Posted by Michael A. Kamperman on October 20, 2009
The Whitehouse needs to stop defending the stimulus plan and come forward immediately with a big and bold job creation plan. The one part of the stimulus plan that most people agreed would create new jobs was fast forwarding funding for shovel ready infrastructure jobs. Well don’t hold your breath. Proof has just emerged that the stimulus plan is not only failing to create infrastructure jobs as promised; it is now failing to save even previously budgeted infrastructure jobs. A few days ago federal and state transportation officials told local planners in Texas they would need to significantly restrict their previously budgeted spending on roads and bridges for the next two years. In fact, the only money available for state and federal highways is whatever funds local transportation authorities have received directly from the stimulus plan, and nothing else. The Waco Tribune Herald quoted Waco MPO director Chris Evilia as saying “If it’s not economic stimulus, it’s pretty much a no go for the next two years.” She described the turn of events as a “complete meltdown.” The Waco area is slated to receive $7.2 million from the stimulus plan for roads and planned to use the money for a needed overpass on highway 6. Still, the stimulus money will not be diverted to higher prioritized projects but to routine road maintenance. Without stimulus money the area already planned to widen parts of I-35 and to build an overpass on highway 84. Those two top priority projects will now have to wait for future funding, since the expected annual road money is no longer coming.
We are in a federal and state funding crisis due to a lack of tax receipts because of the economic crisis. Jobs widening I-35 that would have existed anyway without the stimulus plan will now not exist even with the stimulus plan. It is simply stunning things are unraveling so fast at the federal and state level. It is imperative the Whitehouse put together an emergency spending bill to restore fully all budgeted transportation funds without using funds from the stimulus plan to cover the normal budget. The word stimulus means an extra spark. It does not mean replacement money.
There is no doubt we need much higher levels of federal spending to stabilize the economy. There is no doubt the Federal Reserve needs to print a lot more money. What is doubtful and what is an open question is whether or not President Obama has the wisdom and the courage to stand in front of the American people and tell them the economic crisis is proving to be more severe than he and his advisers realized. He must come forward with a one trillion dollar job creation program as a minimum down payment if he wants to see unemployment go down. It is also doubtful whether or not Fed Chairman Bernanke will push through another round of quantitative easing at the Fed’s next meeting. The economic crisis will not end until the President is willing to use all of his political capital on creating jobs.
I need to offer a mea culpa and a retraction. Earlier I attempted to coin the phrase the “Great Unraveling” as a term to describe how the economic dominoes are continuing to fall into each other causing more and more economic losses. The recent cut in highway funds is a perfect example of why we are in a depression and why it is not close to being over. However, it has been brought to my attention that Paul Krugman published a book in 2003 titled The Great Unraveling: Losing our Way in a New Century, which is a collection of his New York Times columns railing against President Bush’s economic policies. At least I have seen Professor Krugman forced to issue retractions of his own.
Posted by Michael A. Kamperman on October 14, 2009
It may happen as soon as tomorrow. The core rate for CPI includes everything except for volatile food and energy prices. Over the last 12 months the overall CPI rate has declined by 1.5%, primarily due to a pullback in food and energy prices. But for the most part the Core CPI rate has risen slightly month after month despite rampant deflation. Over the last year the CPI has calculated that rents and owner’ equivalent rents (the economist’s substitute for home prices) have risen by an annualized rate of 1.8%. It is mindboggling that the federal government’s statisticians have been using the cost of renting shelter as a substitute for actually buying a house. Everyone knows home prices have dropped dramatically during the last 2 years. The reason the Core CPI rate is about to turn negative is rents are now rapidly falling throughout the U.S. Rent and owner’ equivalent rent combined account for 30% of the overall CPI calculation. Importantly, they account for 40% of the Core CPI calculation. Most economists and investors pay much closer attention to the core rate than to the overall rate due to the volatility of food and energy prices. This summer apartment vacancies reached 7.8%. Landlords are forced to lower prices to attract tenants. Once the Core CPI rate turns negative it will confirm the U.S. is in a deflationary spiral brought on by the credit crisis.
