http://www.nytimes.com/2010/07/03/business/economy/03jobs.html?emc=eta1
http://articles.moneycentral.msn.com/Investing/JubaksJournal/biggest-problem-now-job-creation.aspx
http://www.nytimes.com/2010/07/02/business/economy/02manufacturing.html?emc=eta1
We've been waiting for the jobs numbers and they came out yesterday. Economists estimated (and, that's a mistake right there) that the "OVERALL" numbers of new jobs would be down net because the census jobs were ending: the U.S. lost 125,000 jobs in June. Now, with the appropriate political excuses, the real net jobs number is 83,000 jobs added to the private sector for June. The consensus economist guess was that the number would be 112,000.
Recalling a prior post on Paul Krugman's estimates, the U.S. economy would have to create 300,000 plus jobs per month for 5 consecutive years to make up for the jobs that have been lost since the recession began. This assumed roughly 120/150,000 jobs per month simply to cover new entrants to the workforce coming on each month and then the net difference to 300,000 would be new jobs for those who were not employed. So, by that measure, the new data is pathetic.
There are some bright spots overall: in the first six months of 2009, the U.S. lost 3.7 million private sector jobs; during the first six months of this year it gained 590,000. Of those jobs, 136,000 were in manufacturing which is starting to hire back but not at rates consistent with production volumes (they'd prefer to use "temps" where possible until "forced" to go full time). In addition, as Motoko Rich points out in the article attached, many manufacturers invested in automation during the recession and are looking for people with skills to handle that: "The problem, the companies say, is a mismatch between the kind of skilled workers needed and the ranks of the unemployed ... Now they are looking to hire people who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker ... Makers of innovative products like advanced medical devices and wind turbines are among those growing quickly and looking to hire, and they too need higher skills."
At the college level, there's a very interesting article in the Wall Street Journal this week on those who got bachelor's degrees and stayed in school to get a master's as the financial crisis grew hoping for a better employment market now. Those people are saying that "strategy" didn't work because they aren't getting jobs. They're saying that there are people "ahead" of them who, for example, have master's degrees and 5 years of experience and, if unemployed, would get jobs ahead of them. While sad and true, many of these individual examples don't represent the overall issue that the "strategy" was right but the "timing" of the recession was very much longer than "usual." Someone staying in school to get a master's now might find a better job market in 18 mos. Or, they might get another master's or a PhD.
Jim Jubak has a current look at the staggering numbers that need to be overcome for the employment situation to right itself. Firstly, we don't pay any attention to the monthly "... is it 9.7% or 9.5% unemployment rate?" analysis. The real unemployment rate right now is 16.6%. For some portions of our population it's substantially worse. For the Great Depression, it was 25%.
Jubak points out that the Congressional Budget Office (CBO) projection is that the "unemployment rate" will be down to 8% in two years. If we paid attention to that 8% number, that would be "DOUBLE" what the unemployment rate was in 2,000!
While we don't have any political affiliation, if one looks at the jobs situation from the point of view of the Bush Administration (2,000 thru 2008), 3 million jobs were created during a period when the U.S. population grew by 22 million. Using the nominal number assigned to net population participating in the labor market (May's number was 58.7%), 13 million jobs needed to be created just to keep pace with population growth during that 2,000 thru 2008 period. So, the U.S. went into the recently ended recession about 10 million jobs in the "hole." Then, things got worse. According to the Economic Policy Institute (EPI), the U.S. lost 7.5 million jobs from the "official" start of the recession in December of 2007. In that same period (the institute calculates), because of a growing population, the U.S. needed to add 3 million jobs just to stay even. From the December, 2007 start of the recession, the U.S. has dug itself an additional hole of 10.5 million jobs. Regardless of the "math" and some overlaps in calculating, we'll go with Jubak's estimate that the jobs "hole" is somewhere between 15 and 18 million jobs.
Looking at low or slow economic growth for the foreseeable future (3% GDP), and assuming no "double-dip" recession situation, it's difficult to see where substantial job creation is going to be coming from.
