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We are drifting. We take comfort in bits of good news, but we are in dangerous waters; the Great Recession is being starkly revealed as a global crisis with the US, the traditional engine of
recovery, sputtering on every cylinder. The US government responded with dramatic financial support by transferring money to the household sector. But outside of these transfers the personal income of Americans is still declining; the residential market remains stagnant at best; consumer growth is nominal. The only real energy in the economy has come from the cessation of inventory liquidation, which is now the main factor in rising industrial output and any modest improvement in the economy.
The mood of US households is despondent. In May only 11.3 per cent believed they would see their income rise in the following six months, while 16.6 per cent thought they would see it decline. This is the first time in over four decades that more people believe they will be worse off than better. Any massive fiscal and monetary stimulus that might reverse the trend is likely to be politically unsustainable given the growing concern over the exploding national deficit.
Wherever you look the scene is bleak. Leading economic indicators fell in April – unusual at such an early stage in the up-cycle.
Jobless claims were up by 25,000 to 471,000. And up again above expectations in the first three weeks of May – raising the four-week moving average to a level consistent with 100,000, or more, net job losses. For the past several months, claims have been nowhere near the levels of 400,000 and less that in the past were consistent with sustained job creation. We are not enjoying the normal cycle of economic improvement. If we were, employment would already have reached a new high and made up all of the jobs lost, as it did during the previous postwar recessions. This time we remain short of the old peak of employment, by an astounding 8.4m jobs. One in six Americans is either unemployed or underemployed. This is not a normal cycle when compared with a typical recession, which sees no more than 2m to 3m jobs lost.
Research by David Rosenberg, chief economist at Gluskin Sheff, reveals jobless statistics behind the headline numbers that are downright scary. More than 6.5m people (more than 45 per cent of the jobless) have not worked for 27 weeks or more, compared with 3.2m this time last year.
Wages are falling; wage cuts are spreading as employers continue to curb costs and remain reluctant to hire. And the amount of excess labour continues to increase. For example, the April payroll surged by 290,000 jobs but the
labour force soared by 805,000. In effect, jobseekers are overwhelming the number of jobs that are being created. The broader definition of unemployment, which includes partial unemployment and people who have applied for a job within the past year, is roughly 17 per cent. The headline unemployment rate is back up to slightly under 10 per cent, but this covers only people who sought a job in the previous four weeks.
What is the result of an excessive number of people seeking work, with an average of 5.6 people vying for each job opening? Wage deflation. Average hourly pay has not budged since the turn of the year, including one month in which we had a 0.1 per cent decline in average hourly earnings, something that has not happened since April 2003.
This is an unnervingly jobless recovery. After the kind of strong growth in
gross domestic product of approximately 6 per cent we had in the fourth quarter of last year, we would normally anticipate job gains of 250,000 a month. Instead we had an average of 31,000 new jobs in the January and February reports – an unprecedentedly minimal growth after such a strong GDP quarter.
We are going to have to develop policies and government support to deal with the long-term jobless who become less employable the longer they lack a regular job. And long-term unemployment has gone from 2m in June 2004 to 6.7m in April 2010. We may have as many as five to eight years of moderate economic growth. To create the 12m jobs to get back to full employment for both the unemployed and new entries into the labour force, when job losses have not even come to an end, seems almost impossible.
I seriously do not understand how intelligent people posting here can be so blind to the obvious realities:
1) please don't keep quoting in terms of current dollars and compare salaries or costs to other years without compensating for inflation;
2) please don't pretend that any politician has any idea how to fix this mess.
We have been increasingly operating beyond our collective experience, operating blind in a totally new world. The BP blow out is a good metaphor for our situation is economics and many other branches of what we used to call "science", but more properly today should call raw experimentation.
The rule when doing experiments: control all inputs, measure all outputs, and make changes only slowly, one variable at a time. And when you measure outputs, don't use a "rubber band" as the meansuring stick.
