Bob Herbert's outstanding Op Ed in Tuesday's NY Times, "
Our Crumbling Foundations," scratches the surface of a very bleak socio-economic scenario for our country, at least for the next few years, if not for decades. Taken in context with other news from the past 24 hours, collectively, it paints a devastating picture. (Unfortunately, this is not melodramatic; it's quite factual, as you'll see, below.)
Our Crumbling Foundation
By BOB HERBERT
Published: May 25, 2009 In Print: May 26, 2009
I'm not sure that the catastrophic job losses of this recession, the worst since the Great Depression, have really sunk into the public's consciousness. And that would mean that the ground has not been prepared for the kind of high-powered remedies needed to get the economy back into some kind of reasonable shape.
The Times ran a front-page story on Monday that said job losses are forcing ever larger numbers of homeowners who once had solid credit to fall seriously behind on their mortgages, thus amplifying the foreclosure crisis.
And now the Center for Labor Market Studies has compiled data showing that the recession's effects have been "disastrous beyond belief" for some groups, including young men, men without college degrees and black men. These job losses among young workers have ominous long-term implications for American families and the economy as a whole.
At the same time, there was a development in Congress last week that should have been seen as significant but could not elbow its way into the media precincts obsessed with Rush Limbaugh, Dick Cheney and swine flu.
Herbert continues on to tell us of Connecticut congresswoman Rosa DeLauro's introduction of a bill in Congress to establish a national infrastructure development bank.
It's an innovative proposal to bring the private sector together with the public sector to fund public works efforts, among other programs.
He asks us if we're serious remaining a great nation; and then he answers: "We don't act like it."
He points out that the U.S. is the "only industrialized country in which young people are less likely than their parents to graduate from high school."
Herbert notes that Ms. DeLauro's bill has extensive support, from the US Chamber of Commerce to the SEIU.
He then cites a memo he received from Andrew Sum, the director of The Center for Labor Market Studies at Northeastern University. In it, Sum notes:
"Since unemployment cannot begin to fall until payroll growth hits about one percent -- and payroll growth will not hit one percent until [gross domestic product] growth hits at least 2.5 percent to 3 percent -- we may not see any substantive payroll growth until late 2010 or 2011, and unemployment could rise until that time."
Herbert also reminds us, we've lost 5.7 million jobs in this recession, since December 2007.
I agree with Bob Herbert, unemployment trumps just about every other statistic when it comes to our economy. In fact, I'd say it downright frosts my butt everytime I hear a "pundit" tell us, "'Well, unemployment will continue to rise...for the foreseeable future...but we're heading into a recovery."
Let me explain why this is so upsetting to me--and why it should be so upsetting to you--tonight, in particular.
First, read the blockquote from Andrew Sum--about two or three paragraphs up--again. As Sum notes, Gross Domestic Product ("G.D.P.") growth needs to hit 2.5%-3.0% before we see payroll growth of 1%, and "...we may not see any substantive payroll growth until late 2010 or 2011, and unemployment could rise until that time."
On May 4th, I posted a diary entitled, We've Got Your "New Normal," Right Here! In it, I quoted a couple of stories that explained how, as a country, we're being told that we should "expect" ongoing, "normal" unemployment in the 7%-8% range as being par for the course (see: "Great Recession Will Redefine Full Employment As Jobs Vanish"), and property values may take a generation to return to levels they were at just 18-24 months ago (see: "U.S. Home Prices May Be Lost For A Generation").
But, also this evening, we're being told of a "New Normal" by PIMCO, one of the largest (if not the best known) financial services firms in this country, and (without checking my facts) the firm that I believe trades more bonds than almost anyone else on the planet, in: "New Normal of 2% GDP Growth Coincides With Bullish Biggs."
In the article (it's a brutally stunning article, btw) blockquote, below, PIMCO's commentary is further amplified by one of the most respected pundits in the entire financial services sector, former Merrill Lynch guru, David Rosenberg.
New Normal of 2% GDP Growth Coincides With Bullish Biggs
By Matthew Benjamin
May 26 (Bloomberg) -- Americans may have to get used to unemployment greater than 8 percent for the first time since 1983 and an economy that won't grow much beyond 2 percent as a consequence of the lost confidence in consumer credit that shattered financial markets.
By this time next year, "the market will realize that potential growth for the U.S. is no longer 3 percent, but is 2 percent or under," Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an interview with Bloomberg Radio.
"We are transitioning to what we call at Pimco a new normal," El-Erian said. Pimco, in Newport Beach, California, is the biggest bond fund manager with about $756 billion in assets.
The U.S. financial crisis and recession have produced lasting shifts in consumer spending and savings reminiscent of the 1950s that may crimp profits and productivity, said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto and former chief North American economist at Bank of America Corp.