The CPI rate is built into many contracts and negotiations in the U.S. Most employers’ base raises for employees on a cost of living adjustment, plus potentially something extra for merit. With the Core CPI rate trending negative the only raises given to U.S. workers will be for merit. Stagnant and potentially falling wages in the U.S. will only lead to lower prices as consumers and businesses are strapped with excessive debts. They need the forces of inflation to raise their incomes and the prices of their assets to service their debts. This year people on Social Security did not receive their usual annual cost of living raise. Less income will lead to lower top line revenues for businesses. This will mean cost cutting will be the only way maintain or grow profits. In the U.S. cost cutting for businesses is code for more layoffs. Getting out of this deflationary spiral will be very difficult because of the way incomes in the U.S. are tied to the CPI rate.
The Fed is currently pushing on a string and has been unable to get the Zombie banks to increase lending. The only way to fight deflationary expectations is for the Federal Reserve to print a lot more money. Yet some members of the Fed would like to exit their quantitative easing program believing the economy is recovering and inflation is around the corner. These attitudes should change once the Core CPI rate confirms deflation. The good news is the release of minutes from the Federal Reserve’s last meeting showed that some members of the Fed are still open to upping the quantitative easing program.
Posted by Michael A. Kamperman on October 6, 2009
Historians look back on the Great Depression of the 1930’s and assure us that things turned out much worse than they could have because of policy errors from both central banks and governments. Australia just committed a significant policy error by raising their short term interest rate by a quarter of a point to 3.25%. This sparked a surge in the Australian dollar. It also sparked a surge in gold. Only last week Australia pledged, along with all of the other G-20 nations, not to prematurely withdraw stimulus spending plans or to raise interest rates. But Australia quickly waived that pledge off by assessing that a short term liquidity driven speculative bubble in commodities prices brought about by artificial demand from China indicates their economy has recovered sufficiently enough to withdraw stimulus. Australia isn’t even going to wait to see if Chinese demand will continue once its 60 year anniversary eight day long holiday is over. Since much of the recent demand from China has gone into building inventories in warehouses rather than into finished goods for which few firm orders exist, it remains to be seen if China will continue to purchase commodities at a rate that significantly exceeds demand. I would not be surprised to see Australia reverse course and lower interest rates in a few months just like the European Central Bank was forced to do an abrupt about face when they prematurely raised interest rates last summer. Have Australian central bankers forgotten that only 6 months ago the prices of many of the commodities they track were much lower than they are today? Does Australia realize real final demand for most commodities has not risen substantially from 6 months ago?
Australia’s go it alone strategy will hurt strategic global efforts to coordinate economic recovery strategies between the major industrialized nations. Just how good is the word of any nation that participates in the G-20, including ours? It was only a few weeks ago we started a tariff raising tiff with China over tires. What the world needs from the G-20 is a firm understanding of the depths of the crisis and a clear and united vision on how to lead the world out of the crisis. It is clear Australia just doesn’t get it. Could beggar thy neighbor policies be far behind?
The question Bob Herbert raised in today’s New York Times is does President Obama get it? Bob questions why there is no bold job creation plan coming from the Whitehouse. The radio talk shows are now all quoting the U-6 unemployment rate of 17%. The pressure is building on the Whitehouse to create jobs. The early word is they are planning on extending jobless benefits and the first time home buyers tax credit. We already had these programs in place this September and still lost over a ¼ of a million jobs. Obviously we need something much bigger and much bolder than the $3,000 tax credit for new full-time jobs the Whitehouse is considering. Would you spend $30,000 to open up a job position your company doesn’t need just to get back $3,000? The economy needs real final demand to return. Real demand will not return until the global credit markets are fixed for small businesses and consumers, not just for mining giants in Australia enjoying a temporary windfall.
