Mystery Economic Theater 2010

[ewmayer]

After last Friday`s rather dismal jobs report in the U.S. - take out temporary census hiring, the 200K bogus "fiat jobs" which exist only in the BLS` bizarro-world business-birth/death model and recall that the US needs to create roughly 100K net new jobs per month just to keep up with workforce growth, and the result is in fact a net *loss* of a quarter-million jobs - former Clinton labor secretary Robert Reich now categorically calls for a double-dip recession:

Why We’re Falling Into a Double-Dip Recession

We’re falling into a double-dip recession.The Labor Department reports this morning that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth.In other words, the labor market continues to deteriorate.

My Comment: Given that the original "dip" was only converted into a positive GDP print via a 10-percent-of-GDP tsunami of government deficit spending which accomplished precisely zilch in terms of addressing the real problems with the U.S.economy, I`ve been saying all along that a second dip was inevitable, Reich does have one suggestion which fits in well with my own belief that yes, the government should continue to extend unemployment benefits, but they should require all able-bodied recipients to do some form of quasi-useful work for the money, even if it`s something as humble as cleaning up litter in the local parks and along roadways [the less-able-bodied who are not genuinely incapacitated could do some kind of desk-jockey work] ... Reich`s analogy with FDR`s Depression-era Civilian Conservation Corps is exactly right.:

Put Jobless Young People to Work Cleaning Up BP’s Mess and Order BP to Pay


Cameron Warns Britons of Decades of Austerity

Cameron Warns Britons of "Decades of Austerity": Prime Minister David Cameron said Monday that Britain’s financial situation was “even worse than we thought” and that the country would have to make savage spending cuts to bring its swelling deficit under control.

Stern and grim-faced in a speech in Milton Keynes, just north of London, Mr. Cameron said, “How we deal with these things will affect our economy, our society — indeed our whole way of life.”

“The decisions we make will affect every single person in our country,” he said. “And the effects of those decisions will stay with us for years, perhaps decades, to come.”

Mr. Cameron said that at more than 11 percent, Britain’s budget deficit was the largest ever faced by the country in peacetime. But he warned that the structural deficit was more worrisome. Britain currently owes a total of more than $1.12 trillion , he said, and in five years will owe nearly double that if nothing is done now.

The country already spends more on interest payments on its debt than it does running its schools, he said, adding that how to reduce the deficit and cut down on borrowing was “the most urgent issue facing Britain today.”

Mr. Cameron’s government, a coalition of Conservatives from his party and Liberal Democrats led by Deputy Prime Minister Nick Clegg, faces a difficult political road. With its grip on power untested, it will have to contend with critics on the right and left of both parties to get its spending plans through Parliament.

At the same time, the government risks alienating Britons, particularly workers in the state sector, which Mr. Cameron singled out as an example of a public spending run amok.

My Comment: Telling it like it is ... kudos to Mr. Cameron for not shying away from hard truths.

[R.D. Silverman]

Originally Posted by ewmayer

Reich`s analogy with FDR`s Depression-era Civilian Conservation Corps is exactly right.:

Put Jobless Young People to Work Cleaning Up BP’s Mess and Order BP to Pay


.

A Truly Awesome suggestion. Let BP import workers from all over the
country. BP should also pay for their transportation and local housing.

[R.D. Silverman]

Originally Posted by R.D. Silverman

A Truly Awesome suggestion. Let BP import workers from all over the
country. BP should also pay for their transportation and local housing.

Even if BO is made aware of this kind of suggestion, I doubt whether
he has the cojones to push it through.

[Fusion_power]

Not to steal your thunder RS, but there are scouts all over North Alabama right now hiring temporary labor to clean up the oil spill. They loaded 20 people from this area on a bus Monday and sent them to the gulf coast. The pay is not so hot, barely above minimum wage, but for people who have been out of work for 2 years, it is an opportunity.

DarJones

[ewmayer]

Dilbert creator Scott Adams has apparently been moonlighting as a Wall Street Journal op-ed columnist of late - this hilarious piece contains more than a grain of truth:

Betting on the Bad Guys:Cartoonist Scott Adams's personal road to riches: Put your money on the companies that you hate the most

Instead of investing in companies you hate, as I have suggested, perhaps you could invest in companies you love. I once hired professional money managers at Wells Fargo to do essentially that for me. As part of their service they promised to listen to the dopey-happy hallucinations of professional liars (CEOs) and be gullible on my behalf. The pros at Wells Fargo bought for my portfolio Enron, WorldCom, and a number of other much-loved companies that soon went out of business. For that, I hate Wells Fargo. But I sure wish I had bought stock in Wells Fargo at the time I hated them the most, because Wells Fargo itself performed great. See how this works?

