There are many inconvenient truths about the current state of the U.S. economy that many Democrats and Obama supporters view as taboo.
Sometimes, it appears to this diarist that the group-think that rules the day dictates that one must conflate criticism of the administration's current economic policies with a lack of support for our President. Frequently, at least from my vantage point, and speaking only for myself, nothing could be farther from my truth.
This group think conveys the sentiment that, as if by some miracle, as long as we unanimously agree that the country's on the appropriate path, as far as the economy's concerned, or at least if we would cheerlead current efforts, as is, things would work out.
As long as you ignore many realities, not the least of which being the
calendar, this all makes sense. But, this isn't the way things work in the real world.
Here are seven more inconvenient realities about the current state of our economy:
1.) As Dylan Ratigan just reminded us, Tim Geithner isn't a Democrat. Neither is Ben Bernanke. They both played significant roles in terms of navigating this country into the current economic mess we're in today. (More about this in a moment.) Larry Summers, the President's chief economic advisor, and the third member of the current administration's economic triumvirate of retreads, may have done as much as anyone--if not more--to undermine this nation's economy over the past decade when he navigated the Gramm-Leach-Bliley Act through to passage in 1999 and 2000, which effectively repealed the Glass-Steagall Act, thus turning the clock back on Wall Street regulatory reform, perhaps moreso than any other single piece of legislation in this country in the past two or three generations.
Collectively, these guys want us to do little more than party like it's 1999 (more about this in a moment, too). As you'll see if you checkout this guest post at Naked Capitalism from Sunday, economist John Galbraith: "Guest Post: Galbraith Says Administration's Sole Goal is to Restore System of 5 or 10 Years Ago, But Confidence Won't be Restored Unless Fraud Which Caused the Crash is Investigated."
Galbraith Says Administration's Sole Goal is to Restore System of 5 or 10 Years Ago, But Confidence Won't be Restored Unless Fraud Which Caused the Crash is Investigated
Sunday, November 1, 2009
By George Washington of Washington's Blog.
Naked Capitalism
As I have been on record about this repeatedly, the largest U.S. banks have repeatedly gone bankrupt due to wild speculation which was blessed by the Fed, and then the government covered up their bankruptcy.
--SNIP--
But prominent economist James Galbraith recently told Bill Moyers:
JAMES GALBRAITH: The overwhelming emphasis, in the administration's program, I think, has been to return things to a condition of normalcy, to use a 1920s word, that prevailed five and ten years ago. That is to say, we're back to a world in which Wall Street and the major banks are leading, and setting the path-
BILL MOYERS: To restore what was.
JAMES GALBRAITH: To restore what was-
BILL MOYERS: Instead of reform what is.
JAMES GALBRAITH: And I don't think what was can be restored.
BILL MOYERS: And you say that's the objective of the administration's policies? Geithner, Bernanke, Summers, the President himself?
JAMES GALBRAITH: To the extent that there's a defined objective, that's it, yes. I think in the immediate day-to-day work, they've largely been preoccupied with keeping the existing system from collapsing. And the government is powerful. It has substantially succeeded at that, but you really have to think about, do you want to have a financial sector dominated by a small number of very large institutions, very difficult to manage, practically impossible to regulate, and ruled by, essentially, the same people and the same culture that caused the crisis in the first place.
In other words--as I have repeatedly written--the administration's talk of reform is just talk...the boys are just trying to restore the status quo.
2.) Historically, practically and statistically speaking, if the President wanted to successfully navigate his agenda through the legislative branch of our government, the best time for him to have accomplished that was this year.
(Do you think the White House doesn't know this?)
History, if nothing else, has shown us that the incumbent President's party usually takes a drubbing in the mid-term election cycle. For a taste of what we Democrats are in for in 2010, I'm sure tomorrow's election results will speak more to this reality than anything I could say here.
(For the record, even though I'm not a resident of New Jersey, it's where I was born and raised; most of my family's still there; and I've contributed to Corzine's campaign. As a matter of disclosure, my older brother was part of the media crew that produced virtually all of his ads this cycle, as well. All that being said, the incumbent's in a real horse race; his re-election effort's been an uphill struggle, at best. Still, he might pull it off. As far as Virginia's concerned, excuses about lackluster candidates aside, we're toast.)
