Posted by Michael A. Kamperman on March 6, 2011
The old saying is believe nothing of what you hear and half of what you see. The collapse of the American economy continues to unfold right before our eyes even as the spin doctors try to convinve us otherwise. For instance, take the recent 8.9% unemployment rate. The four numbers you need to know are 4, 5, 6, and 7. We have 4 million fewer people counted as wanting a job badly enough versus 4 years ago. Currently, 5% of the U.S. adult population has been dropped from the labor force versus 4 years ago. There are 6 million people (of those still officially counted) who have been out of work 6 months or longer. And sadly, 7 million fewer people have a job in America today than did 4 years ago. That’s any job, part-time or full-time, low-skill or low-wage. A hidden truth behind the numbers is we have lost more than 7 million good paying jobs with benefits and we have replaced some of those jobs with part-time, low-wage, low-skill jobs. Not exactly Morning in America. This despite the Fed printing money (though not enough) and the Stimulus funds still flowing out of Washington (though not enough). One long time measure of the health of the economy is Industrial Utilization. A measurement above 80% usage of exisiting facitlites is a sign of needed expansion of additional facilities. The economy has only recovered to a 76% utilization rate, which means we still have a ways to go before we need to add new net plant and equipment. Another measure of economic vitality is the health of the housing market. Sadly, this sick patient is on the verge of falling into a coma. The mortgage industry and the federal government have totally botched a decades old system of success. The White House response is to remove the federal government from 90% of a market it now controls and turn 90% of it over to the private sector. Has anyone in Washington figured out that in most instances the taxpayer and the home-owner are one and the same?
We are on the cusp of the second leg down of the New Great Depression. The stimulus that has propped up state and local governments ends this summer. We have already seen 330,000 state and local government workers lose their jobs with stimulus funds. The real cuts are coming this summer to a school district near you. The President should be ashamed to talk about how educating our kids is a bi-partisan shared priority. Shared by whom? The Republicans who want to cut $100 billion a year from federal spending for things like education, or the Democrats who are willing to meet them “half-way.” How about the President standing up and saying they will only cut one dime from education over his veto? If Ben Bernanke loses his back-bone and is unwilling to push QE3 in the face of two or more no votes on the Fed and screams from the Congressional Austerity Crowd, then the downdraft will be swift. If he stands tall in the saddle then it will be drip, drip, drip. At least in Wisconsin both sides have found a back-bone and hopefully wisdom will prevail and they will find common ground.
Where is the person in Washington who is willing to say we don’t have a spending problem, we have an unemployment problem. If we put the 7 million Americans back to work who have beend discarded, and we find jobs for the 4 million Americans who have graduated and shown up for work but found no room at the inn, then we flip from a country with 44 million people standing in bread lines called SNAP (food stamps) to a country with 11 million more tax-payers not needing federal help for food and a roof. America used to see itself as a beacon of light to the world. We used to see ourselves as the Greatest Nation on Earth. We viewed ourselves as a can-do people. Now, our leaders only talk about what we can’t do. They talk about our limits, not about our aspirations. We used to beleive the secret to success was growth and now we are being sold a bill of goods that says the secret to success is cuts. Where is our yearning for excellence? Where is our confidence that the next generation will be better off than we are? There are multiple ways to move our country forward and none of them include the concept of retreat preached by the Austerity Crowd.
Posted by Michael A. Kamperman on December 12, 2010
Bernie Sanders is so right, yet so wrong, on how to help the unemployed. There can be no doubt Senator Sander’s heart is too big, not too small. His filibuster was brilliant and had me applauding. However, raising taxes on the rich to support social services is pre-depression thinking and unfortunately Senator Sanders, like most of our Washington leaders, is fighting the last war, which is now the wrong war. We have an almost $1.5 trillion annual deficit because of a lack of demand resulting in massive unemployment. Taxing the rich another $70 billion or so isn’t going to materially change the federal government’s finances, and it isn’t going to help the unemployed. The unemployed need jobs, period, end of story. Everything that helps to create jobs needs to be on the table. The only saving grace from the last couple of weeks is we have confirmed that few in Washington are really serious about deficit reduction. They just want to use the debt and the deficit as a tool to beat back the oppositions proposals and advance their own. Sorry Senator Sanders and Rush Limbaugh, but a gridlocked stalemate is not in the country’s best interests.