The first part of this translates to practicing extreme financial conservatism until we can develop the knowledge base to move to more dynamic strategies. It was wrong for Bush to leap into TARP without more controls / restrictions on how the money should have been spent; it was at least doubly wrong for Obama to vastly extend the deficit spending and surge forward with massive chances to the economics of the healthcare system.
The second part translates into providing much greater emphasis on REAL results for REAL people rather than the typically easily "spun" double-speak of the media. Without a stable yardstick of what people are actually feeling in the form of their purchasing power, markets will swing and twist in the wind, offering little clear guidance to anyone.
As we sit here.... there is virtual certainty that we will have another recession before we can hope to restore employment to levels we had just a few years ago. You may not want to call this a "double dip recession", and strictly speaking, there may be enough quarters of growth to claim we've exited the recession.... but unless we get jobs back, this nation will never be whole again..... we will institutionalize idleness in ways "America" never before symbolized. It will multiply what is worst in society and destroy the hope of many citizens.
This is not an idle fear, it is a fear of being idle in profound ways... something America has never experienced since the Great Depression. ....and that is very depressing indeed.
Ever since Mort Zuckerman said the record gas price spikes were due to supply and demand and not speculation, I lost a good deal of respect for his opinion. Imagine highest gas prices ever and not a single line at a single gas station. He also said that China poses no threat to high tech American jobs. Which on the face of it seems absurd both in the long term and the short term. The real reason America is not bouncing back is because a parasitic class of investors specialize in gobbling up successful companies, laying off the redundancies and outsourcing every possible part of their captured business to what amounts to slave labor in other countries. HP just laid off 6000 US workers and is expanding oversees. When these companies bounce back they are not investing here. We are a country run by people who see them selves as citizens of the world. National loyalty is a quaint idea.
Look no further than Foxconn to see how truly soulless some of these titans of industry truly can be..Jobs' reaction to the suicides was not a convincing one. When you realize a 20 % raise means $1.20 instead of $1.00 the lauded wunderkind seems positively reptilian. However we Americans have only our selves to blame for doing nothing. While outside forces ( Murdoch( Fox), Israel(AIPAC), China(US Chamber of commerce) ( to name a few ) tear us apart from the inside and subvert the popular will through never ceasing manipulations of our political process, we fret about American Idol. These destroyers are deconstructing many of the greatest aspects of the American phenomenon. Democracy, economic vitality, tolerance, a love of peace and the rule of justice are all being whittled down one sleazy election and egregious appointment at a time. Can a country that can't bring Israel to heel or get China to play fair, be long for this world as a power player r?. A tiny lunatic minority has seized control of the reins of power and we are letting them drive us to ruin
Spending trillions fighting the longest war in American history to stop the Taliban from creating more Saudi terrorists seems as ludicrous as the idea that states are cutting vital services, raising the cost of education instead of getting some of these war funds.The traitors in congress ( and they are not all traitors) have bankrupted the country lining the pockets of war profiteers. America will not get well until we reestablish the rule of law in the business world and truly punish the corrupt. How many people are in jail for the great recession? Its time to see virtually unregulated mergers an acquisitions and various financial market manipulations as the true enemies of prosperity and American recovery.
Government (Congress, White House) would have us believe there is some one person or entity (Goldmen Sachs - Warren Buffet) to blame for this mess. The culprit is everyone, all of us collectively. The only ones who knew the sub-prime loans were bad and would be uncollecible were the borrowers who wanted a fancy house for nothing, the realtor and lender who paid a crooked real estate appraiser to appraise the property at an inflated price to increase the real estate commision and the amount of the loan (granted to anyone walking and breathing), and the 'agent who wrote the inflated loan and got a percentage of that amount for just writing it. Low participants. The lender then sold the loan to a larger bank or inurance company who had no inkling of the quality of the loan. 'Factoring' and selling of loans is thousands of years old and not illegal. At this stage all knowledge of the fact that the loan was made to someone who could never in a thousand years repay it was non existent. The banks and insurance companies (Goldman Sachs. Freddie, and Fanny included) were simply doing what they had been doing for decades.