And, "banking" on the ongoing implosion of a devolving opposition party, again, contrary to popular belief, really isn't much of a mid-term strategy either. Frankly, as far as I've observed it, the Republican Party in this country has turned lying into both a higher science and greater art form than anything I've ever observed in the economics arena.
3.) Despite the totally well-intentioned-but-misdirected and wishful thinking of some economic analysis to the contrary, the stone cold truth is that unemployment is expected to rise through at least a good portion of 2010. Never mind the politically irrelevant and premature calls of a technical "recovery," which won't even materialize (if at all) into a formal pronouncement of same by the National Bureau of Economic Research (NBER) in 2010 or 2011. Never mind the pseudo-science of economics--which is really as much of an art as it is a science--the political realities of the economy are that: a.) when it comes to "political economics," unemployment is the leading indicatorm at least for Democrats; and, b.) people vote their pocketbooks, and there are more people unemployed and/or underemployed (I'm talking about the US Labor Department's Bureau of Labor Statistics' [BLS'] U.6 Index, not the more widely-hyped U.3 Index) and living in poverty in this country than at any time since the government started measuring these statistics with any semblance of accuracy. These numbers will, inevitably (much more likely than not), formally increase even more, on Friday, when the October Employment Situation Report is issued by the BLS, too.
Over the weekend, Columbia University economics professor and Nobel Prize-winning economist Joseph Stiglitz had something to say about all of this: "Stiglitz Says U.S. Recession `Nowhere Near' End After GDP Jump."
Stiglitz Says U.S. Recession `Nowhere Near' End After GDP Jump
By Bob Willis
Oct. 31 (Bloomberg) -- Nobel Prize-winning economist Joseph E. Stiglitz said the U.S. recession is "nowhere near" an end and the economy's third-quarter growth rate of 3.5 percent, the first expansion in more than a year, won't carry into 2010.
While this week's figures on gross domestic product are "very good," the numbers would be "miserable" without stimulus measures enacted by the Obama administration, Stiglitz said today at a forum in Shanghai. He urged the U.S. and other countries not to pull back on efforts to shore up economies.
"When we look at if workers can get jobs, if they can work full time, if businesses are able to sell goods they produce, in those terms, we are nowhere near the end of recession" in the U.S., said Stiglitz, 66, the former chief economist at the World Bank. The U.S. job market is still "in very bad shape."
Notice, there is no use of some lesser economists' favorite qualifying catch words, such as : "may be," "probably," "could be," or, "potentially," as far as Stiglitz' statements are concerned.
As many have told us as they've jumped the gun over the past few weeks, the "recession has ended!" A veritable "mission accomplished," if ever there was one, with the only thing missing from that scene being an aircraft carrier. But, the truth is a significant downturn in just one or two leading/coincident economic indicators--something many economists are also forecasting in coming months--could delay the NBER from making the call using the hindsight of any findings that may cause that group to reach any conclusive metric result, regarding the period we're in right now, sometime over the next 12-18 months.
The Bloomberg article notes:
While most economists estimate the recession has ended, the National Bureau of Economic Research is responsible for determining when contractions begin and end. The Cambridge, Massachusetts organization usually makes its recession pronouncement as long as a year and a half after the fact. The group defines a recession as a "significant" decrease in activity over a sustained period of time. The declines it measures would be visible in gross domestic product, payrolls, production, sales and incomes.
--SNIP--
"The unemployment rate is likely to go up," Stiglitz told reporters two days earlier in Beijing. "Growth won't be fast enough to bring down the unemployment rate."
Stiglitz, a professor of economics at Columbia University in New York, said the growth rate of 3 percent to 3.5 percent needed to create enough jobs for new U.S. labor market entrants was unlikely to be sustained into next year.
The article makes a point to tell us that the unemployment rate could rise to 10% as early as the first quarter of next year. Many others are saying this could happen as early as this Friday.
Then there are these two items from another Nobel Prize-winning economist, Paul Krugman, in Sunday's and Monday's New York Times blog and op-ed page, respectively, referencing last week's trumpeting of a totally "goosed" (via the Cash for Clunkers program and the First-Time-Buyer's Mortgage Tax Credit) Gross Domestic Product (GDP) upswing: "Growth and jobs: the lesson of the Clinton years."