President Obama should have driven a much harder bargain with Republicans by dangling the carrot of a permanent extension of the Bush tax cuts combined with an elimination of the estate tax. Imagine what he could have gotten if he gave Republicans their Christmas wish list. For starters, he could have gotten an agreement to maintain extended unemployment benefits until the official unemployment rate is below 7% for an average of 90 days. You want permanent tax cuts, I need unemployment insurance as long as necessary rather than for just one year. He also could have negotiated a 6.2% payroll tax cut until the unemployment rate is below 7% for an average of 90 days, rather than just the 2% he negotiated. He could also have negotiated a substantial infrastructure bill focused on roads, bridges, and sewer and water lines. He could have added a federalization of Medicaid benefits, though that idea has yet to perculate in Washington. He also could have included a major fix of the housing market. Yes he traded off the world’s biggest bargaining chip for $24 worth of trinkets. The President went minimally in the right direction for the right reasons. Senator Sanders is suggesting he head in the wrong direction, for the right reasons. Now is not the time to hold fast to your side of the debates of the past, now is the time to cut big deals and get the country moving again.
The deal the President cut is far better than gridlock, but it will not move the needle on unemployment as he and his advisors believe. For starters there is nothing in the deal to solve the housing debacle. Despite the rhetoric no one is getting a cut in their income tax rates in 2011, they will be getting the same rates as they paid in 2010, 2009, 2008, 2007, 2006, 2005, 2004, and 2003. Plus, people were already receiving extended unemployment benefits in 2009 and 2010. How can extending existing 2009 and 2010 tax and unemployment policy in 2011 produce a meaningful change in the almost 10% official unemployment rate? The answer is it can’t. And after the summer the aid to the states from the original stimulus bill will be gone. In Texas, they are now talking about a $28 billion two year budget shortfall and plan to lay off elementary school teachers ala most other states. Much more is needed, but at least the lightbulb has finally been turned on in the Whitehouse.
Posted by Michael A. Kamperman on June 5, 2010
The supposed V-Shaped recovery the U.S. economy had entered has been shown by the recent unemployment report to be non-existent. Just because business is better than it was 12 months ago coming out of the depths of the financial crisis doesn’t mean the economy is on strong footing. We only created 20,000 non-census jobs and once again people are being pushed out of the labor force to keep our unemployment rate at a phony 9.7%. This is the best we can do after we threw a TARP Too-Big-To-Fail life-line to the Zombie Banks, spent 75% of the stimulus money, and juiced the housing market a second time with an $8,000 first time home buyers tax credit combined with an open spigot of FHA mortgage credit. Now the tax credit is over and the states are assembling 2011 budget plans without the stimulus funds used to smooth over the depression of the last couple of years. And the unexpected BP blowout is rapidly shredding the economies of the people of the Gulf. The recent unemployment report does not include any of the aftershocks of these events. The next one will. The seeds of the poorly named double dip recession (what recovery?) that have been sown the last few weeks have sprouted. Europe is in disarray. Geithner’s message to stress test their banks and continue stimulus spending has fallen on deaf ears. The Summer/Volcker/Geithner strategy to have America consume less, save more, produce more, and export more has found no takers. We need a new plan. Yet I fear none is coming.
What I also fear is the Obama Presidency is imploding right before our eyes. Regardless of one’s political persuasion this is very bad news. At the very moment our country desperately needs visionary leadership we are on the verge of going rudderless. The failed BP blowout preventer has apparently blown apart the Obama Presidency. Night after night of images of oil soaked marshes with no sign of the cavalry charging to the rescue have exposed the President to be out of touch with the people and unable to get on top of the situation. For some odd reason the President continues to allow BP to stay in charge of the cleanup efforts of our Gulf rather than turning the effort over to our all-hands-on-deck military. The people get it that BP has to find a way to seal their well one mile under the ocean. The people don’t get why BP is dictating the pace and the effort of the clean-up of our Gulf. Neither do I. The ramifications of this are best explained by liberal talk show host Chris Mathews who stated “if the oil keeps flowing into the Fall the Democrats could lose 100 seats in the House.”
