Thursday, July 08, 2010
With the US trapped in depression, this really is starting to feel like 1932
The US workforce shrank by 652,000 in June, one of the sharpest contractions ever. The rate of hourly earnings fell 0.1pc. Wages are flirting with deflation. "The economy is still in the gravitational pull of the Great Recession," said Robert Reich, former US labour secretary. "All the booster rockets for getting us beyond it are failing."
"Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year. So what are we doing about it? Less than nothing," he said.
California is tightening faster than Greece. State workers have seen a 14pc fall in earnings this year due to forced furloughs. Governor Arnold Schwarzenegger is cutting pay for 200,000 state workers to the minimum wage of $7.25 an hour to cover his $19bn (£15bn) deficit.
Can Illinois be far behind? The state has a deficit of $12bn and is $5bn in arrears to schools, nursing homes, child care centres, and prisons. "It is getting worse every single day," said state comptroller Daniel Hynes. "We are not paying bills for absolutely essential services. That is obscene."
Roughly a million Americans have dropped out of the jobs market altogether over the past two months. That is the only reason why the headline unemployment rate is not exploding to a post-war high.
Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.
The share of the US working-age population with jobs in June actually fell from 58.7pc to 58.5pc. This is the real stress indicator. The ratio was 63pc three years ago. Eight million jobs have been lost.
The average time needed to find a job has risen to a record 35.2 weeks. Nothing like this has been seen before in the post-war era. Jeff Weniger, of Harris Private Bank, said this compares with a peak of 21.2 weeks in the Volcker recession of the early 1980s.
"Legions of individuals have been left with stale skills, and little prospect of finding meaningful work, and benefits that are being exhausted. By our math the crop of people who are unemployed but not receiving a check amounts to 9.2m."
Republicans on Capitol Hill are filibustering a bill to extend the dole for up to 1.2m jobless facing an imminent cut-off. Dean Heller from Nevada called them "hobos". This really is starting to feel like 1932.
Washington's fiscal stimulus is draining away. It peaked in the first quarter, yet even then the economy eked out a growth rate of just 2.7pc. This compares with 5.1pc, 9.3pc, 8.1pc and 8.5pc in the four quarters coming off recession in the early 1980s.
The housing market is already crumbling as government props are pulled away. The expiry of homebuyers' tax credit led to a 30pc fall in the number of buyers signing contracts in May. "It is cataclysmic," said David Bloom from HSBC.
Federal tax rises are automatically baked into the pie. The Congressional Budget Office said fiscal policy will swing from a net +2pc of GDP to -2pc by late 2011. The states and counties may have to cut as much as $180bn.
Investors are starting to chew over the awful possibility that America's recovery will stall just as Asia hits the buffers. China's manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.
On Friday, Jacques Cailloux from RBS put out a "double-dip alert" for Europe. "The risk is rising fast. Absent an effective policy intervention to tackle the debt crisis on the periphery over coming months, the European economy will double dip in 2011," he said.
Republicans alienating the unemployed?
Republicans on Capitol Hill who backed the mobilization of $3 trillion of fiscal and monetary support to bail out the financial system are now going to great efforts to prevent the roll-over of temporary benefits to 1.2m jobless facing an imminent cut-off.
I don’t wish to enter deeply into an internal US dispute between Republicans and Democrats, but I do think think that the American political class will have to face up to the new reality of a semi-permanent slump for a decade or more that will blight a great number of lives. The cyclical recovery that normally makes it possible for most Americans to find a job if they want one is not going to happen this time because the overhang of debt, fiscal tightening, and a liquidity trap have combined to jam the mechanism.
The broader U6 rate of unemployment is 16.5pc. Jeff Weniger from Harris Private Bank estimates that over 9m Americans without jobs are receiving no support.
At some point this will become very political. Everybody knows that the wealthy have in fact been bailed out. Part of the purpose of quantitative easing was to raise asset prices, in the hope that this would course through the economy – and ultimately trickle down. The rich have benefitted enormously from federal action. Bond holders facing stiff losses on bank securities, or Fannie and Freddie bonds, and so forth, have been protected by the Fed and the Treasury.
I do not for one moment believe that Morgan Stanley or Goldman Sachs – for example – would have survived the Lehman storm without (implicit) intervention. This is not a criticism of federal action. It was right in such circumstances to step in to prevent a collapse of credit system.
But once welfare has been deployed so generously for the rich, it cannot be denied so easily for the poor. This was the Faustian Pact.
Republicans on Capitol Hill need to think long and hard about the nature of the contract they signed, and the language they now use. Otherwise American society risks splitting ever more bitterly into opposed camps.
The recession of the early 1990s spawned spontaneous militia groups across the country. What will we get this time?
The world of political journalism has radically changed in the post-WWII decades
As we know, the world of political journalism has radically changed in the post-WWII decades. The methods, the tone and the very role of media have morphed over time, although they have always been prone to liberal leanings. They began as mere reporters, whose sole function was to chronicle events in Washington. These pressmen represented the classic liberalism of the Scoop Jackson variety — committed to equality among men at home and the belief that a strong America was a force for good in the world — and generally represented the views of those to whom they reported the news.
