Job figures for the month of march will be released at the end of this week. The consensus is that job growth will continue at its slow, creeping pace – likely under 200,000 for the month just ended. For the time being, the United States remains a somewhat remarkable positive economic story in a world that is filled with continuous streams of troubling news from the European Union through Japan.
Visually, the continued improvement looks as follows:
Monthly Job Data Since The Great Recession
Of course, there’s still a very long road to go until a full recovery.
53 months into the employment recession and you are here. You will remain here for a long time to come.
It has now been more than 53 months since the start of the employment recession that precluded the full on economic one. Four years and five months ago the unemployment rate was hovering around 4.5% – still stubbornly high when viewed against the previous good times in the late 1990′s, when that number reached as low as 3.9%. Our sights seemed to be set so much higher back then. Back then, an unemployment rate north of 5% seemed like a bad thing, something that should be avoided. Economic collapse and a sluggish recovery later, getting back down to 5% unemployment would seem like the glory days personified. Heck, anything under 6% would feel like paving the streets in gold.
Some 53 months ago marked the start of this employment recession, and it very well might be another 53 months before things return to previous lows, if they ever do.
Hiring has slowed down in recent months, leading to an even slower and more anemic pace of recovery. All things considered, the amount of new jobs created has lagged the number of new people entering workforce eligibility, so job “losses” are actually on the increase again. For the past three months the number of new jobs have failed to crack the 100,000 per month level, with a minimum of 135,000 – 150,000 needed per month needed just to keep up with population growth. The last time those sorts of positive numbers were seen were back in March.
Construction spending on residential properties is the lowest it has been since early 1997.
A long time ago people built houses. They built them because they needed or wanted a house. They built them with the idea of moving out of wherever they currently lived, turning over that property or rental to whomever claimed it next. People who never owned or rented before also wanted a house. They were just starting out, perhaps. Maybe they bought the house that people building a house sold, or maybe they had one of their own built. In any case, people built houses, and it was good.
Along came a scheme, a scheme to make a whole lot of money, continually, “forever”. The value of land and the value of homes did a lot more than just creep up as it had in years past. Fueled by the carefree 1990′s, the seeds of a boom began. Soon homes weren’t being built for a new place to live for the next 30 years to a lifetime, homes were being built so someone could move into a larger, more expensive home, “flipping” their old one and pocketing the reward that progressively higher values offered. The houses were flipped to more people who had no other intention than flipping on their own. Here and there people who wanted to move into a house for the legitimate home purpose got caught up in the excitement – and by excitement I mean elevated mortgage price.
Soon most of the people who wanted a home long term were priced out of the market. They weren’t interested in flipping, so they ignored the bank’s calls for lower mortgage rates and exciting opportunities oh if only they’d just call back. The people left with the progressively newer and newer homes were just the flippers – playing a progressively higher stake game of hot potato, though they didn’t know that just yet.
One day the music stopped. Nobody wanted the homes anymore. No one could afford them. The banks couldn’t afford to lend anymore. The roller coaster was pointed down. There was no one left to throw the potato to, and it all came tumbling down.
Quickly now, grab your split-panel Obama/Romney pictures. It's general election time!
Like a band-aid you have to rip off but don’t want to, the time has come for the most modern of American traditions – the knock-out sports-for-non-sports-fan over-budgeted escapade that is an American Presidential Election. Two men enter (others pretend they do but never really count for anything) and one man wins the honor of being erected on a pillar as all that is wrong with the planet by the opposition for the next four years.
Some optional governance is possible.
Our returning champion, President Barack Obama, was last electorally seen cruising to a 365 – 173 Electoral College pasting of Senator John McCain – taking the national vote by 7.2%. It was the largest margin of victory since independent Ross Perot siphoned off enough Republican votes to help President Bill Clinton top Senator Bob Dole 379 – 159 on an 8.5% margin.