The economy desperately needs a much bigger dose of stimulus than it has received so far. It’s not going to get one. The President is already weakened to the point that he was unable to get the Senate to extend unemployment benefits to the end of this election year. Normally a no brainer for a Democratically controlled Senate. They will try again this week. The deficit hawks have gained control of the debate. After this election cycle many more of them will swarm the Halls of Congress. It was especially disheartening to hear President Obama praise the unemployment report yesterday as good news and continuing signs of progress. He is clinging to hope and a prayer that his economic programs will work eventually. Importantly, he has failed to articulate the case for more stimulus spending. Now it is too late. We’re “Slip slidin’ away-slip slidin’ away-you know the nearer our destination-the more we’re slip slidin’ away.” It’s now all up to Ben Bernanke and the Fed to lead us to the economic promised land. The number of people pleading for quantitative easing from the ECB has grown exponentially in the last few weeks. Soon the chorus of those calling on the Fed to print money will grow exponentially as well. There is no other way out.
Posted by Michael A. Kamperman on May 26, 2010
Unfortunately our Treasury Secretary has misread our recent financial history’s cause and effect. He believes his bank stress test is the reason confidence was restored to the financial markets. Nothing could be further from the truth. Most people now know, and knew at the time, that the assumptions in the stress test were too weak. Yet few care, or cared at the time. For example, the unemployment rate and the decline in home prices have well exceeded the worst case scenario of the tests. The reason confidence returned to financial institutions is that it was made clear that there would not be either the nationalization of a bank or a chaotic ’Lehman’ style shutdown. It was the policy of TOO-BIG-TO-FAIL that restored confidence in conducting business with and investing in large financial institutions. These companies were endowed with a defacto full faith and credit of the U.S. government. The markets fully accepted the capacity of the U.S. government to backstop all of these institutions. It also helped tremendously that the Federal Reserve stepped up to the plate and purchased over $1 trillion of mortgage paper. The European banks are probably in worse shape than the U.S. banks were. The markets will not accept another smoke and mirrors sleight of hand trick. And there is not a person I know on the planet that believes Greece can backstop its banks no matter how high the losses may be. Hence, if a sham stress test is conducted ala the U.S. version the markets will ignore it. If a real stress test is applied the markets will cough up blood over the inability of most European governments to stand behind these institutions. President Obama needs to fire Geithner, and once again for the record he needs to quit listening to Volcker.
In an austerity mania Geithner is also taking a message to European governments (Germany) that their governments need to spend more to bolster economic growth. While he is right on the priciple of the issue, his proposal will be dead on arrival. Apparently he is tone death and lacks the powers of persuasion. There is a solution to the crisis. The European Central Bank needs to expand its balance sheet and conduct massive purchases of Greek, Italian, Irish, Spanish, and Portuguese debt. Importantly, it needs to not sell any assets to offset the purchases. The ECB has the power to drive down the interest rates all of these governments are paying and it needs to get on with it. What Geithner should tell Europe is if the ECB conducts quantitative easing, then the U.S. will correspondingly purchase in the open market as many German and French government bonds as necessary to push the Euro back above 1.25 to the dollar. This will alleveiate misplaced German fears of a collapsing currency leading potentially to hyper-inflation.
Ultimately the buck stops with President Obama. He now owns the double-dip we are entering. He needs to surround himself with advisers who have the vision to lead us out of the crisis. Instead he clings to the same advisers that assured him the unemployment rate would not rise as high as it has. There is no doubt there is an environmental disaster unfolding in the Gulf of Mexico that demands the President’s immediate attention. Ditto the shenanigans of Iran and the crisis unfolding on the Korean Peninsula. Beyond that there is no reason the economic crisis is not job number one for the President. But he continues to treat it as a nuisance. Our states are being forced into the same austerity mania sweeping European governments. Yet the President remains silent. At this rate it is almost a certainty the historians will talk about the economically failed Hoover/Obama Presidencies.
