Official Joblessness in May Rises to 9.4% and Well Above Worst Case

Posted by Michael A. Kamperman on June 5, 2009

Unfortunately, the official unemployment rate rose to 9.4% in May.  This is ½% over the Treasuries worst case assumptions used in the stress tests for the banks, and it is only May.  Significantly, the rate for those without jobs plus those working part-time seeking full-time work rose to 16.4%.  There was good news in that the payroll figure showed a loss of 345,000 jobs in May, which is about half of the losses that have been occurring over the last few months.  The survey showed a deteriorating jobs picture in the U.S., and the payroll figure showed a surprising slowing in the rate of decline.  I will not try to divine which report is more accurate.  Time will tell.

What was particularly concerning to me in the most recent report was the figure that government jobs in the month of May declined by 7,000.  While this is not a lot relative to the size of government in the economy, it is still a negative number.  My concern is that this number should have been way up.  While less than 10% of the $789 billion stimulus package has been spent to date, most of what has been spent has been direct aid to state and municipal governments.  Combined with the nearly $2 trillion projected federal budget deficit resulting in very large borrowing needs for the federal government, government employment should have gone up.  It doesn’t matter whether one thinks growing the government is a good or bad idea.  This economy needs something to hang its hat on.

If this trend continues it will indicate state and city revenues have deteriorated to the point that they have to cut jobs even with the extra cash coming from Washington.  The country is running huge government deficits to boost the economy, yet it is not enough to have government assume a larger share of the economic pie.  Where will growth come from?  The only sector in the economy still healthy is healthcare.  Yet the goal of the administration is to restrict the growth in this sector.  While I agree this makes sense, it only makes sense if we have an alternative sector step up and assume the mantle of growth. If even the government cannot add jobs in this environment, who can?

Is Monetizing the Federal Debt a Cure or a Cancer?

Posted by Michael A. Kamperman on

My Letter to the Editor in the June 5, 2009 WSJ:

http://online.wsj.com/article/SB124416582412987641.html

Regarding Mary Anastasia O’Grady’s “The Weekend Interview with Richard Fisher: Don’t Monetize the Debt” (May 23): Texas went through a debt-induced, asset bubble-popping in the late 1980s and lived to tell about it. But that happened because Texas had vibrant businesses that had growing customer bases outside of Texas. Also, people flocked to Texas from California and New York to scoop up cheap real estate. Texas received a lifeline of growing trade and out-of-state investors that wasn’t available to the U.S. in the 1930s. I know this because I was a banker in Texas in the 1980s and witnessed nine of the 10 largest banks go out of business. Similarly, Japan has received a lifeline of global trade from growing economies in the U.S. and China that wasn’t available to the U.S. in the 1930s, either.

Mr. Fisher, where is our lifeline going to come from? The German and Japanese economies are in worse shape than ours is. Mexico is in a serious depression. We cannot export our way out of this crisis, and massive amounts of foreign money will not be coming to our shores to snap up bargains. Other countries have bargains in their own backyards. In short, the only way out of this crisis is to monetize the debt. We need massive quantitative easing, and we need it now.

If we don’t monetize the debt, the federal government will have to reduce spending. If that happens, we could see asset prices in aggregate fall below the amount of the total outstanding private-sector debt. At that point our economy will not enter a phase of “creative destruction”; it will simply enter a phase of destruction.

Michael A. Kamperman
Waco, Texas