My Comment: His take on the Wall-Street-beloved "science" of technical analysis echoes my own, except I find the entrails to be easier to read than the droppings ... probably a result of the bigger font.

[R.D. Silverman]

Originally Posted by Fusion_power

Not to steal your thunder RS, but there are scouts all over North Alabama right now hiring temporary labor to clean up the oil spill. They loaded 20 people from this area on a bus Monday and sent them to the gulf coast. The pay is not so hot, barely above minimum wage, but for people who have been out of work for 2 years, it is an opportunity.

DarJones

This is a good thing. But thousands of workers are needed, and the effort
(to find and bring in workers) should be (greatly) expanded.

[only_human]

Originally Posted by R.D. Silverman

This is a good thing. But thousands of workers are needed, and the effort
(to find and bring in workers) should be (greatly) expanded.

Now where would the Government have a list of, I don't know, 300,000 temporary workers able bodied enough to go door to door etc. and recently unemployed... nah never mind. It would be too magically sensible.

[ewmayer]

The Blog Prophet of Euro Zone Doom: For years, almost nobody paid attention to the sky-is-falling alarms of Edward Hugh, a gregarious British blogger and self-taught economist who repeatedly predicted that the euro zone could not survive.

Living a largely hand-to-mouth existence here on his part-time teacher’s salary, he sent one post after another into the Internet wilderness. It was the height of policy folly, he warned, to think that aging, penny-pinching Germans could successfully coexist under one currency umbrella with the more youthful, credit-card-wielding Irish, Greeks and Spaniards who shared the euro with them.

But now that the European sovereign debt crisis is rattling world markets, driving the euro lower almost every day and raising doubts about the future of the monetary union, his voluminous musings have become a must-read for an influential and growing global audience, including policy makers in the White House.

My Comment: Full piece is worth a read ... the bit near the end about [not] taking money from Michael Milken cracked me up.


Robert Reich has another good let`s-look-past-the-cheerleading blog piece which makes an interesting claim - that the reason for the Great American Debt Binge of the past few decades was less one of consumers living beyond their means than one of consumers` means [i.e. incomes] not keeping up with the productive capacity of the economy, due to the oligarchy at the top of the corporate and financial food chain pocketing an ever-increasing slice of the economic pie:

Why the Main Street Economy Isn’t Getting Any Better

Today’s most important economic news: U.S. household debt fell for the seventh straight quarter in the first three months of 2010 as Americans continued to respond to the recession’s fallout.

But like all economic news, its significance depends on where you’re standing — whether you’re a typical American or someone at the top.

The common wisdom is that excessive debt-financed spending was one of the causes of the recent recession, so the news that household debt is dropping is being celebrated by business cheerleaders as reason to believe we’re on the mend.

Baloney. The reason so many Americans went into such deep debt was because their wages didn’t keep up. The median wage (adjusted for inflation) dropped between 2001 and 2007, the last so-called economic expansion. So the only way typical Americans could keep spending at the rate necessary to keep themselves — and the economy — going was to borrow, especially against the value of their homes. But that borrowing ended when the housing bubble burst.
...
So now Americans have no choice but to pare back their debt. That’s bad news because consumer spending is 70 percent of the economy. It helps explain why we so few jobs are being created, and why we can’t escape the gravitational pull of the Great Recession without far more government spending.

It’s also a bad omen for the future. The cheerleaders are saying that for too long American consumers lived beyond their means, so the retrenchment in consumer spending is good for the long-term health of the economy. Wrong again. The problem wasn’t that consumers lived beyond their means. It was that their means didn’t keep up with what the growing economy was capable of producing at or near full-employment. A larger and larger share of total income went to people at the top.

My Comment: Note that I don`t give Reich as hard a time as most of the other Keynesians about his call for more government spending because he advocates spending on massive FDR-depression-era-style jobs programs, rather than bailouts [which is where most of the trillions of govt money thrown at the recent crisis have gone] of the same bloodsucking oligarchy which helped create and benefited so disproportionately from the debt bubble.

[garo]

Reich is indeed one of the few commentators looking out for the common man or woman.

[Fusion_power]

The reason so many Americans went into such deep debt was because their wages didn’t keep up.