Posted by Michael A. Kamperman on May 12, 2010
As predicted the ECB caved and has started to print money to buy up European Government bonds (Greek, etc.). They never really had a choice and should have acted much sooner to the avert the crisis. However, quantitative easing should be pared with a long term glide path to fiscal sanity. Instead, the Europeans in their clear lack of wisdom have embraced a combination of buying just enough government debt to keep the “Wolves” at bay. Meanwhile, they are trying to combine this strategy with demands for fiscal discipline requiring significant short term cuts in budget deficits. On the surface it sounds great to require people to retire later in life and to cut wages and to cut jobs. In reality this will only deepen the debt-induced depression and delay the inevitable. The Fed, the ECB, the Bank of Japan, and the Bank of England need to coordinate an all out monetization of government debts. This will hit the reset button and buy time for nations and economies to adjust holding societies together. By both cutting jobs and requiring people to work longer we are killing job opportunities for people in their 20′s. Is this what we really want? Younger workers without seniority will take the brunt of the axe to be swung. And, they will be out of luck a long time as retirements are delayed keeping existing jobs closed to newcomers for a long time. The austerity religion sweeping the globe is utter madness. The riots in Greece could be a harbinger of all of our futures. Today Spain announced it will cut another 6 billion euro form its current budget to show solidarity with the austerity mania. This in a country with official unemployment rates already over 20%.
The U.S. shares in the austerity mania as exemplified by the Tea Party. These well intentioned but misguided people believe they are saving society. In fact, they are most likely causing the fabric of our society to disintegrate. In my state of Texas the legislature is facing a projected $11 billion budget shortfall. One solution gaining popularity is to raise the student teacher ration in elementary schools. The current cap is 22 pupils per teacher. They want to save money by cutting teachers and forcing more kids into the classroom. They also are considering shortening the school week from 5 days to 4. Young teachers will be cut loose and elementary education graduates will find no room at the inn. Texas is in the best shape of all the large states in the U.S.
What the peddlers of austerity fail to grasp is many innocent hard working individuals will find themselves out in the cold through no fault of their own. Why? So those who were irresponsible will be punished? So those who are afraid of hyper-inflation will be pacified? Inflation occurs when too much money is chasing too few goods. There is no shortage of almost anything in the world. Furthermore, with global unemployment well above 10% it is doubtful demand will overtake supply even if all federal debt is monetized globally. Yes gold will go up in the short term. Probably a few other commodities too. But it will not lead to shortages. It will however push capital further out on the risk curve which could perhaps lead to global unemployment falling back below 10%. What most people miss is a large portion of global government debt is held by banks and hedge funds. The real money, capital, backing these bonds is not nearly as high as the outstanding amount of the bonds. Most banks and hedge funds are allowed to mark government debt at par and are allowed to leverage this debt with little capital. When they move out on the risk curve the leverage will greatly diminish. In the meantime young teachers could teach and young children could learn.
Posted by Michael A. Kamperman on April 3, 2010
It is great news that more Americans found a job in March than lost one. That is the end of the great news. That is unless of course your a quantity-over-quality kind of guy or gal. Of the 162,000 jobs created in March, over half were temporary jobs split between the private sector and U.S. Census Bureau. The ADP report showed a loss of 24,000 private sector jobs, while the Labor Department reported a gain of 123,000 private sector jobs. Last year the Labor Department was consistenelty more optimistic than ADP. Then a couple of months ago the Labor Department revised down the number of jobs for 2009 by almost one million workers. More disturbingly average earnings declined by .1%. When coupled with the recent .1% decline in the Core CPI rate the risks of entering a deflationary spiral are rising. What has come to be known as the underemployment rate or real unemployment rate (U-6) rose to 16.9%, even though the official unemployment rate (U-3) held steady at 9.7%. The recent Gallup poll reported the underemployment rate rose to 20.3% in March, up from 19.9% in January. The difference between Gallup and the U-6 rate is probably related to questions surrounding how often you looked for work in the last 12 months and seasonal adjustments. Gallup is not anxious to find technical loopholes to exclude people from the labor force. Additionally, the number of people out of work 6 months or longer rose again and now stands at over 6 1/2 million. But the number that jumped out at me is the number of people who were forced to work part-time for economic reasons rose by 263,000 in the household survey. When the last 5 months are taken together as a whole it appears the labor force has stabilized. However, the wage declines are an indication that the quality of jobs are going down as much as it is an indication of deflation.
What appears to be happening is that as people’s unemployment benefits run out they settle for any job. It makes no sense to take a job for less than half the pay of your old job while you are collecting unemployment benefits. It makes a lot of sense to take whatever you can get when the checks stop coming in the mail and you need to find a way to put food on the table. The problem is it is not enough for our society to simply have people working. We need to have them working in good paying value added jobs. We are a society deeply in debt. As such we need rising incomes to service the debts. If incomes are declining it is much more difficult to pay our debts. If incomes are declining it is much more difficult for tax revenues to stabilize. And finally, if incomes are declining it is much more difficult to grow our economy. For despite the .1% drop in average earnings we have a long way to fall if our wages are to reach par with China where the average worker in Shanghai makes $5,000 per year. Most of these workers have no benefits, such as pensions or health care. The Chinese society also doesn’t have the percentage debts to service that the American society does.