We agree with Jubak that neither fixing the U.S. financial system nor reducing the deficit addresses the job creation problem that existed before this financial crisis occurred. There is no way to "financially engineer" job growth and it doesn't appear that the job creation problem is going away.
Has anybody read "Atlas Shrugged" lately?
Saturday, July 3, 2010
Thursday, July 1, 2010
The Third Depression
http://www.nytimes.com/2010/06/28/opinion/28krugman.html?_r=1&emc=eta1
http://blogs.ft.com/martin-wolf-exchange/2010/06/27/is-monetary-policy-too-expansionary-or-not-expansionary-enough/
http://economix.blogs.nytimes.com/2010/06/30/another-recession-or-a-long-slow-recovery/?emc=eta1
Krugman begins his 6/28 article with: "Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as "depressions" at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929 - 1931."
Krugman goes on: "Neither the long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline - on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses."
Krugman's fear is that we are in the early stages of a third depression. And, he sees it occurring because of a failure of worldwide economic policy. This, of course, is most recently exhibited by the deficit hysteria exhibited by the G-20 in Toronto last week. We give President Obama credit for going in to those meetings advocating spending to keep consumer demand up, but to no avail as the other 19 countries out voted him.
Key here is Krugman's point that: "... future historians will tell us that this wasn't the end of the third depression, just as the business upturn that began in 1933 wasn't the end of the Great Depression. After all, unemployment - especially long-term unemployment - remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly ... In the face of this grim picture, you might have expected policy makers to realize that they haven't yet done enough to promote recovery. But no: over the past few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy."
So, Krugman concludes, it's as if the financial markets understand what policy makers seemingly don't: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression (which deepens that depression and paves the way for deflation) is actually self-defeating.
As we have said here many times, unemployment is the lagging indicator for any recovery, the "canary in the coal mine." We are with Krugman when he asks who will pay the price for this current "cut the deficit" orthodoxy? And, of course the answer is tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.
We have attached a blog from Martin Wolf of the "Financial Times" where he essentially takes the same position as Krugman about the absolute necessity of continuing to spend. His point is that the overall supply of credit and money in the economies of the developed world is stagnant. Wolf is very highly regarded internationally and frequently appears on "Fareed Zakaria GPS" which is where we get an opportunity to hear his positions.
We have also attached a post by Casey Mulligan on the Times "Economix" blog. Mulligan is a very highly regarded University of Chicago economics professor. Mulligan's point is that, while some economists are saying that we will soon have a second recession, he expects a labor market recovery although it may take many years.
Mulligan includes in his post an excellent multiple trend line graphic of leading indicators over the past nine months (Case-Shiller Housing Price Index, private durables spending per person, etc.). For example, real private consumption has risen, with spending on consumer durables up almost 10%. The stock market is down over the past two months but still higher than it was last fall.
Based on multiple factors like those he refers to (not all of which are "up") in his post, Mulligan predicts that seasonally adjusted national employment and work hours will be a couple of percentage points "higher" at the end of 2010 than they are now: "... that is, we will be weakly recovering from the first recession, not starting a new one."
So, while Krugman has become very "Roubini-like", there are others in his profession that don't see the "gloom" before us. Mulligan is realistic and makes sense.
On the subject of "Roubini", we recommend his new book ("Crisis Economics - A Crash Course in the Future of Finance", Nouriel Roubini and Stephen Mihm, Penguin Press, 2010) which we are currently reading. It's a good perspective-getter on what we've just been through economically and suggests what to do for the future.
A "Third Depression"? No. We hope not.
http://blogs.ft.com/martin-wolf-exchange/2010/06/27/is-monetary-policy-too-expansionary-or-not-expansionary-enough/
http://economix.blogs.nytimes.com/2010/06/30/another-recession-or-a-long-slow-recovery/?emc=eta1
Krugman begins his 6/28 article with: "Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as "depressions" at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929 - 1931."
Krugman goes on: "Neither the long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline - on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses."