--SNIP--
The last time U.S. gross domestic product grew at an annual rate of under 2 percent over a decade was the 1930s, when it expanded at an average 1.3 percent. In the 30 years before the recession that began in December 2007, the average was 2.9 percent. Over the past 15 years, it was 3 percent.
In case you missed it, the "New Normal" means we're not going to hit a 2.5%-3.0% growth rate in our GDP anytime soon. That means no payroll growth of 1%. That means unemployment could very well rise through 2011.
(Think about the implications of this reality for the 2010 mid-term elections. Then again, think about the implications of this reality from the context of what Bob Herbert is telling us, above, at the beginning of this diary.)
But, if you want to attribute all of this to just another typical "The-Sky-Is-Falling" rant from yours truly, then consider what's being stated in another piece running in today's NY Times: "Localities Want U.S. to Support Muni Bonds."
Localities Want U.S. to Support Muni Bonds
By LESLIE WAYNE
Published: May 25, 2009 In Print: May 26, 2009
..."But no one was pursuing it (reference is to bailout money for the states) for months. Now, there has been a re-engagement in Washington about using the TARP money."
--SNIP--
In a speech last week at the National Press Club, Treasury Secretary Timothy F. Geithner said that the Treasury is "looking at ways to make sure these markets are working so that states and munis can meet their needs." But, according to a Bloomberg News account of the speech, Mr. Geithner cautioned: "I wouldn't use the word bailout."
With bailout fatigue setting in, it is unclear how successful the municipalities will be. At a Congressional hearing last Thursday called by Mr. Frank, federal officials remained cool to the idea of tapping into the relief fund, while still expressing concern over a credit squeeze facing many municipal borrowers.
--SNIP--
On the same day, Mr. Geithner told a House Appropriations subcommittee that the relief money cannot be used to resolve local government budget crises, since that money has been reserved for financial companies.
He said, however, that the Treasury would work with Congress to help states like California, which have been struggling to arrange backing for municipal bonds and short-term debt. Mr. Geithner did not provide any specifics.
--SNIP--
"It's been said that some banks are too big to fail," Ms. Eshoo (reference is to California Democratic Congresswoman Anna Eshoo) said in testimony at a May 5 hearing held by Mr. Frank on the issue. "It can also be that counties, school districts and cities are too small to be noticed."
Meanwhile, while all of this is playing out, word is coming down from the US Department of Labor's Bureau of Labor Statistics that "Mass Layoff Events" at major companies are now heading back upward, significantly. See these two graphs: BLS Mass Layoff Event Statistics, and BLS Initial Unemployment.
Concerns regarding dropping real estate values are being heightened, not lowered: "Housing Hitting Bottom by June Means Fewest Starts Since 1945."
The Chinese, among others, are raising the volume on all of this spending, once again, tonight, too: China warns Federal Reserve over 'printing money.'
"US bonds sale faces market resistance."
US bonds sale faces market resistance
By Ambrose Evans-Pritchard
Last Updated: 9:19PM BST 24 May 2009
...The Obama administration needs to raise $2 trillion this year to cover the fiscal stimulus plan and the bank bail-outs. It has to fund $900bn by September.
"The dynamic is just getting overwhelming," said RBC Capital Markets.
--SNIP--
"There isn't enough capital in the world to buy the new sovereign issuance required to finance the giant fiscal deficits that countries are so intent on running. There is simply not enough money out there," he said. "If the US loses control of long rates, they will not be able to arrest asset price declines. If they print too much money, they will debase the dollar and cause stagflation.
"The bottom line is that there is no global 'get out of jail free' card for anyone", he said.
--SNIP--
Suspicions that Washington is trying to engineer a stealth default by letting the dollar slide could cause patience to snap, even if Asian exporters would themselves suffer if they harmed their chief market.
The dollar has fallen 11pc against a basket of currencies since early March. Mutterings of a "dollar crisis" may now constrain the Fed as it tries to shore up the bond market. It has so far bought $116bn of Treasuries as part of its "credit easing" blitz, out of a $300bn pool.
When the Fed first said it was going to buy Treasuries in March the 10-year yield to dropped instantly from 3pc to near 2.5pc, but shock effect has since worn off. Any effort to step up purchases might backfire in the current jittery mood.
It is becoming clearer by the day that things are going to continue to get worse for Main Street for quite some time. As Wall Street rides along a government-funded, multi-trillion-dollar gravy train to "profitability," legitimate concerns are now materializing from multiple audiences with regard to the basic well-being of many of us here on Main Street.
IMHO, as a country, tonight's headlines remind us that we have reached a point of no return as far as our economy's concerned, at least for the next few years. However, it is a tipping point that may be greatly ameliorated by substantially more economic stimuli for Main Street right now.