Posted by Michael A. Kamperman on December 13, 2009
The readings on the economy are tricking policy makers into thinking the economy has bottomed and a slow recovery is under way. But this false optimism is based on misreading the tea leaves. The recent readings on the economy such as GDP, the November unemployment rate, and the November retail sales report are signaling to policy makers that all is calm. They are misinterpreting this to mean the coast is clear. In fact the economic reports are flawed and are disguising the second half of the storm that will soon hit in full force driving the economy down in what has come to be known as a double dip. The growth in third quarter GDP benefited almost exclusively from an auto industry that had practically shut down in the second quarter and got a boost from cash for clunkers. The November unemployment report was a rogue number not supported by any other measure of the nation’s unemployment rate. Finally, the growth in retail sales is based on higher gasoline prices and not on an increase in demand for more gallons of gasoline. Imports of oil in the U.S. have declined by over 1 million barrels versus a year ago. Ironically the lack of demand for imported oil is considered a sign of economic growth in the GDP report, go figure. Reality will soon bite hard as the credit collapse enters phase II tomorrow.
Dubai is under the gun and will probably allow Dubai World to default on $3.5 billion worth of bonds. This wake-up call has forced the rating agencies to stop seeing no evil and opening their eyes to the risks of the debt of some countries like Greece. These countries are not Zimbabwe, nor Iceland, and the problems they are facing are legion throughout the world. On the Main Street stage the big banks acknowledged they are shrinking their loan portfolios to small businesses and consumers in an attempt to deleverage. We enter 2010 in worse economic shape than we entered 2009.
How will the Obama Administration respond in an election year if the economy heads south? They have backed themselves into a corner by declaring the recession is over and by declaring every positive signal in the economy as a sign the failed stimulus bill is working. Does President Obama have the political courage to go back to Congress and say he and his team were wrong and the economy needs a lot more federal spending when he has been out preaching the virtues of deficit reduction ala Hoover in the middle of a depression? I hope so, but I doubt it. Instead I look for 2010 to be a year of significant political and social upheaval as rising unemployment frays the fabric of American society. There are rays of hope. Paul Krugman has kick-started the conversation about the benefits of the Fed printing money to lower unemployment. Additionally, Harry Reid has kick-started the conversation on lowering the eligibility age for Medicare. The genie is out of the bottle on both of these once taboo subjects. Printing money, lowering the retirement age, and fixing the banks for good are the three keys to ending the depression. As they say two out of three ain’t bad.
Posted by Michael A. Kamperman on December 2, 2009
Tomorrow the Whitehouse is hosting a jobs summit designed to come up with creative ways to create jobs. It most likely will turn out to be a colossal waste of time. Platitudes like we should focus more on exports are not going to create jobs. Neither will a job creation tax-credit create positions companies either don’t need filled or can’t afford. Who would create a $30,000 job to get back $3,000 on their taxes? America already has the greatest entrepreneurial spirit in the world. We also lead the world in inventing new and better products. China may make stuff but we create stuff. Yet you cannot start a new small business if you cannot access capital. The banks have extremely tight lending standards and are cutting back on credit cards. Many small businesses use the owner’s credit cards to fund operations and provide liquidity for the business. And it is scary to start a new business when consumer spending continues to drop. Surprisingly small business owners say access to credit is a big problem but it isn’t their biggest problem. Their biggest problem in this downturn is sales. Demand has simply dried up. To create jobs we will need to open the credit markets back up to consumers and small businesses and we will need to restore confidence to spur spending.
The credit markets could be fixed quickly if we had a Treasury Secretary who had the guts to walk into the Whitehouse and tell the President he needs to spend what little political capital he has left on fixing the banks so they can resume normal lending again. But confidence is a tricky thing to restore once it’s been lost. We run the risk of creating a Humpty Dumpty with consumer spending if we don’t act soon to restore economic hope and swagger to the American populace. Rhetoric alone isn’t going to get the job done. Consumers need to see action and need to see something tangible that they can count on.
What we need to do is lower the age for Social Security and Medicare to age 60 and give everyone on Social Security a 20% raise. This will cost $400 billion per year. We would instantly and dramatically lower the unemployment rate if we could encourage people in their early 60’s to retire. Most of the extra Social Security money would get spent increasing revenues for companies which could then afford to hire more workers to keep up with increased demand. It would also lessen the anxiety over retirement funding sources for many people in their 50’s increasing their confidence to spend. The younger workers would also gain confidence and they and their friends move from the unemployment lines into the jobs of the recently retired. Despite the ranting of the deficit hawks America can afford to do this. The federal government is spending an additional $100 billion annually right now just to pay for extended unemployment benefits. Then one has to add in the costs of having an extra 10 million people on food stamps and millions more on Medicaid. Not to mention the direct loss of tax revenue from the unemployed and the indirect loss of tax revenue from decreased consumer spending. We need the President to step forward and tell us what we can achieve rather than telling us that we have to hunker down and live within our means.