Posted by Michael A. Kamperman on October 1, 2009
The debate between most economists is whether we are in a V-shaped recovery or whether we will have a double dip W-shaped recovery. What recovery are they talking about? Yes, based on the flawed GDP calculation we probably have a positive reading in the third quarter. The final GDP report for the second quarter showed the economy only contracted at -.7% annualized rate. In the second quarter real U.S. exports to willing buyers fell by 4.1%. But because our imports fell 14% the GDP calculation claims that “net exports” added a positive 1.65% contribution to overall second quarter GDP. If the calculation simply used actual exports, then 2Q GDP would have contracted at -2.8%. The flaw in the GDP calculation has economists overstating the strength of the real economy. This morning weekly jobless claims rose to 551,000. This is higher than the highest week of jobless claims in either the 2001 or 1991 recessions. It has been over a year since we have had a weekly jobless claim number below the 2001 peak of 517,000. Can any sane person accept that we are in the middle of an economic recovery when the official unemployment report will soon reach 10%, possibly as soon as tomorrow?
Auto sales plummeted in September just as soon as the cash for clunkers program ended. The annual sales rate is once again well below 10 million units per year. Consider that September of 2008 was the worst month for auto sales since 1993. Yet the supposed recovery we are in saw Ford sales fall 6% from September of 2008, Toyota sales fall 13%, and GM sales drop by 45%. Does that look like a recovery to you? I look for home sales to follow auto sales into the ditch in October now that sales from the first time home buyers tax credit are behind us. Remember you have to close by November 30 and it is taking an average of 60 days to process a mortgage application.
Sales of autos and homes are big ticket items. Most buyers need both a job and access to credit to acquire either. With unemployment still rising and credit still tightening, it is unrealistic to believe the economy is in a full blown recovery. We need someone in Washington to show some leadership and come forward with a small business and consumer credit program. The Treasury and the Federal Reserve are too content to sit back and wait for the Zombie banks to heal. These banks are undercapitalized and they will not heal on their own. They are going to need more federal support. The housing market is going to need more federal support. The auto market is going to need more federal support. And the job market needs a lot more federal support.
Posted by Michael A. Kamperman on September 30, 2009
Despite the constant claims that the economy is in recovery by the happy talking Wall Street pundits, the Main Street economy cannot avoid the Great Unraveling of the new debt-induced global deflationary depression. The word out tonight is GM plans to shutdown the Saturn car brand after a deal to sell the brand to the Penske Group unraveled. Saturn will now join Pontiac on the scrap heap of the depression. Many more jobs will be lost. But the real killer for Main Street is the pending demise of CIT. One of the key lenders to small businesses is the shadow bank CIT. This company is more important to the Main Street economy than Lehman Brothers was to the Wall Street economy. The investment banking services provided by Lehman Brothers were for the most part duplicated by multiple other firms on Wall Street. Lehman simply represented the culmination of the run on undercapitalized banking and investment firms. After Lehman the federal government stepped in and back stopped the major banks and investment firms via the TARP. But the Obama economic team in all of its wisdom has decided not to support CIT with additional funds from the TARP. They have deemed that CIT is not too big to fail and does not pose a systemic risk to the financial system. CIT has well over half a million small business customers that rely on it for credit. Access to credit is the lifeblood of any small business that actually creates real jobs. Small businesses create a lot more net new jobs than large corporations. The Obama administration is being penny wise and pound foolish.
The economy cannot recover until the job creating engine of the U.S. economy is revived. Small business is the number one job creator in America. Yet the Fed and the Treasury have expressed little interest in supporting small businesses. While almost all of CIT’s larger and well capitalized customers will find alternative sources of credit, most of CIT’s small and under capitalized customers will be left to wither and die on the vine. The large banks that received TARP funds have been decreasing their loans to consumers and small businesses. They will not pick up the slack for many of these small businesses. Neither will any of the other large shadow bank lenders that are also re-trenching just like the large banks. We are left to watch the dominoes fall into each other one by one.