Growth and jobs: the lesson of the Clinton years
November 1, 2009, 11:08 am
Published In Print: November 2, 2009
Growth and jobs: the lesson of the Clinton years
Just a quick further note on my growth and jobs post. To get a sense of what 3.5% growth does and doesn't mean, we can look at the Clinton years, viewed as a whole. (I'm using end-1992 to end-2000, but it doesn't really matter if you vary the start and end dates a bit).
Over that 8-year stretch, real GDP grew at an average annual rate of 3.7%. (Did you know that? My sense is that very few people realize just how good the Clinton-era growth record was). Over the same period, the unemployment rate fell from 7.4% to 3.9%, a 3.5 percentage point decline.
So if we take 3rd quarter growth to be more or less equivalent to average Clinton-era growth, even after 8 years of growth at that rate we'd only expect unemployment to have fallen from the current 9.8% to a still uncomfortably high 6.3%. It would take us around a decade to reach more or less full employment...
--SNIP--
We need much faster growth.
Parallelling Krugman's first thoughts posted on his blog over the weekend, the above comment segued quite effectively into his op-ed piece in Monday's Times: "Too Little of a Good Thing."
Too Little of a Good Thing
By PAUL KRUGMAN
New York Times Op-Ed
Online: November 1, 2009 Published In Print: November 2, 2009
The good news is that the American Recovery and Reinvestment Act, a/k/a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would. But that's also the bad news -- because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems. Unless something changes drastically, we're looking at many years of high unemployment.
And the really bad news is that "centrists" in Congress aren't able or willing to draw the obvious conclusion, which is that we need a lot more federal spending on job creation.
Krugman notes that the stimulus is "not doing enough," and, at this rate it could take up to a decade for the economy to return to full employment. But, he notes, "...... it's far from clear that growth will continue at this rate. "
He also tells us that the peak impact of the stimulus "on the growth of the G.D.P. (as opposed to its level) is already behind us."
So the government needs to do much more. Unfortunately, the political prospects for further action aren't good.
What I keep hearing from Washington is one of two arguments: either (1) the stimulus has failed, unemployment is still rising, so we shouldn't do any more, or (2) the stimulus has succeeded, G.D.P. is growing, so we don't need to do any more. The truth, which is that the stimulus was too little of a good thing -- that it helped, but it wasn't big enough -- seems to be too complicated for an era of sound-bite politics.
He then makes the basic statement that we cannot afford not to do more.
Deficit hawks like to complain that today's young people will end up having to pay higher taxes to service the debt we're running up right now. But anyone who really cared about the prospects of young Americans would be pushing for much more job creation, since the burden of high unemployment falls disproportionately on young workers -- and those who enter the work force in years of high unemployment suffer permanent career damage, never catching up with those who graduated in better times.
Even the claim that we'll have to pay for stimulus spending now with higher taxes later is mostly wrong. Spending more on recovery will lead to a stronger economy, both now and in the future -- and a stronger economy means more government revenue. Stimulus spending probably doesn't pay for itself, but its true cost, even in a narrow fiscal sense, is only a fraction of the headline number...
One other thing. We're told by some, as if it was fact as they parrot government and MSM commentary, that manufacturing's making a comeback. Really? I think that might depend upon your definition of the term. The reality is that Friday's BLS' October Employment Situation Report will almost certainly show major job losses in the industrial manufacturing sector. How is that happening? Robert Waldman had an interesting post over at the Angry Bear on all of this while simultaneously parsing Kurt Vonnegut, right here: "Vague Thoughts on The Theory of the Firm, the Business Cycle and Kurt Vonnegut."
4.) We are told by the powers that be that they no longer hold any legal sway over those too-big-to-fail firms that have "repaid" their TARP money to our government.
So, who are those deficit hawks again? I mean, they weren't exactly pitching a fit when we gave away over $12 trillion (not just the $700 billion TARP, that was a mere fraction of the actual funds, spent, committed and otherwise reserved to backstop those Wall Street pigs). Well, they're the same people that tell us we can't tell most of these banks what to do now because we no longer hold any leverage over them.
This is, simply, not true.
The comment that Goldman paid back $10 billion in government bailouts doesn't even address 1/6th of the funds and backstops that they've actually received from us taxpayers. But, we don't hear much about that other $53 billion they received from us, now do we? The same holds true--to greater and lesser degrees--all the way on down the line, starting with names of the massive insolvent banks, such as Citigroup and Bank of America, and on, and on, and on...as far as $14 trillion-plus can "see."
