Macro Economics

Just in time for Christmas:

The Economy - September 2011

California Employment at Record Low - Christopher Palmer

The percentage of working-age Californians with jobs has fallen to a record low, and employment may not return to pre-recession levels until the second half of the decade, according to a research group.

Just 55.4 percent of working-age Californians, defined as those 16 or older, had a job in July, down from 56.2 percent a year earlier and the lowest level since 1976, the Sacramento- based California Budget Project said in a report released late yesterday.

California’s 12 percent unemployment rate in July, the nation’s second-highest after Nevada, compared with 9.1 percent nationwide. The most-populous state lost 1.4 million jobs during the recession that began three years ago, and has gained back only 226,800, or about 17 percent, according to the report.

Senior IMF Economist Expects Hard Default For Greece. Soon. - ForexCrunch

The Greek government says any more steps will only deepen the recession and make things even worse. The debt trap is quite clear at this stage.

These complications triggered not only the aforementioned expectations for a hard default, according to WSJ:

“I expect a hard default definitely before March, maybe this year, and it could come with this program review,” said a senior IMF economist who is keeping close tabs on the situation. “The chances for a second program are slim.”

A hard default means a messy one. A default that is not controlled could have a serious domino effect: it can push banks to bankruptcy (such as French banks, that are highly leveraged), and it can send bond yields of other countries much higher. A hard default for Greece also seriously endangers .

...

All in all, the bailout mechanism secures only one thing: a crisis on every inspection. Last time, it ended with a reshuffle of the Greek governments, fresh austerity measures and violent protests on the streets of Athens.

Zero Jobs 101 — the Psychology of Alienating Employers - Victor Davis Hanson

Zero jobs last month — a net change of zero job growth? It was just announced that last month’s unemployment is still above 9% — despite the nearly five trillion dollars in Keynesian pump-priming, the near zero interest rates, the expanded unemployment and food stamp support, and the government takeovers and subsidies of businesses. There is a scary sort of deer-in-the-headlights look about Obama and Biden that is quite disturbing, as if they are thinking, “This was not supposed to happened to us. Geithner, Goolsbee, Orszag, Romer, Summers assured us that all this borrowing would turn things around — but they are all gone or leaving, so now we are alone? What to do?

...


Here is the lament I heard: the near $5 trillion in borrowing in just three years, the radical growth in the size of the federal government and its regulatory zeal, ObamaCare, the Boeing plant closure threat, the green jobs sweet-heart deals and Van Jones-like “Millions of Green Jobs” nonsense, the vast expansion in food stamps and unemployment pay-outs, the reversal of the Chrysler creditors, politically driven interference in the car industry, the failed efforts to get card check and cap and trade, the moratoria on new drilling in the Gulf, the general antipathy to new fossil fuel exploitation coupled with new finds of vast new reserves, the new financial regulations, an aggressive EPA oblivious to the effects of its advocacy on jobs, the threatened close-down of energy plants, the support for idling thousands of acres of irrigated farmland due to environmental regulations, the constant talk of higher taxes, the needlessly provocative rhetoric of “fat cat”, “millionaires and billionaires,” “corporate jet owners,” etc. juxtaposed, in hypocritical fashion, to Martha’s Vineyard, Costa del Sol, and Vail First Family getaways — all of these isolated strains finally are becoming a harrowing opera to business people.

Despite enormous opportunity for many cash-rich firms to take advantage of the down cycles (low interest, plentiful potential employees, discounted prices, etc.), they are taking a pass, almost as if to collectively sigh, “This bunch doesn’t like me much and I’m going to hunker down, hoard my cash, and sit out the next year and a half until they are gone.” And the administration’s efforts to counteract these symbols and impressions by courting a high-profile, hyper-capitalist Warren Buffett, or a GE CEO Jeffrey Immelt have proven even more ironic: the former calls for higher taxes that his firms seek to avoid, or targets his post-mortem wealth to (more efficient?) private foundations that rob the Treasury of billions in lost inheritance taxes, or knows higher taxes won’t much matter to his tens of billions in net worth; the latter’s firm paid no 2010 U.S. income taxes on many of its profits and outsourced jobs overseas.