The Obama economic team is loaded with academicians and life long government employees. They just don’t get it. In business one often has to spend money to make money. By not risking taxpayer dollars to support small businesses the ranks of the unemployed will continue to grow. The federal government will not only lose taxpayers, they will spend a fortune on the unemployed both directly and indirectly in increased aid to the states. The let them eat cake attitude of the Washington elite will drive unemployment rates in America even higher than they are now. What will it take for this administration to put forward a real job creation plan? We already have 1 in 6 Americans that want a full-time job unable to find one. Mr. President, will we have to wait until the number rises to 1 in 5? The way things are going we could well reach that number in just a few months. Right now the number one issue in America is jobs. So is the number two and the number three issue. Without finding a way to extend credit to small businesses and consumers there is no way to lower unemployment in the U.S.
Posted by Michael A. Kamperman on September 28, 2009
Sheila Beard and the governing board of the FDIC will probably require banks to pre-pay their FDIC deposit insurance premiums for the next 3 years in advance. The reason is the FDIC has run out of money and there are still many troubled banks that need to be closed. Closing a bank costs money and the FDIC is required to have the cash available to fund the closing costs. The FDIC is not technically broke. Deposit insurance is backed by the federal government and the FDIC has a $500 billion line of credit from the U.S. Treasury that they can tap at anytime. But the mood in Washington is to do as little as possible for the economy and to kick the can down the road in the hope and prayer that an economic rebound will materialize to solve the economic problems. The last thing Washington is interested in doing is spending political capital to fix the economy. Hence, the FDIC is borrowing a page from the Treasury’s stress tests of the banks and prefers using smoke and mirrors to pretend everything is not really so dire as opposed to formulating real concrete solutions to fix the real problems. The FDIC has at least ruled out the sham scenario of borrowing money from the large banks that it backs to assure us our deposits are safe in those banks. The reason the FDIC has chosen an advance premium payment over the other options is because the accounting for the advance from the banks will not hurt the earnings of the banks. Basically, a bank will be allowed to expense over 3 years its premiums even though it is required to pay them up front, hence the smoke and mirrors.
What is truly troubling about the choice the FDIC is about to make is it confirms that no substantial additional help is coming from the Whitehouse to restore credit and create jobs. The board of the FDIC should stand up and be counted. It should tap its line of credit at the Treasury and declare that it will ensure that banks that are too weak to lend will be closed and their deposits will be transferred to institutions that will extend credit to consumers and small businesses. Of course, that would require fixing most of the large banks that the Treasury has turned into Zombies that keep cutting back on their lending to preserve capital. It would require creating a true “bad bank” that will absorb the toxic assets and free up the flow of credit once again. But that would require a lot more money and would use up political capital that is being saved for healthcare reform and then energy reform.
Accounting gimmickry gave us Enron. Accounting gimmickry gave us large banks with off-balance sheet SIV’s stuffed with AAA rated no money down, no job, bad credit mortgage-backed securities. Enough with giving us gimmicks. President Obama, please get yourself a new economic team that will tell you that you need to make hard choices. The same type of hard choices your generals are telling you need to make in Afghanistan. At least the military is laying it out on the line and giving you a clear picture of the truth and the ramifications of your decision. You need someone on your economic team that will tell you the truth about the suffering of the American people. You need someone, anyone, that will tell you more time and the stimulus plan will not heal the potentially mortal economic wounds our nation has been struck with. The last person who wants to see you go down as the re-incarnation of Herbert Hoover is me. The economic team you have now is giving you the same quality of advice that Hebert Hoover’s economic team gave him. For starters the FDIC is going to need a lot more money than just 3 years of upfront premiums.
