The terrible economy, still in progress

In 1964, President Johnson declared a War on Poverty. 46 years later, the poverty rate looks to return to levels not seen since his administration.

In 1964, President Johnson declared a War on Poverty. 46 years later, the poverty rate looks to return to levels not seen since his administration.

Statistics can tell the story of a boom and bust much better than more worthless day-to-day metrics like the individual movements in the stock market, especially when the companies represented in the stock market see their boom times return on the backs of not investing any profit or hiring anyone. Your books can look stellar if you don’t invest for two years down the line, much less the actual future.

Statistics can also paint an accurate picture of life in the real world – a world that is separated from the machinations of tycoons and the narratives that television pundits try to write for the rest of us.  Only in the raw data can the actual situation on the economic ground be put together, and that situation has been, is, and looks to continue to be dire.  This week’s example – the poverty rate:

The number of people in the U.S. who are in poverty is on track for a record increase on President Barack Obama’s watch, with the ranks of working-age poor approaching 1960s levels that led to the national war on poverty.Census figures for 2009 – the recession-ravaged first year of the Democrat’s presidency – are to be released in the coming week, and demographers expect grim findings.

The anticipated poverty rate increase – from 13.2 percent to about 15 percent – would be another blow to Democrats struggling to persuade voters to keep them in power.

How does poverty rise quickly? 1) People keep getting laid off.

How does poverty rise quickly? 1) People keep getting laid off.

Removing the annoyingly thick ties into political analysis that many takes on the poverty announcement seem bound to include, these figures – if accurate – would mean that some 45 million people (1 in 7 of Americans) are at or below the poverty line.  The poverty rate by means of the 2008 definition means that a family of four is making less than $22,025 per year ($10.58/hr).

With an increasing poverty rate – led primarily by a stubbornly high unemployment rate – more and more people are trying to head to the relief valve that is government assistance.  Unfortunately for them, as well as unfortunately for hopes of a recovery in the near term, the political climate of the last few months has been one of either “stop spending” or “cut spending”.  Since sinkholes of money like overseas wars and rewarding legions of lobbyists through pet projects or policy are perpetual sacred cows that can never be reigned in, the items left over to cut are going to heavily weigh on social safety net programs and infrastructure – the things that helped pull America out of The Great Depression and kept us from receding back into it for 70+ years running.

Alas, most who can truly remember the depression for what it was – most definitely all policy makers and economists from the time – have come and gone from this world, replaced by progressively stronger voices with each passing generation that less is more, that the good of the common man does not need to be looked after.  Many of these same people awake from their policy-induced slumber every now and again to ask “why do people have it so hard?” before slipping back into trances of chanting who they are told to blame – government, minorities, “the process”, lack of hard work, immigrants, and so on.

If all this moaning came during good economic times, this might be a conversation that we could have, and it might even go somewhere.  Instead, as unemployment remains high and the poverty rate increases sharply, looking back to that raw data for inspiration or at least indication about where things are going nets nothing but more foreboding news.

The number of banks in danger of failing continues to rise at a steady rate

The number of banks in danger of failing continues to rise at a steady rate

While the big boys in banking have been able to repay large chunks – if not all – of the TARP bailout program, the list of “deadbeat” banks that are failing to do so is rising: now over 120.

The latest report from the agency shows that more than 120 institutions – nearly all of them small banks – have missed their scheduled quarterly dividend payments, which is more than a sixth of the banks that received federal aid during the financial crisis.

In addition, five banks that received capital injections from the controversial $700 billion Troubled Assets Relief Program have failed altogether, making it highly unlikely that taxpayers will recover the nearly $3 billion poured into those institutions.

The original catalyst of this entire recession – the housing bubble – is still looking terrible, even after all this time.  These aren’t the words of a doomsday naysayer, but from someone who you would figure might be in the know

Speaking at the Barclays Capital 2010 Global Financial Services Conference, Capital One CEO Richard Fairbank was pessimistic about the housing market and about consumer demand — but optimistic about his bank’s prospects.

Fairbank, in remarks that were broadcast on the web, was asked by an audience member whether there will be a double-dip in the housing market. He chose his words carefully. “I think we feel very cautious about the housing market,” Fairbank said. “I think that even despite some of the recent months where home prices have gone up, I think it’s a very plausible case for home prices to go back down again.”