Krugman's fear is that we are in the early stages of a third depression. And, he sees it occurring because of a failure of worldwide economic policy. This, of course, is most recently exhibited by the deficit hysteria exhibited by the G-20 in Toronto last week. We give President Obama credit for going in to those meetings advocating spending to keep consumer demand up, but to no avail as the other 19 countries out voted him.
Key here is Krugman's point that: "... future historians will tell us that this wasn't the end of the third depression, just as the business upturn that began in 1933 wasn't the end of the Great Depression. After all, unemployment - especially long-term unemployment - remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly ... In the face of this grim picture, you might have expected policy makers to realize that they haven't yet done enough to promote recovery. But no: over the past few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy."
So, Krugman concludes, it's as if the financial markets understand what policy makers seemingly don't: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression (which deepens that depression and paves the way for deflation) is actually self-defeating.
As we have said here many times, unemployment is the lagging indicator for any recovery, the "canary in the coal mine." We are with Krugman when he asks who will pay the price for this current "cut the deficit" orthodoxy? And, of course the answer is tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.
We have attached a blog from Martin Wolf of the "Financial Times" where he essentially takes the same position as Krugman about the absolute necessity of continuing to spend. His point is that the overall supply of credit and money in the economies of the developed world is stagnant. Wolf is very highly regarded internationally and frequently appears on "Fareed Zakaria GPS" which is where we get an opportunity to hear his positions.
We have also attached a post by Casey Mulligan on the Times "Economix" blog. Mulligan is a very highly regarded University of Chicago economics professor. Mulligan's point is that, while some economists are saying that we will soon have a second recession, he expects a labor market recovery although it may take many years.
Mulligan includes in his post an excellent multiple trend line graphic of leading indicators over the past nine months (Case-Shiller Housing Price Index, private durables spending per person, etc.). For example, real private consumption has risen, with spending on consumer durables up almost 10%. The stock market is down over the past two months but still higher than it was last fall.
Based on multiple factors like those he refers to (not all of which are "up") in his post, Mulligan predicts that seasonally adjusted national employment and work hours will be a couple of percentage points "higher" at the end of 2010 than they are now: "... that is, we will be weakly recovering from the first recession, not starting a new one."
So, while Krugman has become very "Roubini-like", there are others in his profession that don't see the "gloom" before us. Mulligan is realistic and makes sense.
On the subject of "Roubini", we recommend his new book ("Crisis Economics - A Crash Course in the Future of Finance", Nouriel Roubini and Stephen Mihm, Penguin Press, 2010) which we are currently reading. It's a good perspective-getter on what we've just been through economically and suggests what to do for the future.
A "Third Depression"? No. We hope not.
Thursday, June 24, 2010
The Squam Lake Group
http://www.nytimes.com/2010/06/20/business/20view.html?emc=eta1
Robert J. Shiller (the Yale professor and co-founder of the Case-Shiller home price index), a noted financial economist and a supporter of the behavioral finance school of thought, noted in the NY Times on 6/18 that Congress will not be addressing the underlying financial crisis issues when a House/Senate compromise reform bill is passed. The versions of the current efforts to get a bill out wouldn't "... prevent a repeat of this mess."
As Shiller says, he's been working with a nationwide group of 15 professors of financial economics on recommendations that might improve our chances of better regulation. Named for the New Hampshire lake where the group first got together in 2008, the group looked to pool their expertise.
The group made extensive use of what they considered to be an important economic theory: people respond to incentives, but the incentives embedded in government regulations often don't have the desired effects. They presented their findings on June 16th at Columbia University where Ben Bernanke introduced their book: "The Squam Lake Report: Fixing the Financial System (Princeton University Press). He said he agreed with the principle that "the stakeholders in financial firms - including shareholders, managers, creditors and counterparties - must bear the costs of excessive risk-taking or poor business decisions, not the public."