Posted by Michael A. Kamperman on September 24, 2009
Last week President Obama sent China a stern message on fair trade when he slapped a 35% tariff on low end tire imports from China. China is basically expanding industrial capacity far beyond their own internal demand and is looking to dump excess supply onto the U.S. and other markets. In the last two years China’s share of the U.S. tire market has risen from 4% to 16%. China retaliated with a couple of trade restrictions against the U.S. But nothing is set to rattle world markets and global trade more than Britain’s attempt to grow exports ala China by driving down the value of the pound against other currencies. The Bank of England’s Head Governor Mervyn King told a regional newspaper a lower currency was desired by the British government to grow their share of the export market. The corollary of course is that a weak currency encourages local production and discourages expensive imports. The Obama administration also believes a strategy of growing exports and shrinking the U.S. trade gap is the right strategy to restore the economic health of America. Basically, Britain and the U.S. want their economies to look more like China’s. Correspondingly, this beggar they neighbor strategy is dependent upon the large net export nations in Asia such as China and Japan, plus Germany, to change their economic models and begin to produce less and import more. Fat chance! While this may look good in some wonkish white paper it is not going to happen in the real world. The export driven nations have taken a huge hit to their economies and global trade has dropped more in the last year than at any time since the early 1930’s. It is politically unrealistic to expect them to ask their citizens to endure higher rates of unemployment so that America and Britain can experience lower levels of unemployment. The imbalances in the global economy brought about by excessive debt levels are continuing to unravel. The Great Unraveling is as inevitable now as it was in the 1930’s. The leaders in the 1930’s weren’t dumb, they were desperate.
One of the widely blamed causes of America’s deep suffering during the Great Depression was the Smoot-Hawley Act which raised tariffs on thousands of imports sparking a global trade war. Back then the U.S. was a creditor nation with a positive trade gap. Today we are a debtor nation with the world’s largest trade deficits. A trade war will hurt us less and hurt China, Japan, and Germany more. While our risks from a trade war are not as great as they were in the 1930’s, that doesn’t mean we won’t feel some real pain and should avoid one at all costs.
President Obama is looking to re-orient the U.S. economy to borrow less, save more, and spend less. He wants us to become a creditor nation again and lead the world in exports. He only wants responsible people to have access to credit. He wants to see the federal budget deficits reduced. He wants to drive down the costs of healthcare in the U.S. and bring them in line with the per capita costs experienced by other industrialized nations. While these virtuous ideals sound good, in reality they are the opposite of what is needed to get the country out of our debt induced deflationary depression. We need to look to solve our own problems and not expect the rest of the world to solve them for us. With the whole world in a depression it is not possible for the world’s largest economy to export its way to prosperity. We need to re-kindle internal consumer demand. We need massive quantitative easing from the Fed. Unfortunately, the Fed is bowing to the pressures from the inflation hawks and has failed to increase its program of quantitative easing. The Fed will up this program in time. It is just a question of how much more pain the Whitehouse and the Fed are willing for us to take before they act. My guess is we will not see a concerted effort from Washington to provide further assistance to the economy until unemployment reaches 11% in a few months. Hopefully by then it will not be too late to head off at the pass a new depression worse than The Great Depression.
Posted by Michael A. Kamperman on September 20, 2009
One of the controversial components of the way the unemployment report is calculated is the birth death model. The model was fully adopted in 2003 and is now part of the unemployment report. The model is designed to estimate the number of new small businesses started each month versus the number of small businesses that close down each month. This model has consistently added jobs to every monthly unemployment report and has yet to subtract jobs. Hence the controversy since everyone is seeing more local businesses close down than open up in their neighborhoods. But I think arguing only about quantity misses the point. We should also be debating the quality of new jobs being formed in America. The CEO of Office Depot Steve Odland said this morning on Fox News Sunday that his company is not seeing a recovery in the economy. He said most of the new jobs in America are created by small businesses. Most people starting a small business use either home equity loans or credit cards to start their businesses. This form of credit is extremely tight right now and new sources of credit have not emerged for entrepreneurs. He also claimed very little of the stimulus money is targeted to reach small businesses. Basically, if you lose your job it is currently very difficult to turn around and start a real company that provides a living wage for its owner and workers. Yet the birth death model has not been adjusted for the new credit environment and is still assuming we are partying like its 2006.
