It is the shift from expansion to contraction of credit that has appeared to change economic indicators from lagging to leading. The leading indicator is not employment but rather access to easy credit. When access to easy credit is removed, a nation’s standard of living will revert towards its productive and intellectual capacity. Employment is but one component of this combined capacity. The price of gold is rising, because confidence in the U.S.’s ability to maintain its current standard of living without debasing its currency is declining. Employment will rebound when investment increases demand for the U.S.’s productive and intellectual capacity. This is why stimuli orientated toward increasing consumption rather than investment, like the programs in the Great Depression, are doomed for failure.
Unemployment has shifted from a lagging indicator to a leading one and is warning government policymakers to confront problems in an economy mired in slow growth, Pimco co-CEO Mohamed El-Erian told CNBC.
The consideration of unemployment as a lagging indicator is a favorite mantra among economists who believe the rate primarily looks at the past rather than what is to come.
Source:
finance.yahoo.com
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