Since the 2008 election the Great Recession has ended. An anemic recovery has ensued, facing strong headwinds from a shattered real estate market that may take a generation to recover, relentless cuts to the public sector that have methodically chipped away at job growth, European trading partners held back by a widespread debt and currency crisis, and the continuing crippling debt brought on by two unfunded wars started in the dawning years of the last decade. Unfortunately for Mr. Obama it is exceedingly hard to prove a negative, so while it is within all fair assessment to assume that a President McCain administration continuing previous policies would have exasperated the bleak economic times in 2009, without a way to visit alternate realities one cannot confirm this.
Among conservatives and other small-government minded individuals, a common complaint is that the full ability of our economy to recover from the late 2000′s crash is being restrained by taxes on business. Frequently cited is the 35% tax rate that businesses are supposed to pay annually. It is cited as being among the highest rates in the world – which it is. Only a handful of third world nations and Japan have official corporate income tax rates that are higher.
If corporations actually paid taxes at that rate and were hurting because of it, this would be a valid argument to go after. What occurs in the real world, however, is that through a myriad of tax loopholes and armies of tax lawyers fighting to find them, companies pay an effective tax rate that is far below the implied 35%. Some, like General Electric, can rack up billions of dollars in profit in this country and not only have to not pay a dime on any of those earnings but is actually able to get billions of dollars of refunds from the federal government.
General Electric is hardly alone in being able to exploit the system in the past year, or even over the past years. In a period of time from 1998 until 2005 some 72% of all foreign companies and 57% of domestic companies were able to not pay a dime in taxes for at least one full year. That is lost revenue for the federal government – revenue that can not possibly be made up in its entirety by going after the incomes of individuals. As a result things that those same small-government fiscal conservatives complain about – such as the ballooning national debt – are allowed to explode out of control from the abuse of these loopholes. The solution seems to be a never ending mantra of “cut! cut! cut!” and never an effort to figure out if we’re missing out on any revenue.
The Federal Reserve has recently announced they are throwing $600 billion into something called “quantitative easing”, on top of $2 trillion thrown in last year. The reason? In short, to shore up our debt and to try to ignite the economy. Will it work? Maybe, but probably not that well.
Here’s a much, much better take on the why, though:
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.
Obama has received bills to sign, and those bills have helped, but not going for more from the start is coming back to bite far too soon.
There’s a danger in not pushing through a dramatic agenda when the situation calls for it – the danger being you succumb to falling back into the same rut, perhaps learning from your mistakes in a philosophical way but doing nothing to prevent a repeat them in the future.
There is an increasing risk that America is sliding into a double-dip recession or, at best, a period of stag-flation (little to no growth over an extended period of time) that will serve to continue to harm those who have already been harmed by the recession and keep those who are hanging on to their jobs looking over their shoulder, waiting for that next economic shoe to fall and hit them.
The panacea that was the stimulus bill – the American Recovery and Reinvestment Act of 2009 – turns out to not be the cure-all that was originally hoped for, and that a mere $787 billion couldn’t stop the continuing of the slowdown, as ludicrous as that sounds on its face. With the money running out in a midterm election year, Congress is set to dither, with disastrous repercussions for the American people who are already suffering greatly from the downturn – now entering its 3rd year (or, if you live in manufacturing states, 9th year).
These thin bits of plastic got us into a lot of trouble
In 2009, the Obama Administration got new regulations passed on the banking and credit card sectors that bring to an end business practices that were mainly set up to fleece as much money as possible out of consumers. As a consumer, you’ve come to know these practices with late payments on credit cards sending that advertised 7 – 9% interest rate to one of 30+% overnight. The Wall Street Journal had a good summary on what is to come:
For plastic, the new rules go into effect in February as part of the Credit Card Act of 2009. The rules will limit some interest-rate increases, require more disclosure to customers and prohibit banks from raising interest rates on current balances unless a customer is at least 60 days behind in a payment.
The amount of money that banks and credit card issuers made on these sorts of schemes of fine print lay somewhere between impressive and sickening:
Credit-card issuers collected $22.9 billion in penalty fees—such as those assessed for late payments—in 2009, up from $19 billion in 2008, said Robert Hammer, who runs a credit-card consulting firm in Thousand Oaks, Calif.