The Economy - August 2011 (part 2)

Labor Force Participation Rate Drops To 63.9%, Lowest Since January 1984 - Tyler Durden

... the labor force participation rate, and the reason why the general unemployment rate declined to 9.1%, just dropped to 63.9%, the lowest in 16 [ed. 26] years, or matches the participation rate from January 1984.

Capitol Journal: U.S. budget ax hangs over California - George Skelton

The dirty little secret is that California's current state budget is not $85.9 billion, the size of the much-debated, deficit-plagued general fund. You've got to add in the special funds ($34.2 billion) — much of them fed by fees dedicated for specific purposes — plus bond money ($9.4 billion). That totals $129.5 billion, but it still ignores federal dollars.

The real state budget includes an additional $79.2 billion in federal largesse, representing 38% of total state spending. This brings the grand total to $208.7 billion.

So the state of California is getting a nearly $209-billion spending program while putting up less than $130 billion itself.

Employment Outlook

It isn't a good time to be looking for that first job:

The Economy - October 2010

If You Want To Understand What Makes This Recession Continue - Clayton Cramer

Ask the authors of Federalist 62. First, the problem of the health care reform bill that came to 2700 pages:

It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed?

The following paragraph explains why people like George Soros always back Democrats:

Another effect of public instability is the unreasonable advantage it gives to the sagacious, the enterprising, and the moneyed few over the industrious and uniformed mass of the people. Every new regulation concerning commerce or revenue, or in any way affecting the value of the different species of property, presents a new harvest to those who watch the change, and can trace its consequences; a harvest, reared not by themselves, but by the toils and cares of the great body of their fellow-citizens. This is a state of things in which it may be said with some truth that laws are made for the few, not for the many.

And why employers are reluctant to hire right now:

In another point of view, great injury results from an unstable government. The want of confidence in the public councils damps every useful undertaking, the success and profit of which may depend on a continuance of existing arrangements. What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed? What farmer or manufacturer will lay himself out for the encouragement given to any particular cultivation or establishment, when he can have no assurance that his preparatory labors and advances will not render him a victim to an inconstant government? In a word, no great improvement or laudable enterprise can go forward which requires the auspices of a steady system of national policy.

The things you find, preparing for class!

The Economy - September 2010

NOTE: Thomas Straubhaar lives in Germany and wrote these columns for Der Spiegel.

America Has Become Too European - Thomas Straubhaar

A firm belief in the individual's ability, ideas, courage, will and a reliance on one's own resources brought the US to the top. The American dream promised everyone the chance of upward mobility -- literally from rags to riches, from minimum wage to millionaire. The individual's pursuit of happiness was seen as the crucial foundation for the well-being of society, rather than the benevolent state which cares for its subjects -- and certainly not the welfare state, which provides a social safety net for its citizens.

In the American system, every man was responsible for himself -- in good times and bad. No one could count on government assistance, not even the wannabe millionaire who did not make it and ended up homeless.

For many US citizens, the financial crisis has turned the American dream into a nightmare. Millions of Americans are struggling with high levels of debt, and not only because they bought overpriced houses during the housing boom and can no longer afford their mortgages. Often families are burdened with loans they took out during better times for cars, furniture, electronic gadgets or university tuition.

A Return to Traditional American Virtues - Thomas Straubhaar

Both the behavior of the American government and the Federal Reserve makes one thing clear: They do not see the solution to the US's economic woes in a return to traditional American virtues. Obama is not calling for the unleashing of market forces, as Ronald Reagan once did during an equally critical period in the early 1980s. On the contrary: Obama, driven by his own convictions and advised by economists who believe in government intervention, has taken a path that leads far away from those things that catapulted America to the top of the world in the past century.

