Dear Reader,

Today I just have a couple of links and housekeeping items for your consideration. First on the list, don’t forget Doug Casey’s upcoming appearance as a keynote speaker at Freedom Fest, July 14-16. His talk is titled Make Chaos, Crisis, and Corruption Your Friend. In case you’ve missed them on the main website, Doug has made a couple of notable appearances lately. Here’s an extended conversation with Doug on Bloomberg Radio. Also, here’s Doug on Yahoo! Finance.

In other news, we have two new Casey phyles starting, in Owen Sound, Ontario, Canada and Peace River, Alberta, Canada. Please contact [email protected] for more information on Casey phyles. They are a great way to meet more like-minded folks.

One more thing before we get started: Thank you for sending us your comments on the new format design. The feedback has been overwhelmingly positive. We’ll continue to look for other ways to improve wherever possible. In today’s issue, Kevin Brekke will discuss necessary changes for America’s workforce to reach full employment again. Then, Jeff Kopocis discusses Bitcoin, and I’ll add some commentary on the topic as well.

Employment Faces Grim Decade Ahead

By Kevin Brekke

Today is the celestial start of summer, when the solstice occurs at 12:16 EDT, but it will likely pass with little notice or fanfare. Prior to the age of mechanized farming and corporate agribusiness and the migration of populations from outhouses to townhouses, life was largely dictated by the seasons. Ignoring them meant hunger and hardship… or worse. The metaphors of sowing and reaping, of advance planning, of understanding that everything has its right place, have long been exalted in poetry and alliterative song – the timeless classic Turn, Turn, Turn by the Byrds comes to mind.

Yet the lessons foretold and consequences forewarned are as equally true in the practical sense as they are aesthetically. A report from the McKinsey Global Institute brings home this hard reality. The title of the report, An Economy That Works: Job Creation and America’s Future, is misleading and belies its message, which is that the U.S. lacks sufficient workers with the right education and training to meet the skill profiles of the jobs that will likely be created over the next decade.

The U.S. has sown its primary and secondary education system with curricula that are overweight on the social sciences and underweight in science, technology, engineering, and math – the so-called STEM fields. And today’s unemployed are reaping the consequences.

The challenge ahead might be summed up using a popular joke format:

Q: How many social scientists does it take to change a light bulb?

A: None. STEM graduates have developed a hundred-year light bulb. When it burns out it won’t need replacing, as it will be obsolete.

That is the predicament in which too many of today’s unemployed find themselves: They are obsolete. The headwind facing today’s unemployed in their search for work is formidable. It’s a sobering thought.

Here’s a sampling of the statistics presented in the report about the jobs picture in 2011:

• 20% of the men in the population are not working today, up from 7% in 1970.

• The workforce in 2020 will contain an estimated shortage of 1.5 million college graduates.

• 40% of the companies planning to hire have had openings for 6 months due to lack of qualified applicants.

• The rate of new business creation has dropped 23% since 2007.

• The number of U.S. jobs has declined by 7 million since December 2007.

The hurdles that must be overcome include adapting the structure of the U.S. education system to better meet the shifting needs of the marketplace. This will be a herculean task, because by extension the report implies that many of the departments in today’s universities are themselves obsolete. Any cuts or reapportionments in a college curriculum mean teacher layoffs. And the unions will resist this change with ferocity.

The report discusses other areas of concern that I will leave to the reader to pursue via the above link. The report opens with an executive summary that makes for quick reading and conveys the major points.

I want to focus on one of the report’s central themes: that it will probably take a decade or longer for unemployment to return to pre-recession levels. To understand how this might be achieved, the paper looks at three possible scenarios for job recovery, as shown in this chart that I re-created from the report:

To fully grasp the height of the employment bar that must be overcome, here are the monthly net new jobs needed over the next 120 months to satisfy each scenario:

Low Scenario: 77,000

Middle Scenario: 145,000

High Scenario: 187,000

The low-job-growth scenario is fundamentally the continuation of the anemic job creation trend in place since 2000 – meaning that more of the same will condemn the U.S. labor market to high rates of unemployment for at least the next ten years.

Supporting this employment bar and lending credence to the low-job-growth scenario is the expanding time lag between GDP recovery and employment recovery to pre-recession levels. Again, I have re-created a chart from the report that says it all:

The chart shows that all postwar recessions were characterized by a quick snap back to pre-recession levels of GDP and employment – until the 1990 recession. That year, the boomerang effect took more than double the six-month average of the previous seven recession episodes. In 2001, the return time was more than doubled again. This exponential growth trend in lag time does not bode well for hopes of job growth accelerating anytime soon.

In the current “jobless recovery,” it has been six months since GDP returned to pre-recession levels while employment has not. This intermission will be extraordinarily lengthy unless serious changes are undertaken.