Rather than high-fiving at the Whitehouse while strategizing with Census hiring how to have the lowest top-line unemployment number possible for the November 2010 election, the Whitehouse should take a serious look at this supposed economic miracle. President Obama should ask is the March Unemployment Report the best we can do after-all? After we spent a bunch of our $787 billion economic stimulus money? After the Federal Reserve printed over $1.5 trillion? What will happen now that the printing has ended? What will happen now that taxes will rise due to the health care bill, due to the states need for revenue, and due to the pending expiration of the so called Bush tax cuts in 2011? What will happen in 2011 when the states don’t have stimulus dollars to plug some of the shortfalls in their budgets? Where do we go from here? The President’s strategy of having the U.S. double exports within 5 years is a joke when one considers we are competing against global workers who make $5,000 per year without benefits and that have free and open access to our markets while we don’t have free and open access to theirs. The next big joke is the oppositions plan that the way to improve the economy is to reduce the federal deficit primarily through spending cuts. Why don’t we ask Latvia, Ireland and Greece how that’s working out. Our country needs to have a real long look in the economic mirror and quit spinning every economic statistic in a way to make it benefit either the Republican Party or the Democratic Party. Otherwise, like Japan we are staring at two lost decades, not one.
Posted by Michael A. Kamperman on March 5, 2010
The V-shaped recovery crowd and their allies in the Whitehouse are desperate to see the job growth that they predicted would occur by the first quarter to materialize. Instead, the Labor Department reported the U.S. lost another 36,000 net jobs in February despite counting the hiring of 15,000 Census workers who will be let go this summer. Many analysts are touting that the snow storms actually masked tens of thousands of jobs and in fact we probably created jobs in February. The only problem is the Labor Department itself disputes this analysis. Here is the quote from today’s unemployment report “In order for severe weather conditions to reduce the estimate of payroll employment, employees have to be off for an entire pay period and not be paid for the time missed. About half of all workers in the payroll survey have a 2-week, semi-monthly, or monthly pay period. Workers who received pay for any part of the reference pay period, even one hour, are counted in the February pay- roll employment figures. While some persons may have been off payrolls during the survey reference period, some industries, such as those dealing with cleanup and repair activities, may have added workers.” Also, we must consider that while a company that closed a day for snow couldn’t hire anybody, they also couldn’t fire anybody. The bottom line is we really didn’t create any jobs in February. So don’t fall for Larry Summer’s snow job on snow holding back job creation in February. He needs to be held accountable for why the policies he is championing to restore jobs to the economy aren’t creating any net jobs. Almost everyone believes the minimalist $15 billion jobs bill will only create a minimal amount of jobs. The ADP unemployment report methodology wasn’t impacted by the snow and there numbers for a loss of 22,ooo private sector jobs in February closely corresponds with the official unemployment report from the Department of Labor.
In case you missed it Gallup interviewed over 20,000 people in late January and stated the unemployment and underemployment rate (those working part-time for economic reasons who need a full-time job) was 19.9%. The U-6 rate in February rose back to 16.8%. This is the real unemployment rate. Basically, according to Gallup one in five Americans aged 18 and older who want a full-time job are unable to find one. Additionally, Gallup reported that the unemployed/underemployed spend an average of $48 per day compared to the employed who spend $75 per day. This means the 30 million people without a full-time job are spending $10,000 per year less than those with full-time jobs. This represents a massive drag on consumer spending in the U.S.