Thw loans were bundled and rebundled countless times so that an original amount of bundled loans of say 10 million dollars was actually the collateral for perhaps 5, 10, or more times that amount in bonds issued to individual investors but particularly to banks, large and small who bought the bonds not knowing that the collateral behind them was not only insufficient to cover the bond (MAYBE 10 PERCENT) most probably totally uncollectable. When a miilion in loans defaulted tens (or more) of bonds were worthless (pennies on the dollar). Congress quickly passed a law allowing banks to keep the bonds on their balance sheets at their face amounts, although the banks should have been showing them for what they were really worth: what they could sell them for in the open market. Congress therefore became a co-conspirator in perpetuating a frau. There are still trillions of these worthless loans still on the balance sheets of banks for their face value and not their real worth.
Now cap that with insurance companies (say AIG) and big banks (say Goldman Sachs, J P Morgan Chase, etc.) who sold Credit Default Swaps (say bets, as at a crap table), betting on the failure ot the bonds, a practice several centuries old, a common and not illegal business practice.
But then, thousands of borrowers, all over the country began defaulting on the loans: no surprise to the borrowers who knew they could never repay the loans, and the crooked realtors and crooked appraisers and 'crooked loan agents.'
The same thing that caused the market crash and depression of 1929 caused this market crash and depression: widespread, nation wide greed. In 1929 it was cheap money at the stock brokers who let anyone who could walk and breathe buy 1,000 dollars in stock for 100 dollars. Everyone had a stock broker. Even a few shoe shine boys. It created a stock market bubble. When enough of these little guys (and some big) were unable to service theloans to their brokers, it all unravelled. This time it was cheap money for inflated-value real estate: hey - the price if the house is going to up forever. Right? Wrong.
And the cheap mkoney? George W. Bush had to be a 'war president' because Sadaam (sic?) wanted 'to kill my daddy.' Gimme a break. Greenspan and Bernanke gave the public cheap money (include a credit card for walking and brething) to let them buy junk gadgets and take their minds away from the wholesale slaughter because 'he wanted to kill my daddy
In 1992 Clinton did away with Glass Steagal, opening the door for banks to once again to bet (stocks and bonds) with dpositors'; money We let him dew it.
Whose fault? Ours. We were, and still are, asleep at the wheel.
We brag about being a 'service economy.' Well. You can't export those. And now we export virtually nothing.
The answer is simple.
Buy American or domestic produced products wherever you live.
Thw WalMarts oof the World buy 95% of what they sell from China eliminating domestic jobs.
Every time you get sucked into the price rol back another decent paying American or domestic job is ELIMINATED.
A bit like eating yourself
The Private equity short term attitude breeds this thinking.
If you are a skilled worker in manufacturing you are an endangered species smack bang in the sights of Private equity and the WalMarts
Its the old story money talks s*** walks and we the people are taking the s***
Paul Volcker recently pointed out a series of erroneous assumptions and judgments that caused this crisis in an article called "The Time We Have is Growing Short."
Among them was the erroneous assumption a trade deficit over 5% of GDP ($750 billion in 2008 and $500 billion now) was sustainable and good for America because of the flood of low-priced goods.
Bear in mind that if a job is worth say $50K, this means that over 10 million jobs held by foreigners are producing U.S. goods. We need those jobs here. This is a huge wealth transfer to foreign countries and those cheap goods have a cost in terms of enormous unemployment compensation.
We need to get those jobs back in this country. That is the primary challenge of the President now, as there is no sustainable budget path with 17% of the workforce unemployed or under-employed.
