Posted by Michael A. Kamperman on December 9, 2009
President Obama has decided to use the $200 billion in unspent TARP funds to fund his jobs initiative and to reduce the deficit. The TARP fund is growing as the Treasury has allowed Bank of America, and will soon allow Citigroup and Wells Fargo, to repay the TARP funds they received. The President wants to focus on capital gains tax cuts, jobs tax credits, home insulation tax credits, increased SBA funding for small businesses, and some further aid to the states for shovel ready infrastructure projects as his main thrust on improving the unemployment picture. The Administration continues to argue the stimulus plan has been successful and has generated 1.6 million jobs, which is true as long as one closes their eyes and ignores the 7 million jobs lost and the failure to create the additional 3 million needed jobs to keep up with population growth. Another major stimulus plan is not in the cards. The President’s jobs plan is focused on politics and not on economics. The President wants to argue the stimulus plan was a success, that he is concerned for the unemployed and willing to provide some additional aid, and that the deficit will be reduced by returning some unspent TARP funds. The problem is the Treasury is allowing the banks to repay TARP by delevering their balance sheets by shrinking their loan portfolios. Hence hundreds of billions of dollars are not being lent to small businesses and consumers so these banks can repay their TARP funds. This is just one more example of coddling Wall Street at the expense of Main Street. It would be much better for the economy to force the banks to keep the TARP funds and lend them rather than to have them returned and to put forth wasteful job creation ideas like an employers tax credit and a cut in the capital gains tax. The vast majority of these tax benefits will go to successful companies that were going to hire people anyway.
Meanwhile, the Administration needs to understand the federal government’s economic actions are not occurring in a vacuum. The states are projected to run budget shortfalls of over $350 billion in 2010 and 2011. The size of the additional inefficient federal spending for jobs is only a fraction of the size of the cuts coming from state and city governments. The loss of bank credit for small businesses combined with job cuts from state and local governments dwarf the size of the additional help President Obama is offering with his minimalist new initiatives.
It is past time for President Obama to fire Summers, Geithner, and the rest of his economic team and to bring in people who understand we are still in the midst of a global economic meltdown. We need the federal government to spend a lot more money and we need the Federal Reserve to print a lot more money or we will see a massive double dip in the global economy similar to the second big dip in late 1931 that eventually drove the unemployment rate to 25% in 1933. The collapse of Dubai is not happening in a vacuum. All of a sudden Greece has been downgraded and Spain has been put on notice by the rating agencies. The credit markets are tightening up again as reality sets in and the bear market bounce ends. We need reality to reach the Whitehouse so they recognize their shrewd TARP moves are taking away more than they are giving.
Posted by Michael A. Kamperman on December 5, 2009
Many people believe major government policy errors such as attempts to balance the budget in 1937 worsened the effects of the Great Depression. The reported drop in the November unemployment rate from 10.2% to 10% comes at a critical juncture and significantly raises the risk the Obama Administration and the Fed will repeat the past and fail to provide the additional stimulus and quantitative easing the economy desperately needs. The mistake they will make is to believe the headlines in the November unemployment report which showed a loss of only 11,000 jobs, a .2% improvement in the U-3 rate, and an upward revision for September and October is a sure sign the economy and the jobs picture are on the verge of rapidly improving. What they will miss is the November unemployment report is an outlier and its conclusion that the jobs picture and the economy are rapidly improving are not supported by all of the other measurements of the November unemployment picture. For starters, the unemployment report’s own measurement of those unemployed 27 weeks or longer rose by 293,000. Additionally, the Labor Department dropped another 100,000 discouraged people out of the workforce and failed to add any workers for population growth. How did we only lose 11,000 jobs when so many people joined the ranks of the long-term unemployed and so many others simply dropped out of the workforce? ADP measured a loss of 169,000 private sector jobs and TrimTabs measured a loss of 255,000 jobs. While the four week moving average of weekly jobless claims did improve to 481,250, it is still a number that normally portends 6 figure job losses. The November ISM Services number weakened and reported continued softness in employment. Plus, November retail sales were soft and gasoline usage remains moribund in the U.S.
The Christmas season is a time of big swings in employment as temps are added in October and November and big layoffs occur in January. The Department of Labor statisticians use seasonal adjustments to smooth out these wide up and down swings in employment. One of the big factors in the adjustment is recent trends in the same month in the preceding years. November is always a big hiring month. But last year the economy lost 610,000 jobs in November in the post Lehman collapse. This data-point lowered the normally expected November hiring trends in the seasonal adjustment factor and gave an artificial boost to the seasonally adjusted jobs number. Hence the report showed the biggest adjusted gain in temporary workers in 5 years even though retailers were preparing for and getting a lean Christmas selling season. The November jobs report has given a false positive reading on the economy.
The Obama Administration and the deficit hawks in Congress will now proclaim the policies put in place to date have been sufficient to revive the economy. Never mind those policies were supposed to keep unemployment from rising past 8% and it is now 10%. The same wonks that missed the severity of the economic downturn are missing it again. Similarly, the inflation hawks on the Fed will now eschew further quantitative easing measures and will crowd out weaker private borrowers in 2010. Because these leaders saw a mirage of hope they will ignore data indicating all is not well and will wait for the next mirage. Hooverism reigns in the Whitehouse and minimalist ideas like cash for caulkers is all we can expect from here on out.