The article's attachment does a nice job of outlining the various categories where the group feels a better focus could be made on issues that would impact a better result. One of our favorites is executive compensation. There's no question that the wrong incentives were in place at all levels but, then, what are the right ones? The Working Paper argues that governments should generally not regulate the level of executive compensation at financial firms. Instead, a fraction of compensation should be held back for several years to reduce employees' incentives to take extra risk. The "say on pay" provision in the proposed legislation gives stockholders a chance to whine about pay levels being too high, but so what. Good point for the Squam Lake Group.
The Senate bill does have "clawback provisions" that might take back an executive's compensation at a later date, under special circumstances. But, these provisions wouldn't have the likely effect of a "holdback."
This group has done good work on all aspects of financial regulation. It's worth reading.
Robert J. Shiller (the Yale professor and co-founder of the Case-Shiller home price index), a noted financial economist and a supporter of the behavioral finance school of thought, noted in the NY Times on 6/18 that Congress will not be addressing the underlying financial crisis issues when a House/Senate compromise reform bill is passed. The versions of the current efforts to get a bill out wouldn't "... prevent a repeat of this mess."
As Shiller says, he's been working with a nationwide group of 15 professors of financial economics on recommendations that might improve our chances of better regulation. Named for the New Hampshire lake where the group first got together in 2008, the group looked to pool their expertise.
The group made extensive use of what they considered to be an important economic theory: people respond to incentives, but the incentives embedded in government regulations often don't have the desired effects. They presented their findings on June 16th at Columbia University where Ben Bernanke introduced their book: "The Squam Lake Report: Fixing the Financial System (Princeton University Press). He said he agreed with the principle that "the stakeholders in financial firms - including shareholders, managers, creditors and counterparties - must bear the costs of excessive risk-taking or poor business decisions, not the public."
The article's attachment does a nice job of outlining the various categories where the group feels a better focus could be made on issues that would impact a better result. One of our favorites is executive compensation. There's no question that the wrong incentives were in place at all levels but, then, what are the right ones? The Working Paper argues that governments should generally not regulate the level of executive compensation at financial firms. Instead, a fraction of compensation should be held back for several years to reduce employees' incentives to take extra risk. The "say on pay" provision in the proposed legislation gives stockholders a chance to whine about pay levels being too high, but so what. Good point for the Squam Lake Group.
The Senate bill does have "clawback provisions" that might take back an executive's compensation at a later date, under special circumstances. But, these provisions wouldn't have the likely effect of a "holdback."
This group has done good work on all aspects of financial regulation. It's worth reading.
Wednesday, June 23, 2010
MacArthur and McChrystal
http://www.nytimes.com/2010/06/23/opinion/23friedman.html?e
http://www.nytimes.com/2010/06/23/opinion/23dowd.html?emc=eta1
One of our favorite things to post about is effective management. That can sometimes be defined by examining ineffective management. "Don't do this" is sometimes just as instructive as "Do this!"
Two of our favorite writers are Dowd and Friedman. Both get too extreme at times but both make compelling and effective points. Friedman (and his three Pulitzers) can define the Middle East like no one else and make the political situation there sound like there is, indeed, a solution available. Dowd understands management and politics.
We're guessing here that General Stanley McChrystal knows who General Douglas MacArthur was. We're betting he studied that at West Point (if not before that). General MacArthur was fired by Harry Truman during the Korean War when he refused to stop his troops at, roughly, the current line of demarcation between North and South Korea. General MacArthur was a hero of World War II who had come back to win in Korea. If there had been public opinion polls similar to those done today back then, Harry Truman would have been an "also ran" and MacArthur would have been somebody who could have beaten Truman if he'd wanted to run for President. But, Truman was the boss.
Mike Martin, one of the great college head baseball coaches of all time (Florida State), has a favorite saying: "Sometimes you're the windshield, and sometimes you're the bug." Truman was the windshield.
We're guessing here that McChrystal didn't learn the MacArthur lesson. We're also guessing that McChrystal's attitude was about the same as MacArthur's. And, it got him the same result. And, might we add, McChrystal had nowhere near the stature of MacArthur.