The Obama administration's current policies rely on more government rather than personal responsibility and self-determination. They are administering to the patient more, not less, of exactly those things that led to the crisis.

Our Debt Is More Than All the Money in the World - Kevin D. Williamson

I have argued that the real national debt is about $130 trillion. Let’s say I’m being pessimistic. Forbes, in a 2008 article, came up with a lower number: $70 trillion. Let’s say the sunny optimists at Forbes got it right and I got it wrong.

For perspective: At the time that 2008 article was written, the entire supply of money in the world (“broad money,” i.e., global M3, meaning cash, consumer-account deposits, checkable accounts, CDs, long-term deposits, travelers’ checks, money-market funds, the whole enchilada) was estimated to be just under $60 trillion. Which is to say: The optimistic view is that our outstanding obligations amount to more than all of the money in the world.

Global GDP in 2008? Also about $60 trillion. Meaning that the optimistic view is that our federal obligations outpace the entire annual economic output of human civilization.

Interview With Marc Faber: It Is Not A Matter Of If With Hyperinflation, But When - Ron Hera

HRN: Do you think hyperinflation in the US is possible?

Dr. Marc Faber: The Federal Reserve doesn’t want to create a hyperinflation. I mean Mr. Bernanke may be incompetent, but he’s not an evil person per se. He just doesn’t have sufficient knowledge to be a central banker, in my opinion, and has misguided economic theories, but he’s not evil in the sense that he would not wish to debase the currency entirely. Clearly, if the US economy moves into a double dip recession and you have deflationary pressures reappearing, in the housing market, for example, and if the S&P drops from roughly 1,100 down to say 900, then I think further monetization will happen. I believe that because of the unfunded liabilities and the deficits of the US government, which will stay high for a long time; sooner or later there will be more monetization anyway.

It’s more a question of when it will happen rather than if it will happen. For sure it will happen but will it happen right away, say in September, or maybe only in two years time? Eventually, before everything collapses we’ll have an inflationary bout which may not be so strongly felt in consumer prices, as in stocks or housing or precious metals prices or in commodities like oil; or inflation could occur mostly in foreign currencies, in other words, in Asia where the currencies could appreciate.

Obama Stimulus Made Economic Crisis Worse, `Black Swan' Author Taleb Says - Frederic Tomesco

U.S. President Barack Obama and his administration weakened the country’s economy by seeking to foster growth instead of paying down the federal debt, said Nassim Nicholas Taleb, author of “The Black Swan.”

“Obama did exactly the opposite of what should have been done,” Taleb said yesterday in Montreal in a speech as part of Canada’s Salon Speakers series. “He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse.”

Today, Taleb said, “total debt is higher than it was in 2008 and unemployment is worse.”

The Economy - August 2010

Presidents, Precedents - Kevin D. Williamson

News flash: This is not 1982, and Obama is not Reagan.

The important difference is this: There was a good reason for the Volcker-Reagan recession: defeating inflation. American voters may not be terribly economically sophisticated, but they sure as heck did notice when inflation went from 13.5 percent to 3.2 percent — in two years.

Obvious Failure of Stimulus Becomes Obvious Even To Economists - Tim Cavanaugh

At City Journal, Guy Sorman notes how quickly the managed-market winds have shifted. When the credit unwind started, the papers, the TV and the newsweaklies declared capitalism dead in just a little less time than it took for Kent Brockman to declare his loyalty to the Space Ants. Less than two years later, you can't buy good press for the stimulus; the economy is frozen solid in August; the nation is rediscovering -- despite the herniated efforts of local, state and federal government -- the virtues of thrift; and if you search for Keynes on the interwebs, all you turn up are headlines like "How Dr. Keynes killed the patient."

How Dr. Keynes Will Kill The Patient - Michael Pento

And here's where the arrogance in Washington really kicks in. Scores of millions of American consumers have made a decision; they have decided on an individual basis, that what is best for them at the current time is to reduce their debt burden. But a few hundred individuals in government believe they know better than the collective wisdom of the entire free market. They have the power to confiscate our savings by leveraging up the public sector. In essence, they are preventing the healing process of de-leveraging from taking place by increasing government borrowing and spending.