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Carryon - your response to my comments is baffling. On the other hand, it simply confirms that progressives and liberals simply don't understand basic economics. Corporations pay tax at the corporate level and then again on distributions - thats double taxation. That is why businesses have left the United States in droves over the past 40 years. If there are so many darn loopholes, why is it that the top 10% of earners pay 80% of all taxes and the bottom 50% pay NO taxes. You have simply inserted your predjudice for economic thought. As for Death taxes, what in heavens name makes you think that someone with an estate to tax has not paid their fair share of taxes and that their DEATH is a reason to take up to 55% of their accumulated, after-tax wealth? That is simply robbery of the defenseless. You are neither kind or compassionate, you are simply jealous.... and lousy at economics to boot!
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I disagree with the opinion that the long term jobless somehow lose their skills.
I owned a bakery for twenty years. And relied on both new trainees and old timers who needed money to supplement their retirement income. The bakery required a high level of physical and mental skills to produce a large variety of recipes.
The trainees would require constant attention for at least the first two months, and help when something new came along. The old timers who often were away from baking for a year or more, after being told what we needed would go to work without any help, and contributed greatly to the training of the new hires. I'm sure that recruiters and H.R. reps believe the above and other myths being repeated in many articles and reports. It's hard enough for people who have been out of work in this economy to find work, without such inaccuracies being circulated.
It should be clear enough that we need a comprehensive set of system level changes, and that the 'global economy' as is, is not self sustaining.
The US can not longer be the engine of growth when investments flow abroad, and jobs and industries continue to be exported.
Consider the report today that consumer credit is at an annual rate of 0.5% in April while revolving credit in the US decreased at an annual rate of 12%. Given that M1 is up 6.7% with new consumer borrowing at 0.5%, this implies deflation of 6.2%.
Proof enough that the US will not fund further Chinese, Indian, Indonesian, etc. growth.
When the Chinese realized this several months ago, they stopped pouring in funds from the government into export industries. Last year container ships were sitting in the world's ports stacked hundreds deep and all empty, due to Wall Street's fixation on artificial investments bringing the world economy to the brink, and given that the present world mercantile arrangements are fundamentally unsustainable.
Europe's financial crises and US spending billions on wars for the benefit of the oil industry will not provide for a way out of the debt crises.
Is Obama addressing any of these greater trends? Obama can't even get the Chinese to float their currency, and as is, they (China) are not only stealing jobs from the US, they are stealing them from their Asian neighbors as well.
Didn't Democrats follow Republicans down the path of giving away American jobs, destroying oversight of financial institutions, providing the largest corporations with every tax loophole possible?
Sure, we have the people and material resources to produce wealth, within the US and in the other major world economies, but not when growth in one nation means stealing the jobs and industries from another, or importing cheap labor into the US to undercut the middle class. And the same process is underway in Europe with the importation of an underclass into all of the European nations.
NAFTA forces many tens of thousands of poor Mexican families depending on peasant farming off of the land and into the cities of Mexico, and then into the US.
NAFTA took US jobs in manufacturing and sent them to Mexico where the people who work those jobs live in abject poverty, living in environmentally degraded circumstances, and it leaves them without the resources to deal with public health criseses (including the drug menace) that will be imported into the US with the migrant Mexican population.
No one should expect any real economic recovery until these fundamental problems are resolved with new arrangements, and in fact, we in the US have been on the wrong track for decades in all of these factors.
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America has a ton of resources, a largely educated and professional work-force, ambition and good infrastructure for conducting commerce. What we don't have is a reasonable and free form of exchange. Every time a dollar gets created, it has interest tied to it. If we get rid of the central bank and have the government issue our currency at no interest (like the constitution says), the market will take care of itself. As long as we have a central control of our money - the same central control that has caused every depression and recession we've ever had - we have no chance. Only the bankers get rich. Meanwhile, the rest of us argue about deficits (enabled by a central bank as it makes it simple for the government to "borrow"), debt (ditto), socialism versus capitalism (by definition, there is nothing free about a central bank and fractional reserve)... We are missing the forest for the trees. All problems in the economy are due to INTEREST on money created. It's not hard math, people. If every time I create a dollar (of YOUR money) and charge you interest on it, you have absolutely no way of escaping my clutches and will remain indebted to me FOREVER.