It is time for the President to step forward and acknowledge his administration underestimated the severity of the economic downturn and that Washington needs to do much more to find jobs for the unemployed. Yet not only is the Whitehouse not acknowledging that our problems are worse than we initially thought, they are trapped in political spin and are trying to portray today’s loss of jobs as ”better than expected.” It is not better than what was expected only a few weeks ago before the snow. In fact the snow argument only appeared in the last week to mask the weakness in the unemployment report. We will not find jobs for all of the unemployed/underemployed if we continue to deny that the steps taken so far were not enough. President Obama, we need a one trillion dollar jobs bill to jump start the economy. Please quit talking about the need for deficit reduction and please start talking about the need for job creation. Hoover tried to limit deficit spending in 1931 and look where that got us, and him. No economist believes that a combination of both spending cuts and tax increases like those being forced on Greece, and on our States, will lead to job creation. My son goes to The University of Texas. UT has been told by the Texas Governor they have to cut 5% of their budget, which equates to cutting $100 million. America can do better than this. We will find the next FDR in either 2012, 2016, or in 2020. But we would be better off if we found him in the Whitehouse in 2010.
Posted by Michael A. Kamperman on February 8, 2010
The Dow Jones closed below 10,000 as investors are becoming increasingly nervous about the ability of governments to step forward and solve the economic crisis. Global economies cannot revive unless significant amounts of additional government spending continue to take the place of private sector spending. However, governments cannot cut deficits and support the global economy with higher spending at the same time. The crisis surrounding the debts and deficits of Greece, Spain, and Portugal expose Europe as leaderless and rudderless. Now is not the time to ask Greece, Spain, and Portugal to accept fiscal austerity and more economic pain. Yet that is exactly what Europe’s leaders are doing. The U.S. remains equally leaderless and rudderless as the states are asked to swallow the same type of bitter fiscal austerity pill by the Whitehouse and the Congress. Global governments appear frozen and incapable of stepping up and meeting the challenges that face us. Confidence is always fragile. No one in a leadership position is capable of putting Humpty Dumpty back together again. Money is heading back under the mattress. Let’s be clear, nothing has been fixed. The credit markets remain broken. Sleight of hand statistics like those used in the unemployment report are not working any more. People are waking up and realizing that the unemployment rate went down to 9.7% because we have thrown more workers out of the want to work bad enough category, not because we actually created jobs. The Labor Department reported we have the same number of Jobs in January as we did in November, yet the unemployment rate dropped from 10% to 9.7% despite population growth. Weekly unemployment claims started rising again before the loss of confidence even swept the markets. Now there is a very good chance the momentum to fire more workers will gather steam.
Our country has over 6 million people that have been out of work for over 6 months. Where is the plan to put all of them, that’s right all of them, back to work? Cutting taxes isn’t going to do it. A feeble $100 billion jobs bill isn’t going to do it. Faith in the markets isn’t going to do it. We need to see a real plan. So far no leader in Washington has put forward a comprehensive plan to put America back to work.
In 1931 there was false optimism the economy stabilized and the worst was over, then the next big leg down in the economy hit and eventually drove the unemployment rate to 25% in 1933. It appears the next leg down in our economy has begun. The global economy cannot be sustained without significant increases in global government spending. Spending cannot continue without large deficits. The solution is to print money to reduce government debts and increase government spending at the same time. No leader is currently advocating this. Both the Bank of England and the Federal Reserve have naively backed away from quantitative easing. What our leaders fail to see is first they came for the Gypsies, then they came for the Jews, then they came for us. First the deficit hawks are coming for Southern Europe, then…
Posted by Michael A. Kamperman on February 4, 2010
Today the Bank of England announced they are ending their quantitative easing program for the time being. They will no longer print money and buy their own government bonds. The Federal Reserve has already announced they will stop printing money and purchasing mortgages. The Japanese Central Bank remains lost in translation. The ECB remains clueless. This week the Australian Central Bank back-pedaled and backed off raising interest rates, which shocked the markets since all 20 analysts predicted they would continue raising interest rates. The Australians came to their senses and stopped the madness. It is only a matter of time before the Federal Reserve, the Bank of England, the Japanese Central Bank, and yes even the European Central Bank begin to aggressively print money to stop the debt-induced deflationary depression in its tracks. How long it takes and how much more global unemployment pain will be endured before they come to their senses is anybody’s guess. There is no doubt this will happen, for there is no other way out. The unemployment crisis, which will be highlighted by the U.S. unemployment report tomorrow, is a global crisis. Unemployment rates in Spain are officially 19%, which are Great Depression levels. Yet the ECB and the bond vigilantes are demanding that Spain join Greece and initiate significant cutbacks in government spending including firing more government workers and cutting wages. Even Herbert Hoover increased federal government spending in the 1930’s, though not by much. Cutting government spending will lead to a decline in aggregate demand which will further depress the global economy leading to more firings of private sector workers. The time for euphemisms like “layoffs” is over. Workers are being told to hit the streets. The global economy is suffering from a lack of demand due to ridiculously tight credit conditions for consumers and small businesses. Tight credit conditions have once again spread to corporate borrowers and now they are being inflicted on sovereign nations. The world is still in the midst of global deleveraging because there is simply not enough money in the world to support all of the debts.