Posted by Michael A. Kamperman on September 1, 2009
The official U-6 unemployment rate is 16.2%. The official U-3 unemployment rate is 9.4%. After the last unemployment report I pointed out that the Bureau of Labor Statistics made an adjustment and removed approximately 1 million people from the labor force. Had this not occurred the official U-3 unemployment rate would be 10%, and not 9.4%. It turns out the statisticians have been systematically tossing Americans out of the official labor force for the last year. The civilian non-institutional population (not-in-prison) population has risen from 233,864,000 in July of 2008 to 235,870,000 in July of 2009. Yet the BLS statisticians claim those seeking employment has fallen from 156,300,000 to 154,504,000. Basically, the population of those over the age of 16 and not in prison has risen by 2 million people and magically those seeking employment has fallen by almost 2 million. The participation rate in the labor force is now calculated to be only 59.4%, down from 62.9% at the start of 2008. Are we to believe that the significant losses in the stock and bond markets over the last 18 months have caused 2 million extra people to retire due to increases in wealth? Anecdotally we know that many people that retired in the last few years have re-entered the workforce due to wealth destruction. Without this sleight of hand the official U-3 unemployment rate would be 11%, not 9.4%. Are the American people aware of this? Are members of Congress aware of this? Is President Obama aware of this? Shouldn’t this be the lead story on the ABC, CBS, CNN, FOX, and NBC nightly news shows?
If American people realized the official unemployment rate should be quoted as a minimum of 11%, then they would be demanding action. The kind of action we are not getting out of Washington. The unemployment crisis is particularly acute amongst people in their 20’s, many with college educations. This is why over 1 in 8 mortgages in America are 30 days or more past due. This is why the stress test designed to keep the ZOMBIE BANKS alive is a joke. This is why tax revenues at the federal, state, and local levels are collapsing.
Washington needs a wake-up call. Hello Washington, is anyone up their listening? It seems Washingtonians are more interested in esoteric theories like fiscal discipline, balancing the federal budget, moral hazard, no more bail-outs, healthcare reform, global warming, and positioning for the 2010 elections than they are about sitting down and solving the greatest economic crisis since the Great Depression. Where are our statesmen? Where are our leaders that care more about our people than they do about their own party and their own chances for re-election? We need massive quantitative easing. We need a “bad bank” to absorb the toxic assets and end the ZOMBIE status of most of our largest lenders. We need to open up credit for homes and autos to people with credit scores lower than arbitrary lines like 700. We need to give significant federal aid to our states. And we need a serious stimulus program for our people, such as lowering the age of eligibility for Social Security and Medicare. We need economic shock and awe Washington….WAKE-UP!
Posted by Michael A. Kamperman on July 20, 2009
On Tuesday, July 21, 2009, I will be interviewed on the Mind Your BIZness on-line radio program. The program is broadcast continuously for 24 hours only on July 21. The link for those of you that are interested and would like to listen is: http://www.mindyourbizness.com/ If you do happen to listen feel free to post your thoughts on the comment section for this post. After my 15 minute interview I thought gee I wish I had said this, or I wish I would have emphasized that point. I simply had way too much to say and way too little time to say it. This led me to think what would I say to President Obama about the economy if I only had 2 minutes of his valuable time? I certainly wouldn’t have time to go into the background of analyzing how the economy wound up in the position it did. I wouldn’t have time to waste saying who was to blame for the mess we are in. I would only have time to emphasize the seriousness of the situation and what must be done about it.
The first thing I would say is this, “Mr. President, the number one problem facing America is the never ending stream of foreclosures . We currently have a national supply of single family homes to accommodate 70% of all Americans. However, well under 50% of Americans currently qualify to purchase a new home because mortgage standards are way too tight. There is a huge discrepancy between supply and demand. As long as there are more homes to buy than there are buyers, the foreclosures will not stop. The first step in fixing the economy is providing access to affordable mortgage credit to far more Americans. Mr. President, the same problem exists for autos. Fold Fannie Mae and Freddie Mac back into the federal government and start guaranteeing home and auto loan securities.” Well, after those few short sentences my first minute of the President’s time is up. I now have only one minute left to make another point. I need to make sure it is the most important point I have to make.
My second point would be “Mr. President, we have millions of people who are unemployed with many more on the way. Last year one in two college graduates had a job offer upon graduation. This year it is one in five. This has to change now. Lower the eligibility age for Social Security and Medicare to encourage older workers to retire and open up jobs for younger workers. To pay for this have a heart to heart meeting with the Federal Reserve and have them buy back most of the outstanding Treasury bonds in existence. This would save the country $400 billion a year in interest payments, which can then be used to pay the $400 billion cost of lowering the retirement age to 60. Quit letting China and the bond vigilantes dictate U.S. policy. Print them their checks first and tell them thanks for their respected input, but at this time the U.S. is choosing to avoid any chance at re-entering a new great depression.” That’s it. My two minutes are up. For a rambling version that fails to concisely make the above points you can tune in to Mind Your BIZness.