The report candidly – and accurately in my opinion – concludes that the U.S. labor market will not return to full employment (defined as a 5% unemployment rate) by following a “business as usual” course. In conjunction with reforms to the U.S. education system to ensure that the workforce has the needed skills to succeed, progress in other areas must happen. Among them, the report cites changes in business regulation that promote innovation and new company creation, as well as the removal of impediments to investment and job creation. To all that we respond, “Hear, hear!”

As I wrote this afternoon, I took a break to gaze out the window at the armillary sundial in the yard. Although a weathered, verdigris patina has replaced the shine of the once-new copper arrow and orbital rings, it still functions if properly positioned. And that is the lesson here. Many economic and social changes lie ahead for the U.S. economy that will have a direct impact on just about all aspects of American habits, investments, and careers. Being prepared means making the right adjustments now to get positioned for the course corrections ahead, and to survive and prosper. That is our mission here at Casey Research.

Bitcoin and Alternative Currencies

By Jeff Kopocis, Junior Analyst

As the U.S. dollar continues its decades-long slide down toward its intrinsic value, several enterprising folks out there have said, “Enough is enough.” They have created their own currencies, with the goal of retaining the purchasing power of the currency in their pockets. That does not always jive well with Big Brother, however, as most glaringly exemplified by the imprisonment of the Liberty Dollar creator, Bernard von NotHaus. Von NotHaus was found guilty in March 2011 on various counts – including making counterfeit coins – and faces up to 15 years in prison.

But in the new digital age, alternative currencies need not have physical characteristics – like the Liberty Dollar did – that may appear threatening to the U.S. government. Enter Bitcoin. Bitcoin is a peer-to-peer currency, described as follows on its website: “Bitcoin is the first digital currency that is completely distributed. The network is made up of users like yourself so no bank or payment processor is required between you and whoever you’re trading with.”

Essentially, Bitcoins are created digitally by users’ computers throughout the world and its value is derived by the supply/demand characteristics of the market. It is thus touted as a free-market currency alternative to fiat systems whose worth is based on trust. Anyone interested can visit the Bitcoin website to see how it works. There’s also a more in-depth video for the technically savvy about how Bitcoin works.

Popularity of Bitcoins had been growing in the past month, with the currency rising in value from approximately $1 USD/Bitcoin to $30 USD/Bitcoin. That all changed last week when the largest Bitcoin exchange (Mt. Gox) was subjected to a massive hack which drove Bitcoin’s value down to near $0.01 USD/Bitcoin. The chart below shows the alarming and abrupt decline.

When I sent around a note a couple weeks ago to some folks at Casey alerting them of Bitcoin’s existence, our own David Galland responded simply, “I kind of get Bitcoin… but give me something tangible I can lay my hands on any day.”

Referring back to how Aristotle characterized money, David’s comment makes all the more sense. Approximately 2,000 years ago, Aristotle said good money must be:

  1. Durable
  2. Portable
  3. Divisible and consistent
  4. Have intrinsic value

The astute reader will immediately realize that Bitcoin does not possess any of those characteristics and was subject to trouble from the get-go – not to mention the security issues that immediately arise with anything computer- and Internet-related. A computer-generated currency is not durable, as the recent hack demonstrates. And it’s certainly not portable. Can you imagine bringing your computer to the door to pay for your next Chinese food delivery? You get the idea for the remaining characteristics.

For thousands of years, however, there has been a viable alternative to depreciating fiat currencies. Gold, and to a lesser extent, silver have held up well as currencies over many centuries. As the fiat currencies around the world continue to decline in value relative to hard assets, investors are wise to consider the role of gold in silver in one’s portfolio.

Casey Research’s BIG GOLD will not only provide you with the best education for the gold and silver markets, but also offers investment ideas to capitalize on the currency trends we have identified. A three-month trial subscription is risk-free. More details are here.

Some Additional Thoughts on Bitcoin

By Vedran Vuk

Among the free-market crowd, a theoretical debate rages over Bitcoin. Is it free-market money or not? This seems like an important issue, as everyone who has tried to sell me on the idea of Bitcoin has boasted its status as “free-market money.” In my opinion, Bitcoin is free-market money, but that shouldn’t be the sole criterion influencing one’s decision to use the currency.

Others disagree. Here is David Kramer blogging at about a “real medium of exchange”:

I’m sure by now many of you have heard about Bitcoin. The fact that it’s called “virtual currency” gives you an idea about its actual value as a real medium of exchange. While many people who are touting it on Facebook are enamored with the fact that it was voluntarily created by the marketplace (i.e., is not forced down our throats by a private central bank), I’m afraid that those people are losing sight of how a real medium of exchange arises in a free market. A medium of exchange arises from something that had a material use/value in the market prior to becoming a medium of exchange, i.e., it was also a good being bartered for other goods and services. Over the centuries, the commodities gold and silver won out as the two most preferred mediums of exchange—with gold holding the number one position due to its being more scarce than silver.