The nations in the euro will either share their debts or they will be forced to break the euro up and return to their own currencies. My advice to the Europeans is to have all 15 nations in the euro guarantee the debts of all other 15 nations, true monetary integration. While this was not part of their original treaty it either gets added now or they can kiss the euro goodbye. Then, the ECB should embark on an aggressive quantitative easing program to make sure the debts do not require cutbacks in government services and do not fall on the backs of the taxpayers. The only risk would be the euro might depreciate against other currencies. If this happened it would only make European exports much more competitive improving their balance of trade.
What is needed now is global leadership, sadly it is lacking. A money printing solution to the economic crisis exists and yet politicians are cowered by false prophets preaching the limits of money creation and the anachronistic worship of gold. Those concerned about high unemployment rates need to understand those rates will trend higher and higher unless and until the world central banks come to their senses and re-inflate the money supply. Helicopter Ben needs to rev up the engines or forever sacrifice his reputation as having avoided another Great Depression. In order to solve a crisis you have to understand it first.
Posted by Michael A. Kamperman on February 1, 2010
President Obama’s 2010 budget is not only a jobs killer, it is heartless. The military has a motto that no man should be left behind. If a comrade in arms falls, then you do everything possible to save them. Apparently this motto does not extend to the unemployed. If they fall they are on their own, just as if they were in the streets of Pamplona running with the bulls. The President’s new budget cuts unemployment benefits by $75 billion, which is almost a 50% reduction. Yet the Whitehouse estimates the unemployment rate will only fall to 9.8% by the end of 2010. The only explanation is the President is willing to let unemployment benefits run out for those who are unable to find work. This despite the fact that there is still only one job opening in America for every six applicants. Furthermore, the budget cuts over $10 billion from federal construction projects ranging from the military to schools. Construction spending in the U.S. was reported to fall by 1.2% for the second month in a row. Construction projects equals jobs. Cutting construction projects is equivalent to cutting construction jobs. Furthermore, unbelievably the budget cuts Medicaid expenditures by more than 10%, or $33 billion. Surely the President is not in favor of cutting health care to the poor. The only explanation is the President is willing to let the states pick up more of the tab for Medicaid. Never mind of course that the states are broke and they cannot print money like the federal government.
The federal budget deficit faces a paradox. There is no way to cut the deficit unless spending is cut. Alternatively, there is no way to significantly raise tax revenues unless unemployment rates are significantly lowered and people are put back to work. So there are two paths to lowering the deficit; by cutting spending or by putting people back to work. Growing the econ0my will benefit both the employed and the unemployed. Cutting federal spending will not benefit the unemployed and it will not benefit anyone else. It will ultimately raise the taxes of those still working while austerity measures are put into place.
Unemployment is the number one issue in America, not deficit reduction. People want and need jobs. The President will not succeed by rhetorically expressing a concern for the unemployed while deploying policies that do not create jobs. Yes, the President’s budget includes $100 billion worth of job creation measures. But consider that we have lost several million jobs since the $787 billion stimulus bill was enacted. If we lost several million jobs spending several hundred billion dollars, then is it plausible we will create millions of jobs if we simply spend $100 billion more? What we need is a one trillion dollar jobs bill that includes construction spending and aid to the states. Instead, we get not only a cut back in unemployment benefits but a cutback in federal construction spending and a cutback in Medicaid spending, which means a cutback to the states. Both FDR and Reagan focused on economic growth. They arguably had the most successful Presidencies of the 20th Century. Herbert Hoover focused on the limitations of the federal government during an economic crisis and he arguably had the least successful Presidency of the 20th century. It’s not that Hoover didn’t try. He didn’t try hard enough. History will only judge President Obama by the outcomes of his Presidency, not his intentions. Like Hoover he will be remembered by whether or not he created jobs, not by whether or not he cut the deficit.
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