The "Rolling Stone" article on this situation is an instant classic. It should be required reading in business schools. Whether or not you respect the person, respect the position.
Jim Collins (he of "Good to Great" and, more recently, "How the Mighty Fall") on what one single trait is the most important to management success: "HUMILITY". To Collins, CEOs who don't have it, fail sooner or later. To quote 'Rolling Stone': "Although McChrystal has been in charge of the war for only a year, in that short time he has managed to piss off almost everyone with a stake in the conflict." Reading about McChrystal's behavior, he actually put himself in a position where President Obama had no choice but to fire him - again, instructive from a management point of view.
We wonder here whether McChrystal had any clue that allowing a "Rolling Stone" reporter access to everything he and his staff thought and said was possibly NOT a good idea. We can only conclude that his ego saw it as inconsequential.
Again, we have attached Friedman on the Afghan situation because he makes the "unclear" clearer. We have attached Dowd because she adds some class and perspective to a classless and sad situation.
http://www.nytimes.com/2010/06/23/opinion/23dowd.html?emc=eta1
One of our favorite things to post about is effective management. That can sometimes be defined by examining ineffective management. "Don't do this" is sometimes just as instructive as "Do this!"
Two of our favorite writers are Dowd and Friedman. Both get too extreme at times but both make compelling and effective points. Friedman (and his three Pulitzers) can define the Middle East like no one else and make the political situation there sound like there is, indeed, a solution available. Dowd understands management and politics.
We're guessing here that General Stanley McChrystal knows who General Douglas MacArthur was. We're betting he studied that at West Point (if not before that). General MacArthur was fired by Harry Truman during the Korean War when he refused to stop his troops at, roughly, the current line of demarcation between North and South Korea. General MacArthur was a hero of World War II who had come back to win in Korea. If there had been public opinion polls similar to those done today back then, Harry Truman would have been an "also ran" and MacArthur would have been somebody who could have beaten Truman if he'd wanted to run for President. But, Truman was the boss.
Mike Martin, one of the great college head baseball coaches of all time (Florida State), has a favorite saying: "Sometimes you're the windshield, and sometimes you're the bug." Truman was the windshield.
We're guessing here that McChrystal didn't learn the MacArthur lesson. We're also guessing that McChrystal's attitude was about the same as MacArthur's. And, it got him the same result. And, might we add, McChrystal had nowhere near the stature of MacArthur.
The "Rolling Stone" article on this situation is an instant classic. It should be required reading in business schools. Whether or not you respect the person, respect the position.
Jim Collins (he of "Good to Great" and, more recently, "How the Mighty Fall") on what one single trait is the most important to management success: "HUMILITY". To Collins, CEOs who don't have it, fail sooner or later. To quote 'Rolling Stone': "Although McChrystal has been in charge of the war for only a year, in that short time he has managed to piss off almost everyone with a stake in the conflict." Reading about McChrystal's behavior, he actually put himself in a position where President Obama had no choice but to fire him - again, instructive from a management point of view.
We wonder here whether McChrystal had any clue that allowing a "Rolling Stone" reporter access to everything he and his staff thought and said was possibly NOT a good idea. We can only conclude that his ego saw it as inconsequential.
Again, we have attached Friedman on the Afghan situation because he makes the "unclear" clearer. We have attached Dowd because she adds some class and perspective to a classless and sad situation.
Tuesday, June 22, 2010
Spend Now/Save Later
http://www.nytimes.com/2010/06/21/opinion/21krugman.html?emc=eta1
"A 'Genius' is just a talented person who does his (or her) homework." (Thomas Edison)
Someone once said that if we ignore the lessons of history, we are doomed to repeat our mistakes. If that wasn't it exactly, we're close.
We were reminded of that phrase when we read Krugman's June 20 "Now and Later" (attached). As Krugman says, "Spend now, while the economy remains depressed; save later, once it has recovered. How hard is that to understand?"