His dim view of the U.S. housing market, he said, is based on the current “logjam” of defaulted mortgages and foreclosures being dealt with at Capital One, which added a retail banking arm to its lending and credit card businesses in 2005. “Unsold inventory is really at just about an all-time high.”

The financial system itself remains on shaky ground at best…

European Bond spreads vs. Germany as of September 7th

European Bond spreads vs. Germany as of September 7th

According to “the smart money” (or most money by now), there is a wave of defaults ready to besiege Europe – starting with Greece and perhaps moving on to Spain and Ireland next.  Such large defaults could poke gaping holes in the balance sheets of more banks, which could have the after effect of reduced lending: the same cycle that American banks hit in late 2008.

People from Tea Partiers rallying for Glen Beck all the way to Republicans in Congress are demanding that the Government reduce spending now and cut now in order to tackle the deficit.  While, again, these are noble ideas in the good times, with unemployment near 10% and GDP bouncing off the floor set during the recession, the demands that are being made now are ignoring two key facts:

Government employment as a percentage of the workforce since 1976

Government employment as a percentage of the workforce since 1976

1) Just how many people the government employs and…

Government spending as a part of GDP since 1976

Government spending as a part of GDP since 1976

2) Just how much the government contributes to GDP.  You want to cut the government left, right, and center right now?  There will be economic ramifications and they will be ugly compared to where we are at now.

Where exactly are we right now?  As mentioned earlier, the aftermath of the real estate bubble continues:

Housing starts & the vacancy rate since 1968

Housing starts & the vacancy rate since 1968

Very few homes are being built compared to the bubble years and all years before that.  There is too much excess supply on the market.  More homes are empty now than at any time since the middle 1960′s and before.  Without homes being built, that keeps construction spending low, and puts a world of people out of jobs with little hope for rebound any time soon.  This keeps unemployment high.

Speaking of unemployment, data tells a million words:

Employment recessions & duration in the post-WWII era

Employment recessions & duration in the post-WWII era

The employment recession, which began in 2007, has stopped recovering and is, in fact, slipping down once again.  For the economists who wonder if there will ever be a “double dip” recession – it’s already here for the working man.

Duration of unemployment since 1969

Duration of unemployment since 1969

The number of people who have been unemployed for a long time continues to remain near all-time highs, indicating that people caught up in the mass layoffs in 2008 & 2009 are still looking for jobs.

Wrapping back to the original topic of conversation – poverty, its increasing rate, and the impact to a social net that the power brokers want to cut – it could very well mean that this system can not handle this type of shock:

The U.S. safety net wasn’t designed to withstand such a strain. The extent and duration of unemployment benefits vary by state, but 26 weeks is typical. Several federal extensions have increased that to 99 weeks in California and other hard-hit states. Even so, an estimated 3.5 million Americans will have run out of benefits by the end of the year. About 180,000 Californians have already fallen off the rolls.

There are few other places to turn. Applications for federal food stamps and state programs such as CalWorks, which provides temporary assistance to families with children, are up sharply in recent years.

Desperation is growing, said Ofer Sharone, an assistant professor at MIT’s Sloan School of Management who has spent the last year interviewing dozens of long-term jobless workers.

“The U.S. is clearly not equipped to deal with this high level of unemployment,” Sharone said. “People are running out of benefits, health insurance, retirement and pensions.”

With government deadlocked somewhere between not offering enough help and wanting to take back help already given because it sees the unemployed as deadbeats, what hope is there really for a true and lasting recovery?

Time.

Economics inevitably work back to supply and demand.  The housing bubble burst, which set off the recession, because housing supply exploded while demand collapsed.  That excess inventory must be worked out of the system before new demand for more winds up leading the economy forward again.  Over time, as younger generations age, marry, and have children, the demand for households will trickle up.  In much the same way that demand collapsing caused a domino effect that knocked out the economy, demand increasing will cause a domino effect that will lift it up.  Waiting for this to come to pass, however, will likely make the 2010′s a lost economic decade.  See Japan for more on this.  Nineteen years later and they’re still waiting for recovery from a bubble that finished bursting in 1991.

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Note: A million thanks, once again, to CalculatedRisk – a very, very fine economy blog and the source for all the charts you saw above.