Freezing Out Hope

http://www.nytimes.com/2010/12/03/opinion/03krugman.html?src=ISMR_HP_LO_MST_FB

http://www.nytimes.com/2010/12/04/business/economy/04jobs.html?emc=eta1

http://www.youtube.com/watch?v=PTUY16CkS-k

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"He who gives should never remember; he who receives should never forget." (The Talmud)

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This morning's jobs report was disappointing. Overall employment growth fell to 39,000 from 172,000. Private-sector hiring fell to 50,000 - which isn't nearly enough to keep up with population growth (125,000 per month) - from more than 100,000 in each of the previous four months.

Today's report is another argument in favor of the Federal Reserve's attempts to reduce long-term interest rates thru "quantitative easing (QE)." For a special perspective on QE, check the totally hilarious "bears" on YouTube!

A quick check of the historic recession to recovery trend lines attached to the Times article we've supplied here shows a perfectly dreadful comparison to previous periods that needs no further review here.

We've attached Krugman as well and borrowed his article title because we think it's apropos. Krugman does a nice job of explaining the politics (something we try to stay away from here) as he addresses what Nero is doing while Rome burns. Just in time for the abysmal jobs report today, President Obama has announced a Federal Pay Freeze. This, of course, is the answer to all of our problems because federal employee pay is at the very heart of the Great Recession! So, while "The Ben Bernanke" (see the YouTube video) is trying to force feed money into the economy (or, at least, to Goldman Sachs), the Administration is trying to cut back on spending at just the time when the economy needs more stimulus (of any kind!).

As we pointed out in our last post, corporate profits are at an all time record level. Fareed Zakaria has continued to tell his followers that Top 500 CEOs are refusing to spend their rapidly accumulating capital (because the U.S. regulatory and tax situation is so murky). So, in the midst of all of this, freezing the pay of federal workers has become top priority. As Krugman points out, how incredibly cynical! In spite of some recent studies that claim federal employees make more for the same job content, Krugman accurately points out that federal workers actually make a little less. But, that's not the point! Federal pay is a small fraction of federal expenses.

Krugman interprets this pay cut action as a gesture of appeasement to the GOP prior to a bi-partisan summit (to discuss what, we don't know). We side with Krugman on the question of why offer something like the pay cut up when the Administration has gotten no cooperation on anything from the GOP. But, this is "politics" and we want to stay away from that.

So, we'll just say: "Really?" Freezing federal pay reminds us of the installation of "Wage and Price Controls" in the early 70s when the "Administration" at that time was trying to stop runaway inflation. So, real people like us sat at places like Citibank and made determinations about what constituted a "bona fide" promotion (those could go thru) versus just a "merit increase" (those could not go thru). The person who solved that problem way back then is named Volcker and he is still with us (as a matter of fact, he's an adviser to the President on the economy!). He solved the problem then as Fed Chairman by boosting interest rates higher than the rate of inflation. He probably has some ideas now about what to do but we digress.

We're guessing that employment is the problem right now and nobody appears to be leading the charge to solve that issue. Somebody needs to look at the recession to recovery trend line. It's a disaster that cutting the federal budget is not going to solve.