What was Bitcoin’s prior material use/value? Zero. It is just bits in a computer. And what’s with the “fixed” amount of Bitcoins? Who/what determined the “proper” amount of 21 million for Bitcoins to top out at? A computer program? (Next we’ll find out what the proper minimum wage should be.) Only the free market can voluntarily determine how much of a real medium of exchange is needed in the marketplace over time. While the idea of attempting to get rid of the Bankster monopoly on creating money out of thin air is commendable, Bitcoin is also money created out of thin air. Bitcoin is just substituting one bogus medium of exchange for another.

UPDATE: I’ve been getting a lot of reader response trying to “explain” to me the economic virtues of Bitcoin. Some responders have even mistakenly used Austrian economics to rationalize their views. I would suggest that before you write to me about the Austrian economics view of a medium of exchange, you should read the two books by one of the two giants of Austrian economics, Murray Rothbard, on what a medium of exchange is. Here is the pdf for Rothbard’s What Has Government Done to Our Money and here is the pdf for Rothbard’s The Case Against the Fed. For those of you who have not yet read any Austrian economics, please do not waste your time writing to me trying to explain the “scientific” breakthrough of the bogus Bitcoin computer program. (There already was a REAL digital currency, e-gold, that was backed by a real commodity until the Federalistas shut it down. Eventually, Bitcoin will be shut down too because of its anonymity capabilities.)

First of all, David Kramer’s comments are emblematic of free-market utopianism. Just because Bitcoin isn’t intrinsically valuable or attractive doesn’t mean the currency isn’t free-market money or a “real medium of exchange.” The free market is full of sure-to-fail businesses.

For example, I tried a new pizza joint in my neighborhood yesterday, and it was a horrible experience. The pizza was mediocre, the waiter got my order wrong, and my stomach was upset afterward. Is this a free-market pizza shop? Of course, it’s just as free-market as a five-star restaurant. The marketplace is not only filled with good businesses, but bad ones too.

In my opinion, Bitcoins – or “sh*tcoins,” as some are calling them after the crash – are a really bad idea. I’m not basing this opinion on some theoretical construct. Rather as a consumer, I find the product completely unattractive.

Nonetheless, Bitcoin is free-market money. Quality isn’t a prerequisite of freedom; it is simply the outcome of competition. Entrepreneurs come to the market with their ideas and compete. The weak ideas will eventually die out, and the better products will succeed. A truly excellent product often stands on the ashes of dozens of failed products.

Look, I can print my own paper money, call the bills “Vuks,” and sell them to willing customers. Yes, it’s completely fiat, worthless money, but it’s just as free-market as gold bullion. My customers can decide whether my idea fails or succeeds. And that’s the important thing to take away from this: Don’t get involved in Bitcoin because it’s “free-market money.” Only buy some Bitcoins if you think this is a good product offering a valuable service. Treat it as discriminately as competing brands of laundry detergent. After all, that’s what consumers in markets actually do. Personally, I’m staying clear of Bitcoins.

Additional Links and Reads

A Cautionary Tale of Three Fiscal Crises (Bloomberg)

Here’s a nice rundown of the differences between fiscal crises around the world. The author points out the importance of flexible currencies in these situations. It’s a good read, but the final conclusion is a bit off.

Bernanke May Prolong Record Stimulus (Bloomberg)

Economists are pushing back their predictions of when the Fed will tighten its balance sheet and raise interest rates. The second question should be to figure out Europe’s interest-rate trajectory. If the ECB continues to increase rates over the next year and U.S. rates remain unchanged, the dollar could slowly continue to slide against the euro.

One in Three U.S. Workers Wants to Leave Job, Mercer Survey Says (Bloomberg)

About one-third of U.S. workers are considering leaving their jobs, with younger workers most likely to quit, according to human-resources consultant Mercer LLC.

A survey of 2,400 workers found 32 percent are “seriously considering” leaving his or her organization, up from 23 percent in 2005. Another 21 percent said they view their employers unfavorably and don’t feel engaged at work, though they don’t want to leave, according to a statement today.

The unemployment rate doesn’t tell the whole story of employment. Many workers aren’t exactly happy with their jobs – particularly young workers. I noted this sentiment among young workers in a previous issue of the Daily Dispatch, but at that time I didn’t have any statistics to back up my intuition.

According to this article, 70% of workers ages 21 to 30 want to change jobs when the economy improves. This is another sign of the stagnation within companies. Some young kids have been lucky to find a job – but few are finding upward mobility from there.

That’s it for today. Thank you for subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey’s Daily Dispatch Editor