Now, as we approach our nation's deficit ceiling, with virtually all of the money that we could legally spend being gone, new budget hawks are emerging (SEE: "Geithner Laments the Deficit, but Demurs on Tax Increases," and "Obama Says Economy Pulled from `Brink,' U.S. Must Address Debt.")
That's right, we're broke. We've given approximately 83% of ...everything... we had--and will have--to Wall Street; 17% of ...everything... else has gone to Main Street. (See the numbers via a link to Naomi Prins' analysis, a few paragraphs below. Take your time with them, too...they're quite stunning.)
Five for them. One for us. One, two, three, four, five more for them....and one...for us...until now...it's all gone.
Read all about it, right here, from this past Friday, via Alternet's (Joshua Holland's) interview of former Goldman Sachs Managing Director Naomi Prins: "Former Wall Street Player Reveals the Inside World Behind Shady Bailouts to Bankers."
Former Wall Street Player Reveals the Inside World Behind Shady Bailouts to Bankers
JH: Sticking on that line, you write in the book that "The finance community's theory is Darwinian: Little people who take bad risks deserve the consequences. Companies that take bad risks are a welcome addition to the fallen-competitor list." But not all those who took bad risks did fall -- in fact some of the financial firms that are raking in healthy profits and whose execs are cashing out huge bonuses took some risk as well. Can you tell us who ended up getting all those billions in bailout money?
NP: At one point, a total of $19.3 trillion comprised of $17.5 trillion deployed in some capacity for subsidizing or bailing out banks (including $3.7 trillion to back money market funds, which has now been taken off the table) compared to $1.8 trillion for citizen-related assistance, including some homeowner initiatives. I keep track of the changes to these figures on a monthly basis on my Web site: http://www.nomiprins.com/... (also on that page are regularly updated compensation figures for all the banksters). Today, the total bailout figure is (still) over $14 trillion, which is an immense private-sector subsidy by any historical standard.
Of the top three main recipients of the bailout: Bank of America still owes the government $63.1 billion, AIG sits on top of a $181.8 billion pile of federal help, and Citigroup has a $368.7 billion public cushion.
Other recipients of government aid include Goldman Sachs, who is on track to pay out $22.1 billion in total compensation compared to $10.9 billion in 2008 and $20.2 billion in 2007. Additionally, JPM Chase is on track to pay $29.1 billion, nearly what it would have paid out in compensation in the year before the crisis, had it owned Bear Stearns and Washington Mutual then. Goldman Sachs still floats on $54 billion of federal support, and JPM Chase $73 billion - even after repaying their TARP obligations. (Remember, the $700 billion TARP fund is but a fraction of the entire bailout and subsidization of the banking industry, despite Goldman, JPM Chase and the government wanting us to believe otherwise.)
Again, here are the numbers, quite brilliantly delivered up by Ms. Prins: CLICK THIS LINK. (Please take your time with these graphics files. They're quite enlightening, to say the least!
But...but....but...we are told by the powers that be that they no longer hold any sway over those too-big-to-fail firms that have repaid their TARP money to our government.
Why? Well the only logical response is that it's due to the fact that they've "decided" that is the truth. Except when it's not.
5.) So, what exactly is being done to make sure this doesn't happen again? Over the next few months or years? Well....ummmm....practically nothing! (See Stiglitz' comments above.) I've blogged about this extensively over the past few months. Our congresswhores have, for all intents and purposes, gutted virtually all meaningful regulatory reform as it relates to Wall Street and the future well-being of Main Street. My two most recent posts about these travesties are right here:
"Hell: A 'Job-Loss Recovery' w/Little Regulatory Reform"
"Main St., Regulatory Reform And 'The Banks Are NOT Alright' " (10/19/09)
Then there was this diary over the weekend by Kossack Imperial concerning a story buried late on Friday in the MSM : "Audit The Fed Is Dead."
Be patient?
6.) So...we are told to be patient as far as change we can believe in is concerned, but those two words are from individuals that can afford the luxury of waiting.
You see, given the harsh realities of scores of millions of Americans today, patience IS a luxury that many can no longer afford. These folks are too busy trying to hustle their next meal and find a dry and warm place to sleep.