The New York Times profiled some of the new jobs created by the recently unemployed now known as accidental entrepreneurs. It noted that the Kauffman Foundation’s Index of Entrepreneurial Activity showed a slight uptick in 2008 over 2007 in entrepreneurship. However, Kauffman said “the patterns provide some early evidence that ‘necessity’ entrepreneurship is increasing and ‘opportunity’ entrepreneurship is decreasing.” Examples of these new companies were a brother and sister who sold 70 bicycle bags to hold keys and wallets for an average of $30 per bag, a former Lehman Brothers employee who started a college recruiting consultation company but has yet to sign up her first client, and a mother and daughter who started a cookie company with sales reaching $300 per month. These new “jobs” cannot provide a living wage and are really sidelines and hobbies. Yet if these people report to the Department of Labor they have started a small businesses they are counted as self-employed and not unemployed. It is no wonder then that Bank of America’s credit card charge-off rate has reached 14.5% and is now deviating substantially from its normal historical correlation with the official unemployment rate which is currently 9.7%.
The credit crisis can be fairly blamed on the credit rating agencies for placing the AAA rating on pools of loans to homebuyers with no money down, no job, and bad credit. However, it is economists and their failed econometric forecasting models that are preventing additional and meaningful federal government support for job creation. These alchemists defend an unemployment report that relies on the unadjusted birth death model, a GDP report that relies on net exports, and a CPI report that relies on owner equivalent rent as accurate estimates of true economic activity. It is clear these emperors of economic thought have no clothes. We need someone who is respected in the profession to call for a complete overhaul of how we measure the economy. If economists keep inputting garbage data into their models they will continue to get garbage out. Rather than trusting estimates of economic growth for the second half of 2009 and for all of 2010 they should listen to the warning of Office Depot’s CEO that without access to credit the small business job creation engine in the U.S. remains gassed out. We can keep kissing the real economy goodbye until we find a way to get the fuel of credit to small businesses whether they were created because of opportunity or necessity.
Posted by Michael A. Kamperman on September 15, 2009
There is now no way out. Today Bernanke and Obama sealed certain economic doom. Fed Chairman Ben Bernanke irresponsibly stated that “technically” the recession is over. Yes, the U.S. will probably report positive GDP this quarter thanks to cash for clunkers and first time home buyers scrambling to ink deals before the deadline. But none of this is sustainable without more help from Washington. The words spoken by Bernanke and President Obama today renders the political possibility of giving the economy the help it really needs all but nil. It will now be the spring of 2010 before a reassessment is made of whether significant additional measures should be taken to aid the economy. The only way it will be before the spring is if unemployment reaches 11% sooner rather than later, a real possibility. How can Bernanke, a so called expert on the Great Depression, declare our recession is over when credit to consumers and businesses is still falling. The vast majority of the money supply in the U.S. comes from credit, not cash. As long as credit is shrinking deflation will continue to take hold. As for President Obama he can certainly talk the talk. He said he was focused on jobs as part of his talk to the AFL-CIO on the need for healthcare reform. But talk is cheap. What we need is a leader who can walk the walk. While President Obama said he was focused on jobs he offered nothing in the way of new initiatives to stem rising unemployment. This amounts to the same liquidationist strategy adopted by Herbert Hoover in the early 1930’s.
The nation’s largest lender, Bank of America, reported today that credit card defaults have risen to 14.54%. Normally charge-offs are in line with the unemployment rate. This lends credence to the concept that the true unemployment rate is closer to the U-6 measurement of 16.8% rather than the official U-3 measurement of 9.7%. The federal government’s statisticians can throw 2 million people out of the official labor force. But that doesn’t mean those 2 million people can still pay their bills. The Bank of America report corresponds closely with the report that 13.2 % of all mortgages in America are 30 days or more past due. It also corresponds closely with the report that consumer credit in July dropped by $21.6 billion. Metrics to measure credit such as the TED Spread and Libor no longer have the same meaning that they did in the past. This is because national governments have stepped in and guaranteed transactions between their largest banks and other institutions. Fear of a systemic collapse is off the table. But banks remain in a Zombie state, the walking dead that are insolvent and unable to lend.