I disagree with this statement. Here is how I would phrase it. The reason so many Americans went into such deep debt was because their wages didn't keep up with the lifestyle they chose to live. Unfortunately, there is a great deal to be said about what would have happened if that level of deficit spending had not taken place.

We tend to filter our perspective of the economy though a lens of personal experience. My experience has been that I have always lived within my means and intend to continue to do so therefore I don't quite understand the psyche that allows people to borrow in an unsustainable way. I don't want to be in debt at all in any way. My ex-wife is another story. She has been going to college for about 10 years now and along the way has accumulated significant student loans. The grants she got helped but still, she has a debt that exceeds one year of her pay working as an assistant in a lawyers office. For comparison, many in the U.S. have mortgages representing twice their annual salary or more. Our government sets an example in this area... a bad example.

DarJones

[ewmayer]

Originally Posted by Fusion_power

I disagree with this statement. Here is how I would phrase it. The reason so many Americans went into such deep debt was because their wages didn't keep up with the lifestyle they chose to live. Unfortunately, there is a great deal to be said about what would have happened if that level of deficit spending had not taken place.

I didn't mention it yesterday because I didn't want to bias the discussion (out of character for me, I know ;), but I agree about overconsumption having been a largely voluntary thing, albeit one having overwhelming cultural and mass-media "encouragement".

----------------------

By way of followup to Reich`s recent blog pieces about the dismal state of (and prospects for) the U.S. labor market, Barry Ritholtz has an intyeresting set of charts today.


Chairman Of British Insurance Company RSA, John Napier, Attacks Obama Over BP Handling, Accuses President Of Hypocrisy

Sky News reports that it has obtained an "astonishing letter" from RSA Chairman and popular social figure, John Napier, in which the Brit goes all out on the US president. "Please forgive this open letter but your comments towards BP and its CEO as reported here are coming across as somewhat prejudicial and personal. There is no doubt that BP, as a UK PLC, is totally committed to do everything possible to contain the oil leak and meet all its obligations in the USA. There is a sense here that these attacks are being made because BP is British. If you compare the damage inflicted on the economies of the western world by polluted securities from the irresponsible, unchecked greed and avarice of leading USA international banks, there has not been the same personalised response in or from countries beyond the US. Perhaps a case of double standards?"

My Comment: Unfortunately, as John not-to-be-confused-with-the-logarithm-dude Napier surely realizes, polluted securities don`t make for as newsfeed-friendly videos as gushing underwater geysers of oil.

The Wikipedia page on RSA Insurance has this little interesting historical summary ... Was there any part of the British financial industry Rothschild et fils didn`t hasve their tentacles in? [They did go on to use a bit of the resulting amassed wealth to mke some halfway-decent-albeit-overpriced wines, though ;)]

The company was formed following the merger of Sun Alliance and Royal Insurance in 1996.[4]
Royal Insurance war memorial, now relocated to the National Memorial Arboretum

Sun Alliance was itself a product of the merger in 1959 of The Sun, which was founded in 1710, with The Alliance, which was founded in 1824 by Nathan Mayer Rothschild and Moses Montefiore.[5] Sun Alliance went on to acquire London Insurance in 1965 (becoming Sun Alliance & London)[5] and Phoenix Assurance in 1984.[6]

Royal Insurance was founded in 1845.[5] It acquired Liverpool & London and Globe Insurance Company in 1919.[5]

The company formally changed its name from Royal & Sun Alliance Insurance Group plc to RSA Insurance Group on 20 May 2008.[7]

My Comment: "The company formally changed its name to R-not-to-be-confused-with-the-data-security-dudes-SA in early 2011, after repeatedly being the victim of hacking attempts and denial-of-service attacks".


Japan's New PM Warns Country At "Risk Of Collapse" Under Massive Debt Load

A week ago Hungary had the unfortunate mishap of telling the truth when it compared itself to Greece, resulting in a massive selloff of the Forint and leading to fresh lows for the euro. Today, it is Japan which is using the very same strategy in an attempt to devalue its own currency. So far it's working. The BBC reports that Naoto Kan has been a little truthier than the G-20 plenary sessions generally allow. We now look for the PM's reign of truth to be even shorter than that of his thousands of predecessors during the past couple of years: "Naoto Kan, in his first major speech since taking over, said Japan needed a financial restructuring to avert a Greece-style crisis."Our country's outstanding public debt is huge... our public finances have become the worst of any developed country," he said."

My Comment: Here is a NY Times articxle on the same story.