We hear talk of how our federal government saved us from a depression; but, in fact, all they did was temporarily juice/goose the economy with a woefully inadequate stimulus, and then...a moment later, these same folks talk about our current situation as if it's just another run-of-the-mill recession. So, which is it? We made a catastrophic situation less so with a $700 million-plus stimulus package, the effects of which, it's now widely acknowledged as being the conventional wisdom, are already waning as we head into the holiday season. Barring the implementation of a full-blown, second stimulus, it's all downhill from here.
It's so damn easy and politically expedient to not consider the plight of these suffering folks now. That point of view is neatly summed up in two words: "Be patient."
7.) A Second Stimulus? There are all sorts of half-baked stories floating around the MSM and the blogosphere this evening concerning a so-called second stimulus that may or may not be proposed by the White House, shortly.
Tonight, this non-story is mostly due to Commerce Secretary Gary Locke, more or less, screwing the proverbial spin pooch on a supposed story of a second stimulus proposal coming forth over the next few days from the White House, as the cabinet secretary started referencing it in a Bloomberg TV interview, late today. So, as a result of Locke's faux pas, stories such as this, "Locke `Imprecise' in Comments on Stimulus, His Spokesman Says,"
are now circulating around the blogosphere over the past couple of hours. Earlier reports, about an hour ago, such as this piece over at Calculated Risk, "Official: Obama Considering Next Stimulus Package," clearly jumped the gun. The reality, IMHO, is more along the lines of this piece from Time Magazine, from around 11 days ago: "Is the White House Planning A Second Stimulus?"
Is the White House Planning A Second Stimulus?
October 21, 2009
Time Magazine
White House senior adviser Valerie Jarrett was adamant on Sunday, when asked if President Obama was considering a so-called second stimulus to deal with the rising unemployment rate. "I think it's too soon. It's premature to say, 'Is a second stimulus needed?' " she told David Gregory, the host of NBC's Meet the Press.
Stimulus Summit
But a moment later she said the White House was already looking at tax credits and other measures to further stimulate the economy. "There are a range of suggestions that are being considered right now by his economic team, and we'll see what we come forward with," she added.
On its face, the two comments sounded like a contradiction. But at the White House, there is no confusion. More stimulus is coming, but it just won't be called stimulus. Economic advisers, in concert with senior Democrats in the House and Senate, are planning additional piecemeal benefit extensions, tax breaks and other spending that could eventually add up to as much as $100 billion, say some outside experts. "The fact is that this is a word game. It isn't a discussion of the 'second stimulus,' " says Jennifer Psaki, a White House spokeswoman. "This needs to be an ongoing discussion between the President and his economic team about new ideas and ways to get people back to work."
Prominent economists like Mark Zandi at Economy.com, who has counseled the White House and also worked with the presidential campaign of John McCain, say there is little doubt what is going on. "Yes, I think it's a form of stimulus," said Zandi, who has always favored a second stimulus. "This is what I always thought would happen, policymakers would take it one step at a time."
In other words, the new stimulus efforts, which are still under discussion, are unlikely to be packaged into a single bill, which would be politically unpopular. An August Gallup poll, for instance, found that 65% of Americans opposed a "second stimulus" and 51% thought that the Federal Government "should spend less" than it is currently spending on stimulus. And that opposition is likely to grow after the announcement on Oct. 16 that the federal deficit for the fiscal year that just ended hit $1.4 trillion, which, at almost 10% of the total economy, represents the largest share since the end of World War II...
A second stimulus? "Oh, my gosh! We can't do a press conference about that!"
Exactly who would be upset about this? The minority party? The oligarchy? Please answer my question if you dare.
The truth is, with U.3 Index unemployment breaking into double-digits, and with U.6 unemployment closing in on 18% as early as this Friday, a second stimulus is desperately needed, right now. Just be patient.
For scores of millions--if not hundreds of millions of Americans depending upon the topic--we're way beyond that point. Hell's their horse in this race, and it left the barn a long time ago.
Apart from the overarching issue of the economy, we could look at health care, global warming, environmental destruction, ongoing military incursions in Iraq and Afghanistan, and a myriad of other topics and spell out a list of realities--neatly packaged and dumbed-down into soundbites by some of our more populist politicians currently in vogue--realities that many still deny exist (even in this community), and just further spur on the political clusterf**k. Meanwhile, people are dying. For them, there is no patience. Their time is up.