Back in April, I had a thought about the Stock Market resembling a forest that hasn’t been allowed to burn naturally for a long time.
The same can be said about the US (maybe the world too) economy.
Businesses fail and new ones start up in a healthy economy during up and down cycles.
At some point, the US government decided that businesses were too big to fail and we should keep them all going in the name of low unemployment numbers and various other reasons.
In this latest round of bailouts during COVID-19, now we have even more companies accessing cheap debt to keep them going along with layoffs being suppressed due to requirements that companies refrain from layoffs if they want to retain this easy cash.
And there is at least an even chance bailed out companies will fail anyway given social distancing requirements.
Today, we have a report that jobs increased instead of the decline most economist expected. The stock market responds with, “It’s party time, back to the good ‘ole days.”
As I mentioned, layoffs are being suppressed via bailout requirements. As an example, airlines are offering voluntary separation from the companies because they can’t really do involuntary layoffs until the end of September when restrictions lift for receiving bailout money.
Point is, if companies were not being bailed out and layoffs were happening, there would be a whole lot of bad happening right now instead of this euphoria that everything is back to normal.
Now we have even more zombie companies being kept alive with cheap debt while they employ people for no productive reason. These are all resources that could be put into something else more productive.
The natural order of things is not being allowed to happen and when that happens in a forest, it’s ultimately catastrophic.
For those of you who say that businesses going bankrupt and job losses are unacceptable, I say this and I’ve been saying it for a long time.
Businesses come and go. That’s the way it works. They are under no obligation to employee humans (me included) either. If they could replace us all with robots, they would.
For the stock market and the economy, both feel artificial now more than ever and I don’t think it’s going to end well for any of us.