It should be stressed that modern-day Keynesians do not argue for simply slowing down the rate of de-leveraging. They clearly seek to--at least in the short term--significantly increase the amount of debt in an effort to boost the aggregate demand in the economy. Then, once the mythical recovery takes hold from government spending, printing and borrowing, they concede it may be time to bring deficits under control. The only problem with this theory is that there is now a significant risk of suffering through a U.S. dollar and bond market crisis in the very near future.

The Economy - February 2010

We Are So Screwed - John Mauldin
Quoting from A Crisis of Confidence by Reinhart and Rogoff:

Perhaps more than anything else, failure to recognize the precariousness and fickleness of confidence-especially in cases in which large short-term debts need to be rolled over continuously-is the key factor that gives rise to the this-time-is-different syndrome. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang!-confidence collapses, lenders disappear, and a crisis hits.

Economic theory tells us that it is precisely the fickle nature of confidence, including its dependence on the public's expectation of future events, that makes it so difficult to predict the timing of debt crises. High debt levels lead, in many mathematical economics models, to "multiple equilibria" in which the debt level might be sustained - or might not be. Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.

Inspector General: TARP Has Created a Looming Disaster - Morgen Richmond
From the Inspector General's report:

The substantial costs of TARP — in money, moral hazard effects on the market, and Government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time. It is hard to see how any of the fundamental problems in the system have been addressed to date.

Unsustainable - John Hinderaker
Elmendorf:

The country faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are prepared to send to the government to finance those services. That fundamental disconnect will have to be addressed in some way if the nation is to avoid serious long-term damage to the economy and to the well-being of the population.

Hinderaker:

We need deep and fundamental cuts in federal spending, which means, above all, Medicare and Social Security, because that's where the money is. The whole concept of an "entitlement" was a mistake--really, a disaster--that must be repudiated. But for the foreseeable future, there will be no political will to make such changes. So we're going to see a race between political will and economic collapse. It's hard to be optimistic about the outcome unless a drastic change in our political culture takes place, soon.

Reason amid the madness - Tony Blankley

Almost everything that is disturbing Americans about the current administration, domestically, can be found in one of the most shocking documents ever issued by the U.S. government -- last week's 2011 federal budget. It even shocked The New York Times, which led, top right above the fold, with David Sanger's spot-on analysis headlined: "Deficits May Alter U.S. Politics and Global Power."

"In a federal budget filled with mind-boggling statistics, two numbers stand out as particularly stunning for the way they may change American politics and American power. The first is the projected deficit in the coming year, nearly 11 percent of the country's entire economic output. ...

"But the second number, buried deeper in the budget's projections, is the one that really commands attention: By President Obama's own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years."

The truly shocking part of the budget is what was left out: a road map out of the economic calamity.

Where Did Our Real Wealth Go? - Victor Davis Hanson

In other words, Greece is the canary in the mine of the impending crack-up of the modern welfare state. It is a great gift to us all, this example. A year ago, the socialists, even as they were juggling and falsifying their books, were bragging that the Wall Street meltdown was a referendum — and capitalism was doomed. Now, the entire socialist dream is exposed and even the most ardent statist knows that there is no longer enough “others” to pay the tab.

The Economy - January 2010

America's New Year's Unemployment Hangover - by Rep. John Carter



Bernanke and the Beast - N. Gregory Mankiw

IS galloping inflation around the corner? Without doubt, the United States is exhibiting some of the classic precursors to out-of-control inflation. But a deeper look suggests that the story is not so simple.

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem


ObamaNomics: An Endless Downward Spiral - BoomerJeff



A REALITY CHECK FOR A LAME WASHINGTON ESTABLISHMENT TALKING POINT - Glenn Reynolds

Note that the following table is of actual and estimated annual federal budget deficits, not the cumulative national debt.