates when they meet in a couple of weeks.
More Jobs = More Spending Money
So why would jobs be so important to the Fed? Well, if more jobs aren’t created and unemployment heads higher, then there’s less money in consumers’ pockets to spend. If consumer spending gets hurt, then retail sales will slump.
Consumer spending accounts for a huge portion of the overall GDP in the United States. So a slow down in consumer spending might also cause overall economic growth to cave in. All of this will cause a downward spiral leading to a recession.
The Fed would like to avoid that at all costs. So how do they do that? They avoid it by lowering the interest rates. Lower interest rates makes it cheaper to borrow money and therefore easier for corporations to expand and grow (and for Wall Street to speculate). Expanding corporations means better earnings.
Here’s What the World Knows that You Don’t:
Todays Jobs data all but guarantees the Federal Reserve will cut interest rates on September 18th.
Because of that, the dollar crashed again today, and didn’t bounce back.
Lower interest rates are NOT good news for the U.S. dollar. The U.S. dollar is the biggest mover of currency exchange values. Lately, the currency exchanges have been treading water, waiting to get some direction from the Fed. Now they know.
The dollar is being, defacto, devalued. (Oh, and food is going to start costing you a lot of money — very soon.)
Slouching off toward Bethlehem
As a final note — If you’re like me, you always want to find the seeds of change. Where did all this start? That’s actually easy to trace.
The day the President and Congress decided to Cut Taxes and Raise Defense Spending — spilling the nation’s Precious Bodily Fluids in the sands of the Middle East — was the beginning of the end of the American Dream for the middle class.
And, of course, it’s all about oil and the PetroDollar (which about to become extinct). In a future Diary, I’m going to discuss how wrong the U.S. was to try to protect the PetroDollar and control oil supplies with guns and tanks. Suffice to say it turned out the opposite from what the neocons had gambled with our treasury and the blood of our troops. Right now, I want to leave you with this:
Is the cost of oil going up, or is it remaining the same — and is the value of the dollar going down, instead?
Can the rest of the world afford oil better than we can? (After all, all they have to do is buy cheap dollars with their more valuable currencies.)
What You Can Do to Save Yourself:
Gold soared this week. You need to put some of your dollars there. Here’s one way to get started:
Gold-based CDs are one of many simple, entirely safe, products you can own to protect your wealth — and potentially earn a small fortune. They are sold by U.S. banks. You won’t lose a penny if gold goes down — and it is FDIC insured, as well.
It’s time for the Democrats to gain wealth from the Republican’s disasterous mistakes. We live under a Plutocracy — where the people with the wealth control the government.
Let’s start doing it like the Big Boys do.
