cmaukonen's picture

    Our Great Economic Disconnect or Recession Part Deux

    Well the administration has given the same old BS about the economy vis-a-vis jobs trying to spin it in a positive manner. Will we ever get the truth about what is going on ? I seriously doubt it. But here is an oped I came across recently that does.

    "The good news is that the much-feared double-dip recession is not going to happen," they said on CNN on Oct. 28, last year. "After completing an exhaustive review of key drivers of the business cycle, ranging from credit to inventories and measures of labor market conditions, we can forecast with confidence that the economy will avoid a double dip."

    "We will not have a double-dip recession at all," said Warren Buffett, the multi-billionaire investor called, by his fans, the Oracle of Omaha, back on September 13, 2010. "I see business coming back almost across the board," he told an assembled group of bankers.

    And of course, there was Ben Bernanke, the chairman of the Federal Reserve, who actually acts on his presumed wisdom, saying, on June 8, 2010, ""There seems to be a good bit of momentum in consumer spending and investment," he said at the time. "My best guess is we'll have a continued recovery [but] it won't feel terrific."

    Even a Vistage Survey of CEOs, conducted release last Oct. 4, showed the confidence index respondents, all top executives at public companies, saying there was "no evidence" for a double dip back into recession in the nation's economic future.

    So much for expert opinion.

    This week we have seen new unemployment claims top 400,000 for the eighth week in a row, as the official unemployment rate (about half the actual rate) rose to 9.1%. The latest figure for job creation, 54,000 for May, is just half of the rate needed to keep up with the growth in the number of working-age Americans. Manufacturing has fallen to where it was in 2009, the respected Case-Shiller Housing Index has declared that the housing price collapse has gone into a second dip, with home prices nationwide now back down to where they were in 1999 and still falling, and consumer confidence, according to the Conference Board, is down to 60.8 (in 1988 it was at 100, and 90 is considered "normal"), a serious slump in a nation where 72 percent of the economy consists normally of consumer spending.

    Okay, we're not in a second round of recession yet, but with economic "growth" slumping into to 1.8 percent for the first quarter of this year, and nothing up ahead to suggest it will get better, there's every reason to think we could move into negative territory before long.

    During the hay day of Mad Magazine in the 1960s they did a piece call Goodnews/Badnews and the panel this reminds me of was the one that had "Bad news is hearing good news when you should be hearing bad news." The problem is that for those that are in the higher income brackets - making around 100 grand or more - thing are looking just fine. It's a disconnect not unlike the disconnect that was taking place in regards to the black people living in the slums. As long as your life was OK and you never went to the slums, everything was just fine.

    But it's not fine, it's lousy and getting lousier.

    Also, this stuff about recession is a bit nebulous anyhow. A recession is defined as two back-to-back quarters of negative growth, but when you go from 3% growth -- the bare minimum in theory to have jobs being created at a rate sufficient to employ all the new workers entering the job market -- to 1% or 2%, it might as well be called a recession. Some companies may still be making profits by operating at a lower than capacity level, but unemployment will be rising, people will be getting poorer, more homes will be going into foreclosure, schools will be laying off teachers, and the general level of misery in the nation will be rising.

    Incumbent politicians might try to call that a "recovery," but that's really stretching the English language.

    So how did all these supposedly smart people get things so wrong?

    Any fool ought to see the problem. The Americans who own their own homes have seen what they thought was their major asset shrink in value by at least a third. Don't even talk about what meager savings they might have had. Back in July 2008, before the markets crashed, Americans had a total indebtedness of $2.5 trillion. The average American was reportedly saving less than $400 per year and had a negative net worth. We were living on credit, not saving. Those who did have some money saved and who had been investing it saw it lose 43% of its value almost overnight.

    Sure, some of those people, who left their money sitting in the same equities they had been in before the crash, got most of it back this year, but an awful lot of those people cashed out at the bottom, not wanting to risk losing any more. Their loses are permanent. Others cashed out because they lost their jobs and needed the money. Their losses are permanent.

    This is what the too-smart economists, politicians and CEOs simply don't get. In their world--the one that just looks at P&L statements, shares words of "wisdom" over golf tees, and profits from illegal but routine insider tips on investment opportunities the rest of us don't learn about--things look pretty good. Companies are profitable, having laid off huge swaths of workers, bashed unions, won pay and benefit "give-backs" from employees and tax breaks from politicians, elected officials have been re-elected, thanks to friendly backing from the corporate media, and plenty of lucre from corporate PACs, and the tax breaks for the rich that were enacted under the prior Bush/Cheney administration have been extended by the Obama administration, so the well-heeled don't even have to pay much in taxes.

    And this is the whole point. How can you even talk about the economy when you don't experience but a small part of it or spend most of your time cloistered in some private educational institution playing with numbers. You need to get out and see how everyone else is doing. FDR had Elenore do this and she reported back to him. Obama has Michael go shopping for christ sakes.  What kind of input do you get from inside a dress store ?

    In our world, though, there are higher taxes, higher gas prices, higher food prices, increased bank charges, miniscule interest or no interest at all on any savings, higher tuition and less in financial aid for our kids, no jobs, pay cuts, and if we're laid off, there's no more health care.

    So where do the happy-talk forecasters of "recovery" get the idea that we ordinary Americans are going to get out there and spend? Where do they get the idea that the great consumer "engine" that powered the economy for the last three or four decades is going to rev up again?

    These idiots should go walk around a few shopping malls. What a dismal experience that is!