Krugman answers his own question: "Very hard, if the current state of political debate is any indication. All around the world, politicians seem determined to do the reverse. They're eager to shortchange the economy when it needs help, even as they balk at dealing with long-run budget problems."
Returning to our reference above on "history", it is a plus for the U.S. that the current Fed Chairman did his PhD on the Great Depression. While he does not control all the levers of power relating to the economy, his opinions are listened to.
That's the plus. The minus is that 52 senators voted against extending aid to the unemployed despite the highest rate of long-term joblessness since the 1930s. Many economists, Krugman included, regard this turn to austerity as a major mistake. It raises memories of 1937, when F.D.R.'s premature attempt to balance the budget helped a recovering economy fall back into a severe recession.
While America has a long-term budget problem, there are solutions. Krugman's suggestion of a modest "value-added tax" (5%) could be helpful.
But Krugman's point is that our currently depressed economy is inflicting long run damage: every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are 5 times as many people seeking work as there are job openings means there are hundreds of thousands of Americans graduating from school that are denied the chance to get started on a career. And, with each passing month we drift closer to a Japanese-style deflationary trap: "Penny pinching at a time like this isn't just cruel; it endangers the nation's future. And it doesn't even do much to reduce our future debt burden, because stinting on spending now threatens the economic recovery, and with it the hope of rising revenues."
We are reminded here of the position that Warren Buffet and Krugman took two years ago when they said (along with others) that the "economic stimulus" spending level was "not enough."
There is no "inflation" to worry about. Most economists feel that, under the best of circumstances, we will be in a very low inflationary cycle for a log time. Consumer prices (as measured by the CPI and excluding the food and energy components) rose .6% in the first quarter of 2010: the smallest quarterly increase in prices since 1959.
There are a growing number of economists who fear the bigger danger may be "DEFLATION." Basic economics informs that, when consumer demand is falling, and there is extensive excess capacity, we are in danger of deflation.
As we have said here before, the key lagging indicator in any economic recovery is the unemployment rate. And, that indicator hasn't improved much. When companies are hording cash (some measures put cash levels at the Top 500 companies at the highest levels ever) and not spending it on capital improvements, there is no economic "push". The only thing most companies are doing with their cash (while they wait and evaluate) is buying back stock.
So, while spending now may not be politically in, something is needed. Once unemployment has dropped below 7% on a downward path, budget deficits can be addressed.
Krugman wants to spend now and save later. We agree.
"A 'Genius' is just a talented person who does his (or her) homework." (Thomas Edison)
Someone once said that if we ignore the lessons of history, we are doomed to repeat our mistakes. If that wasn't it exactly, we're close.
We were reminded of that phrase when we read Krugman's June 20 "Now and Later" (attached). As Krugman says, "Spend now, while the economy remains depressed; save later, once it has recovered. How hard is that to understand?"
Krugman answers his own question: "Very hard, if the current state of political debate is any indication. All around the world, politicians seem determined to do the reverse. They're eager to shortchange the economy when it needs help, even as they balk at dealing with long-run budget problems."
Returning to our reference above on "history", it is a plus for the U.S. that the current Fed Chairman did his PhD on the Great Depression. While he does not control all the levers of power relating to the economy, his opinions are listened to.
That's the plus. The minus is that 52 senators voted against extending aid to the unemployed despite the highest rate of long-term joblessness since the 1930s. Many economists, Krugman included, regard this turn to austerity as a major mistake. It raises memories of 1937, when F.D.R.'s premature attempt to balance the budget helped a recovering economy fall back into a severe recession.
While America has a long-term budget problem, there are solutions. Krugman's suggestion of a modest "value-added tax" (5%) could be helpful.
But Krugman's point is that our currently depressed economy is inflicting long run damage: every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are 5 times as many people seeking work as there are job openings means there are hundreds of thousands of Americans graduating from school that are denied the chance to get started on a career. And, with each passing month we drift closer to a Japanese-style deflationary trap: "Penny pinching at a time like this isn't just cruel; it endangers the nation's future. And it doesn't even do much to reduce our future debt burden, because stinting on spending now threatens the economic recovery, and with it the hope of rising revenues."
