Sunday, August 02, 2009

The prognosis for the Economy and Unemployment

The Sunday news talk shows had Treasury Secretary Tim Geithner and Larry Summers as featured guests. What was most evident from both of their conversations was that we have a long time before a real recovery takes place. For example, Geithner said unemployment would "ease" in the second half of next year. Geithner also said that extending unemployment benefits again is something the administration and Congress are going to "look very carefully at as the end of this year approaches." Well, to me that means two things: First, unemployment will rise for a full year from today and with it so will unemployment benefits, not just for the additional 13 weeks being contemplated now. Currently the unemployed are eligible for a total of 79 weeks of unemployment. Add a minimum of 13 additional weeks and you get 92 weeks of paid absence from a job. My God, that is almost 2 years! And those without jobs have at least another year of looking for a job before things look better for them. Consider what these means for the possibility of even more foreclosures.

Everyone believes the Consumer is not spending today but has increased savings. This also says there is most likely systemic changes in the patterns of Consumers behaviors that may be generational in duration. I can imagine a smaller footprint spending form the Consumer and a larger footprint needed by Corporations or Government to pick up that slack to help increase GDP. I saw a formula for GDP this morning while pursuing the Blog articles which said that GDP=C+I+G+(Trade Surplus or Deficit) where C is Consumer spending, I is for investments and G is government spending. You can see from the equation that the biggest part of GDP is going to come from Government (or us) and we are borrowing from the future of our children, kids and grandchildren and dooming them to less of a life to pursue the American Dream than any other generation of the past except from the Great Depression years. How can we look ourselves in the mirror and allow this to happen, you ask? Easy, as this generation of "What's in it for me" Americans, we don't really look in the mirror much and do the self reflection thing very well. We are so focused on ourselves, we have lost morality and sold our souls to the average bidder. Boy, the last 8 plus years have surely screwed up this country so badly, we may never recover. So when you hear the "good news" on better GDP, remember it is the Government spending driving it, not business and not the Consumer for the next few years. Don't be fooled that things are looking better. Make sure you look at the Unemployment rate and keep looking at the number of Home Foreclosures and Business and personal bankruptcies.

The seeds of our destruction were sown many years ago and most likely back in the Reagan Administration, (See the chart below from with a great article that goes along with the chart) where Federal Deficits had new meaning. Ever since then, we have been going out of control. Twenty out of the past 26 years since 1982 when Reagan was President, Republicans have been in control of the Presidency. You will notice on the chart below, it was Clinton who actually turned this trend around only to be reversed again by George W. Bush.

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Blogger Erik said...

So it wasn't just an October surprise? LOL
Nice graphic illustration.

10:49 PM  
Anonymous Anonymous said...

I think I'm less pessimistic. Debt/GDP was up near 1.0 after WWII and we still managed the Marshall Plan, the GI Bill, Medicare, the Great Society, and Vietnam, all the while paying down the debt:GDP down to close to 0.3 (end of Carter years). Now it's back up, but Paul Krugman says that it still has a good bit of what he calls "running room" before it causes problems for us. Our biggest problem is our aversion to taxes. The economy grew during the Eisenhower years, despite a marginal tax rate of 90%. And the debt/GDP improved. And the economy grew through the 70s, with a 70% marginal tax rate. And confiscatory estate taxes. And debt/GDP came down. We can pay off our debt, but doing so will require paying more taxes. I think that the indicators are good -- lots of "green shoots" out there. People with cash to spend, when the deals are good (I, myself, just did Cash for Clunkers, along with a whole lot of others). CA housing prices actually bottoming out. The "stimulus" will prevent unemployment from destroying the economy, just as TARP prevented Wall Street from destroying the economy. And we've got lots of room to tax ourselves to pay off our new national mortgage. It's serendipitous that Baby Boomers now can't retire, because of battered 401Ks. Keep working; keep paying those taxes. And maybe the world we leave for our grandkids won't be all that bad. - Larry Weisenthal/Huntington Beach, CA

1:41 AM  

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