In addition to bank data on credit cards we also received word today from Kroger, one of the nation’s largest grocery chains, that deflation has entered the food business. I doubt President Obama and Fed Chairman Bernanke are heeding the message that deflation is rampant in the U.S. Instead they are relying on the econometric forecasting models of blue chip economists who expect economic growth in the second half of 2009 and in 2010. These are the same econometric forecasters who failed to forecast the current economic downturn. The failure is due to a reliance on post World War II trend data and a severe lack of common sense. We need a third stimulus plan pronto and we need massive quantitative easing. How can the economy receive the kind of support that takes political courage when our leaders are taking a premature victory lap?
Posted by Michael A. Kamperman on September 11, 2009
Treasury Secretary Timothy Geithner was on T.V. twice yesterday. First he testified before the TARP Commission headed by Elizabeth Warren. Then last night he held a Town Hall meeting hosted by CNBC. He is a very good politician and should consider running for public office. But he is not the person we need to lead us out of the economic crisis. When asked by Dr. Warren if we could re-run the stress tests on the banks since unemployment is now higher than the worst case assumptions used in the test, he said banks losses were better than the worst case estimates used in the tests. When asked if we could run the stress tests on the 9,000 banks that weren’t tested, he said it was unnecessary since they only represented one third of total bank assets. When asked if we had Zombie banks that don’t go insolvent but are too weak to lend, he said he didn’t believe any of the largest banks are Zombies. I guess he has been too busy appearing on T.V. to notice that consumer credit dropped by a record $21.6 billion in July. I guess his view is the banks have plenty of money to lend; they just don’t have enough credit worthy borrowers to lend it too. In front of the commission he bobbed and weaved and got out of there relatively unscathed.
It was at the Town Hall meeting that we got to see some real insights into Timothy Geithner’s view point. He believes the U.S. economy and the global economies have returned to growth. He believes the banking system needs to take less risk so that another global financial crisis doesn’t emerge. He doesn’t want to end some of the support programs put in place for financial companies too soon. He believes Americans need to save more. He believes once the economic crisis is over the deficit needs to be reduced substantially with higher taxes on relatively wealthier Americans. When asked if Meredith Whitney’s call for housing prices to drop another 25% was a real possibility, he dismissed it by stating the mortgage modification program has already refinanced 350,000 mortgages over the last year. Perhaps he missed that in the month of August alone 355,000 notices of foreclosure were sent to homeowners mirroring the record pace set in July. He basically believes the federal government has done enough to solve the crisis, but will do more if necessary. He thinks we just need more time and patience to slowly crawl our economy back up the hill.
My take is Treasury Secretary Geithner is a deficit hawk at heart and doesn’t want to spend any more resources or political capital than is necessary to solve the economic crisis. But he doesn’t get it. He doesn’t understand that we are in a prolonged debt-induced deflationary depression. He doesn’t understand that we need shock and awe policies to revive the economy. He is part of the economic team advising the President that a slow recovery has started, and while the next few months will be rocky eventually the economy will heal itself. This means he is advising the President to wait and watch rather than to act. The economy has reached the point where the straw has broken the camel’s back. The weight of the debt is too much for the economy to carry. The U-6 unemployment rate is 16.8% and 1 in 8 mortgages are over 30 days past due. By this time next year the U-6 unemployment rate my pass 20% and most of those mortgages that are delinquent will wind up in foreclosure. He is a nice sharp technocrat. But he has no vision on how to lead the economy to the Promised Land. We need a person of economic vision guiding our President. Where is our modern day John Maynard Keynes?