Then, as the influence of radical socialists who had begun to infiltrate journalism schools in the 1930s began to take effect, they came to view their profession as a way to "change the world for the better." With the advent of television, the opportunity to be seen and heard furthered the ways in which the press increased its influence over the lives and psyches of everyday Americans. These men, embodied by the likes of Walter Cronkite, saw themselves as crusaders whose task it was to lift the minds of their fellow citizens out of their dreary middle-class ethos and into a more worldly one.
In earlier times, and especially those when Republican administrations held sway, they came off as courageous and zealous exposers of government tyranny and corruption. Even up until the Bill Clinton scandals, there were still members of the press — joined of course, by members of the "new media" — who didn't shirk their duty to report all the gruesome details which eventually led up to his impeachment. But things sure changed in a hurry. The hairsplitting minutiae that was the 2000 election seemed to drive them over the edge and out into the open. And they've never looked back.
Instead of speaking truth to power, they now hold the reins when it comes to shaping popular opinion and consequently view themselves as kingmakers; and their preferences are not hard to discern. Try as they might to deny this, it has never been more evident than in the last few election cycles. How? Let me count just a few of the ways.
President Bush was continually vilified for his supposed cowboy image, being compared as you might imagine, in an unflattering way with John Wayne. His use of the term, "bring it on," in reference to bloodthirsty killers, intent on murdering innocent women and children, was met with tsunamis of derision. USA Today bewailed his "combative tone" and quoted Sen. Frank Lautenberg (D-NJ) who called the president's language "irresponsible and inciteful." We're still waiting for comment from the estimable Sen. Lautenberg on Barack Obama's use of vulgar street-talk when wondering "whose ass to kick" while dealing with an environmental issue that is clearly over his head.
Or how about other examples of bad language? Bush was famously and thoroughly trashed by the media when he referred to NY Times reporter Adam Clymer as a bodily orifice during an open-mike gaffe at an outdoor Labor Day rally in Tennessee. The reaction when Joe Biden dropped the f-bomb during the signing of the healthcare bill at the White House? Puff pieces like this one from CBS that asked if the entire kerfuffle was, "Just Biden Being Biden?;" while over at ABC they wondered, "Was Joe Biden's Swear a Big Deal?" I'll leave the answers to you.
George Bush, a man who rarely talked about his time in the Texas Air National Guard, was for years subjected to what had to have been the most scrutinized military records in American history, to the extent that a formerly respected member of the media employed forged documents in an attempt to discredit the President's service. Yet, any attempts to delve into the military escapades of John Kerry were deemed unpatriotic and even spawned a new pejorative term, swiftboating, which is, I guess, another word for the job formerly held by the media.
Bush was constantly compared to Herbert Hoover as presiding over a terrible economic downturn and although he had earned an MBA from Harvard, he was widely regarded as a fiscal dunce. Not so his successor — whose main qualification for the presidency was a career spent in community organizing — upon whom no blame for our current mess seems to fall. Here's Paul Krugman, hitting on his two favorite subjects, love of Obama and hatred of "Bush's War," defending his hero: "And fear-mongering on the deficit may end up doing as much harm as the fear-mongering on weapons of mass destruction."
And in a more recent development, our friends over at NewsBusters have pointed out that the conservatism of Supreme Court Justice Samuel Alito was pointed out by the media ten times more often than the obvious liberalism of nominee Elena Kagan. The blatancy of this kind of coverage cannot forever be overlooked by an increasingly edgier electorate. Is it any wonder then, that the media has been losing its hold on the American public?
Yet the pendulum might be swinging back again. It seems that the far left segment of the media isn't too pleased with what their champion, Barack Obama, has accomplished lately, even with a friendly Congress. How far might they go in failing to defend him should the November disaster everyone expects come to pass?
Emphasizing home ownership is questionable policy: "It would be preferable if government stopped intervening in the housing market because then housing prices would return to their equilibrium level. The high foreclosure rate is yet another example of a government-created problem that would be better solved with less government, not more. Throwing more state money at the problem is more likely to incite people to buy more expensive houses than they can afford than to reduce the rate of foreclosure. Programs that encourage homeownership already exist at practically every level in the government, but despite these programs, the rate of homeownership has remained steady over time.”
Work for free: "With young people nearly shut out of the market (by recession, regulation, ‘child’ labor laws, and ghastly minimum wage laws), I would like to suggest the unthinkable: young people should work for free wherever they can and whenever they can. The reason is to acquire a good reputation and earn a good recommendation. A person who will give you a positive reference on demand is worth gold, and certainly far more than the money you might otherwise earn.”
French political elite aghast. Must cut personal spending: "French government ministers are under orders to lose the easy-come, easy-go attitude. That’s particularly true for Alain Joyandet, secretary of state for overseas development, who spent $143,000 of taxpayer money on a private jet to the Caribbean. And for Christian Blanc, secretary of state for the greater Paris region, who’s been told to reimburse the $15,000 of public funds he spent on Havana cigars. Revelation in the last few weeks of such lavish habits has sent a chilling wind through the corridors of power, resulting in a brisk awakening for many in the politically privileged class, including the president himself.”
HI: Lingle vetoes same-sex civil unions bill: "Hawaii’s governor on Tuesday vetoed legislation that would have permitted same-sex civil unions, ending months of speculation on how she would weigh in on the contentious, emotional debate. Republican Gov. Linda Lingle’s action came on the final day she had to either sign or veto the bill, which the Hawaii Legislature approved in late April.”
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Posted by JR at 12:22 AM