    They should go stand in an unemployment office application line and talk to a few of the newly laid-off. Of better yet, volunteer at a food bank and talk to the people coming in for food assistance (at least that way these parasites would be doing something useful while they did their research).

    If they did a little of that real research, they might not be so quick to make jackasses of themselves again, predicting confidently that there's no double-dip recession in the cards for the US economy.

    I'm not holding my breath, but whether they take my advice or not, I'm ready to offer them a challenge: let's check back this time next year, and see who was right, them or me.

    I can tell you from what I have seem, nothing is getting better except the bonuses given to the bankers.

    Comments

    In his A Weakening Economy post James Hamilton doesn't see signs of a recession, but many of his commenters differ. Kopits lays out these scenarios:

    1. Oil prices go down Possibly for a while. Our estimate of China's carrying capacity for oil is $100-105; that's still above tolerance levels for the US. So if prices ease, the narrative calls for China and the emerging markets to quickly take up the slack. I don't see any durable relief on this front, and I don't see the oil supply improving materially.

    2. We get used to high oil prices. But oil is consuming 3% more of GDP than it did two years ago. This is unlikely to hold; so we're going to be shedding oil consumption at these prices. And if we do get used to it, the Chinese will acclimate even faster. Current oil consumption expenditure is unlikely to sustain.

    3. Growth limited to increase in US oil use efficiency. Could be. Need to run some numbers on this compared to China, etc. It should be possible to estimate this analytically. But this depends on a reasonable amount of price elasticity in the demand for oil--something not normally seen historically during times of economic growth.

    4. Stop-start growth. The US porpoises between periods of growth and stagnation, but no recession. This is a variant of 3 above, where the oil price is a weight pressing down on a loaded spring of a depressed US economy looking to bounce back. Could be, but again, no real historical precedent for it and it assumes no tipping points.

    5. Oil shock and recession. This is the standard means of adjusting. Plenty of historical precedent. The period for such a shock would occur 30-180 days post the increase in oil price. If we put the oil price spike at February, then we're in recession by September.

    Of all these alternatives, the easiest to defend is an oil shock-induced recession.


    I will reiterate what Startdust recommended in her news blog. Read Yevs.

    The New York Times yesterday made the an observation that seems to be lost on Team Obama, that high unemployment levels and second Presidential terms do not go together. We’ve predicted that the Osama bin Laden bounce won’t last long. Bush I, after all, had 91% approval ratings right after the invasion of Iraq and he still lost the reelection thanks to the state of the economy.

    Another factor weighing on the collective psyche, and thus voter attitudes, is the inability of most people to get ahead in real economic terms. Reader Francois T pointed out an article in Investors Business Daily that highlighted that real wage gains in the last ten years are even worse than during the Great Depression:


    IMO it depends on who is without jobs. If the people without jobs would never have voted anyway, it doesn't matter. If the people without jobs would never have voted for Obama anyway, it doesn't matter. If the people that would never vote Republican (like me) lose jobs, the worst that could happen is that they'll vote third party or not at all. But if job losses eat into Obama's independent and youthful voters, that will matter.


    I believe Obama is in major political trouble.  Ultimately, people are going to vote for an incumbent based on their answer to the question, "Are you better off now than you were four years ago?"  If the election were held today, I believe the percentage of Americans who would say they are better off now than they were three years ago is miniscule.  And Obama is running out of time to turn things around.

    Right now, Obama's election strategy is based on arguing, "Things might suck; but they don't suck as badly as they would have sucked if it weren't for some of the things I did."   But this kind of speculative counterfactual campaign is a very hard sell, and I doubt it will work in the end.  Maybe it will work in Detroit - but not in too many other places.

    He's also going to argue, "Things might suck; but I didn't make them suck.  Bush made them suck."   There is truth enough in that, but it's a lame argument.  No matter who caused a shitty situation, people expect a president to do what is necessary to turn things around.  After three years, an administration owns the economy.  And after three years we are still going in the wrong direction.  Trying to blame the previous administration at this late date is passing the buck.

    Unfortuantely, Obama is in a poor position to make the necessary changes.  He's fighting a ridiculous political battle with Congress on right-wing territory, and is still sucking up to Pete Peterson forces and the deficit hysterics.  Because he has conceded so much to the austerity mongers and deficit-hacking camp, he hasn't positioned himself to be able to pivot to an argument for dynamic action and fiscal activism.

    You wonder if eventually the crappy job reports, the crappy housing market reports, the growing and infectious economic disaster in Europe and other bad news will finally sink in on Obama and his economic team, open their eyes to what is happening, make them realize that no real recovery has "taken hold" and spur them to change direction.


    the problem is, that it's not just about jobs.  It's about the whole stinking economy. The administration keeps say we're coming out of the woods but fails to grasp that where trees end, is where the cliff is.


    Yes, the fund-raising emails are telling me my life is better.  So it must be true!

    If the Republicans manage to keep the tea party folks under control and nominate Romney, my guess is we're looking at President Mitt in 2012.


    The tea party folks will be the only way Obama gets re-elected.


    Will this bad news impact the talks, on raising the debt ceiling?

    Republicans are you nuts?

    If the economy tanks anymore, who'll get the blame for not spending; hopefully the bankers and their Republican friends?

    States and cities are in trouble, with no sales tax revenues coming in, what other source of revenue do they have available? 

    IMHO the more the economy tanks the more the public outcry for increased Government Spending,

    Maybe they'll have no choice, but to Tax those most able to afford it.?

     


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