We are reminded here of the position that Warren Buffet and Krugman took two years ago when they said (along with others) that the "economic stimulus" spending level was "not enough."
There is no "inflation" to worry about. Most economists feel that, under the best of circumstances, we will be in a very low inflationary cycle for a log time. Consumer prices (as measured by the CPI and excluding the food and energy components) rose .6% in the first quarter of 2010: the smallest quarterly increase in prices since 1959.
There are a growing number of economists who fear the bigger danger may be "DEFLATION." Basic economics informs that, when consumer demand is falling, and there is extensive excess capacity, we are in danger of deflation.
As we have said here before, the key lagging indicator in any economic recovery is the unemployment rate. And, that indicator hasn't improved much. When companies are hording cash (some measures put cash levels at the Top 500 companies at the highest levels ever) and not spending it on capital improvements, there is no economic "push". The only thing most companies are doing with their cash (while they wait and evaluate) is buying back stock.
So, while spending now may not be politically in, something is needed. Once unemployment has dropped below 7% on a downward path, budget deficits can be addressed.
Krugman wants to spend now and save later. We agree.
Monday, June 21, 2010
The "Volcker Rule"
http://www.nytimes.com/2010/06/21/business/21volcker.html?emc=eta1
Our short test to see if the final Congressional effort to put through a financial reform law that was going to be relevant was whether the "Volcker Rule" was kept in as part of House/Senate negotiations. As we understand it, the goal in Congress is to get the overall compromise bill in a position to be voted on by Thursday of this week. That would put the Obama Administration in a positive position for the G-20 meetings which are beginning in Toronto this coming weekend. We guess that would be a similar political move to China's announcement last week that it will begin to allow the yuan to "float."
We also note with interest that this week began a final push by the (for want of a better word) banking lobby to (again, for want of a better word) water down the Volcker portion of the final legislation. Both Senator Dodd and Congressman Frank have already agreed to compromises in the hope that they will get enough votes to pass the legislation. Evidently, use of the term "Volcker Rule" will be kept but some of the "teeth" will be removed. We're not sure that Paul Volcker has agreed to that dental work and we know that he is continuing to lobby for most aspects of his proposal.
Insiders report that one key provision will be kept: a restriction on banks' ability to make speculative bets using their own capital (what Volcker calls "proprietary trading"). The rest ...
We'll see what develops this week.
Our short test to see if the final Congressional effort to put through a financial reform law that was going to be relevant was whether the "Volcker Rule" was kept in as part of House/Senate negotiations. As we understand it, the goal in Congress is to get the overall compromise bill in a position to be voted on by Thursday of this week. That would put the Obama Administration in a positive position for the G-20 meetings which are beginning in Toronto this coming weekend. We guess that would be a similar political move to China's announcement last week that it will begin to allow the yuan to "float."
We also note with interest that this week began a final push by the (for want of a better word) banking lobby to (again, for want of a better word) water down the Volcker portion of the final legislation. Both Senator Dodd and Congressman Frank have already agreed to compromises in the hope that they will get enough votes to pass the legislation. Evidently, use of the term "Volcker Rule" will be kept but some of the "teeth" will be removed. We're not sure that Paul Volcker has agreed to that dental work and we know that he is continuing to lobby for most aspects of his proposal.
Insiders report that one key provision will be kept: a restriction on banks' ability to make speculative bets using their own capital (what Volcker calls "proprietary trading"). The rest ...
We'll see what develops this week.
Saturday, June 19, 2010
The 6 Month "Moratorium"
http://www.nytimes.com/2010/06/18/business/18rig.html?adxnnl=1&emc=eta1&adxnnlx=1276966976-UjZ7I5GHbtNTmg7wOZLWTg
Watching the "Today Show" this morning, we were impressed with a local New Orleans reporter who reminded us that the cost in jobs of the oil spill is increasing with each passing day. Yesterday, one of the most prominent oyster suppliers in the U.S. (supplies all Red Lobster restaurants) had to close its doors. Ironically, aside from unemployment benefits, the only chance these people had to find work would be to help with oil spill "clean up."