That is a year-over-year increase of 20.5%. Not much of anything business and/or profit related has risen by 20.5% in the last year. Impressive how one of the few things that actually does has a direct impact on the struggling consumer, thereby prolonging the recession and delaying the recovery even more.
Managing to not learn a single thing from the ancient history of last year’s economic meltdown (and just in time for the first anniversary, how quaint), reports are still surfacing that the banking industry as a whole continues to engage in, and profit from, the ultra-risky bet taking in the world of derivatives – the shadow market that nearly brought western capitalism to its knees last year. On lessons not being learned:
U.S. commercial banks earned $5.2 billion trading derivatives in the second quarter of 2009, a 225 percent increase from the same period last year, according to the Treasury Department.
More than 1,100 banks now trade in derivatives, a 14 percent increase from last year. Four banks control the market: JPMorgan Chase, Goldman Sachs, Bank of America and Citibank account for 94 percent of the total derivatives reported to be held by U.S. commercial banks, according to national bank regulator the Office of the Comptroller of the Currency.
The graph on the right is a nice example of the pool of money that is out there today.
- The red 1.9TRN represents the amount of USD that has been pledged in bailout money.
- The 0.845TRN represents all of the gold reserves in all of the central banks around the world
- The 3.9TRN represents the amount of paper money in existence
- The 39TRN represents all traditional financial reserves in the world
- The 62TRN represents “shadow banking assets” – this is where we find the chunk of money that may or may not exist in the real world that banks leverage on, which gets us into messes like the one currently being dealt with in this worldwide recession.
- The remaining 290TRN represents “other assets” in existence – this combined with the 62TRN of “shadow banking assets” represent a middle ground estimate in an enormously large, unregulated marketplace.
After playing with loaded dice and having it blow up in their collective faces a year ago, the same institutions – mostly headed by the same people – continue to gamble in the same ways, now gambling even more than before.
Simon Johnson, a professor at the Sloan School of Management at the Massachusetts Institute of Technology and former chief economist of the International Monetary Fund, said that the seeds of another collapse had already sprouted. If major banks are allowed to keep making bets that are ultimately backed by taxpayer guarantees, they will return to the practices that led them to underwrite trillions of dollars in bad loans, Professor Johnson said.
“They will run up big risks, they will fail again, they will hit us for a big check,” he predicted.
This is what keeps the banking system going at present
So far, one year into the crisis hitting the fan, major new regulations have not been leveraged against the financial industry – though the currents seem to be pointing in that direction. There is only one thing that can really put a stop to this, and that is a reinstating of the Depression-era Glass-Steagall Act. The 1933 law created the FDIC as we know it, and more importantly prevented a bank holding company from owning other financial companies. The separation of financial institutions allowed for companies to grow, but never become “too big to fail” – where the failure of a single company could potentially threaten to ruin the entire financial landscape. The Glass-Steagall Act was undone by the Gramm-Leach-Bailey Act of 1999 – which, for all intents and purposes, laid the ultimate groundwork for the asset bubble – and crash – of the last decade.
A re-institution of Glass-Steagall is nowhere on the horizon.
To prevent a replay of last year’s crisis, investors in financial institutions, especially bondholders, must believe that they will lose money if banks fail, said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation. “You need to send that very strong, clear signal to restore market discipline,” Ms. Bair said.
But legislation that would allow regulators to close giant institutions in an orderly fashion has been stalled for months. So too have efforts to create a systemic regulator that would focus on the broader risk that might occur from the ripple effects caused by the failure of one major bank.
Another proposed change would require banks to list and trade derivatives through a central clearinghouse, just as stocks and options are traded through exchanges, but it has yet to go anywhere.
Until this changes, the risk for a repeat performance at some point in the future, or the risk for a deepening of the crisis to true depressionary status remain most assuredly on the table.