That reporter went on to say that there are 16 Federal Government Departments (including the Coast Guard) at the spill sites and none of them are "coordinated." Obviously, this has meant that various "permissions" to take actions have been stop and go. There's no excuse for that level of incompetence.
Tom Zeller Jr. (NY Times article attached) refers to the numbers involved relative to the oil rigs shut down. The moratorium idles approximately 33 oil rigs that were drilling in water depths of 500 feet or more. Many of the rig's owners are seeking customers in other parts of the world. That's immediate unemployment for the motormen, roughnecks and roustabouts who were making $3,500 to $4,000 per month typical for such jobs.
On Wednesday of this week, President Obama and BP announced that the company had voluntarily agreed to create a $100 million fund to compensate such rig workers. PROBABLY NOT ENOUGH! Each rig job supports roughly 4 additional jobs for cooks, supply ship operators and others servicing the industry. Together, they represent total "MONTHLY" wages of $165 million.
The Louisiana Mid-Continent Oil and Gas Association estimates that, for every rig that leaves the Gulf, 800 to 1,400 jobs will be lost, including 3rd party personnel. Raymond James & Associates predicts that the "moratorium" could last well into 2011, directly jeopardizing 50,000 jobs.
Here's a thought: BP opens up its $100 million fund to pay the wages of every person directly or indirectly without employment because of the spill. Since there would appear to be some early success in capturing oil leaking out of the well this week, that oil can be sold in partial support of such an expanded fund. However BP gets the money, they pay.
As for the U.S. Government, appointing somebody to coordinate all the departments involved would seem to make a lot of sense. We're sure Governor Bobby Jindal would agree. As he said this week: "We are not winning this war."
Watching the "Today Show" this morning, we were impressed with a local New Orleans reporter who reminded us that the cost in jobs of the oil spill is increasing with each passing day. Yesterday, one of the most prominent oyster suppliers in the U.S. (supplies all Red Lobster restaurants) had to close its doors. Ironically, aside from unemployment benefits, the only chance these people had to find work would be to help with oil spill "clean up."
That reporter went on to say that there are 16 Federal Government Departments (including the Coast Guard) at the spill sites and none of them are "coordinated." Obviously, this has meant that various "permissions" to take actions have been stop and go. There's no excuse for that level of incompetence.
Tom Zeller Jr. (NY Times article attached) refers to the numbers involved relative to the oil rigs shut down. The moratorium idles approximately 33 oil rigs that were drilling in water depths of 500 feet or more. Many of the rig's owners are seeking customers in other parts of the world. That's immediate unemployment for the motormen, roughnecks and roustabouts who were making $3,500 to $4,000 per month typical for such jobs.
On Wednesday of this week, President Obama and BP announced that the company had voluntarily agreed to create a $100 million fund to compensate such rig workers. PROBABLY NOT ENOUGH! Each rig job supports roughly 4 additional jobs for cooks, supply ship operators and others servicing the industry. Together, they represent total "MONTHLY" wages of $165 million.
The Louisiana Mid-Continent Oil and Gas Association estimates that, for every rig that leaves the Gulf, 800 to 1,400 jobs will be lost, including 3rd party personnel. Raymond James & Associates predicts that the "moratorium" could last well into 2011, directly jeopardizing 50,000 jobs.
Here's a thought: BP opens up its $100 million fund to pay the wages of every person directly or indirectly without employment because of the spill. Since there would appear to be some early success in capturing oil leaking out of the well this week, that oil can be sold in partial support of such an expanded fund. However BP gets the money, they pay.
As for the U.S. Government, appointing somebody to coordinate all the departments involved would seem to make a lot of sense. We're sure Governor Bobby Jindal would agree. As he said this week: "We are not winning this war."
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