Free Markets, Free People

Economy

Idiots to the left of us, yahoos to the right …

I guess the GOP should thank its lucky stars that weeping George Vionovich is headed for the exit.

Of course, he could still team up with some on the Democratic side to do some damage before January if this is any example:

"Fuel taxes today fund the vast majority of the federal government’s investment in infrastructure projects," Voinovich wrote in the letter. "Due to dwindling fuel tax receipts, Congress has had to transfer billions of dollars from the General Fund to the Highway Trust Fund to maintain our current level of federal involvement."

[…]

"The lack of investment in our crumbling bridge, highway, and transit systems is a missed opportunity for the creation of thousands of well paying jobs and long term economic growth for our Nation," said Voinovich. 

And the chorus warms up – anyone?

Yes, that’s right, a fuel tax is a regressive tax because it hits hardest those who can least afford it, but who’s jobs depend on them being able to drive to them daily.  And who is suggesting such a tax in the middle of a deep recession?

That’s right – a Republican.  Even the Obama administration is against a freakin’ increased fuel tax, and there’s hardly a tax they’ve met they don’t like.

“I believe Americans are willing to pay a higher gas tax to create jobs, improve our infrastructure and better our climate," Voinovich said at a business conference in Ohio last month. "And many of my conservative colleagues do not consider that gas tax as a tax, but as a user fee.”

And I believe you’re as full of beans as you usually are, Mr. Voinovich.  Americans have made it clear over and over and over again that they’re not willing to pay more taxes for any reason until government can prove it can balance its budget and pay down the debt.  On top of that, Americans also don’t give a flip what you and your idiot conservative colleagues consider it, it’s a freakin’ tax.

Now I know that Voinovich doesn’t represent the conservative side of the GOP in the Senate.  But there’s still that “R” beside his name and crap like this is why many people don’t trust the GOP any further than they can throw a Democrat.

~McQ

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Unemployment Rises

Today’s news of 131,000 jobs lost last month comes as no great surprise. What should also come as no great surprise is that the official unemployment rate of 9.5% continues to seriously underestimate the actual rate of unemployment.

Civilian population: 237,890,000
Historical Average Labor Force Participation Rate: 66.2%
Proper Labor Force Size: 157,483 000
Actually Employed: 138,960,000
Real Unemployment Rate: 13.3%

Using the same method of calculation, the unemployment rate in June 09 was 11.4%. Over the past six months, the rate had varied as follows:

Feb: 13.2%
Mar: 13%
Apr: 12.7%
May: 12.8%
Jun: 13.1%
Jul: 13.3%

Since April, 495,000 payroll jobs have been lost.

Jobless claims “unexpectedly” rise

Yup, as Tim Geithner would say – “welcome to the recovery”.  And, given the trends, I would guess this isn’t the last of the “unexpectedly” high unemployment report we’ll see.  Again, ad nauseam, there’s been no incentive provided by government, but plenty of disincentives that are keeping businesses on the sidelines and consumers from spending:

Initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April and exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The number of people receiving unemployment benefits dropped, while those getting extended payments rose.

A cooling economy means employers will resist taking on more staff in coming months, raising the risk consumer spending will weaken further. The jobless rate rose last month as payroll increases weren’t large enough to keep up with gains in the labor force, economists forecast a government report tomorrow will show.

As if anyone has to be told, this is not good.  And it wouldn’t surprise me to see the U6 unemployment rate tick up over 10% again in the next few months:

“There really is no upside momentum in the labor market, and that’s a critical long-term determinant of where the economy is going,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “People just aren’t getting jobs.”

That’s because jobs aren’t being created and offered.  Name the incentive, at this point, to do so?  Tax increases are in the offing, health care laws, 1099 requirements, Democrats still pushing for cap-and-trade, new financial regulations that impact the market and economic policies which give the impression the administration is at war with business.

Why would any sane business owner invest in his business in times as unsettled as these?

Answer: he or she wouldn’t.  And that’s the biggest reason unemployment continues to “unexpectedly” rise.  Headcount is the easiest thing to add when times are good.  It’s also the easiest thing to reduce when times are bad.  And if they stay bad – as we’re seeing now – few if any are going to be adding jobs.

Economics 101 – provide incentives to get the behavior you want.  Provide disincentives to discourage the behavior you don’t want.  The administration’s economic policies have, to this point, provided business with all manner of disincentives to hiring.  And then the “experts” are surprised when jobless rates are “unexpectedly” higher than estimated.

Go figure.

~McQ

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Majority no longer blame Bush for economic woes

That’s primarily because the current administration has been in power 18 months, it has spent like there’s no tomorrow with borrowed funds and the economy is still in the tank. Most adults consider that more than enough time to do address the "inherited" problems and if not fix them, be on the road to doing so. But blaming the previous administration is no longer a viable option.

Forty-eight percent of likely voters blame Obama’s policies for the nation’s economic condition, compared to 47 percent who fault former President George W. Bush, according to Rasmussen Reports.

Although the difference is small and within the margin of error, the poll marks the first time in Obama’s presidency that more people blame him than Bush for the economy.

Obama’s 48 percent also shows a three percentage point increase over the past month, according to Rasmussen. As noted, the margin is small and within the margin of error but is, for the first time, against the Obama administration. More importantly, that’s the way it has been trending in past polls.

So essentially what you should expect to see, as the months pass and the unemployment rate remains high, GDP growth sluggish, consumer confidence down and businesses sitting on the side lines is more and more Americans coming to consider this mess the "Obama economy".

The White House has repeatedly tried to inoculate the president from economic blame with the message that Obama inherited a bad economy from Bush, and has made difficult, unpopular decisions to turn it around.

In a speech to the AFL-CIO, Obama made the case that the problems he faces are the result of Bush economic policies.

"We’re not going to go back to digging the hole," he said. "We’re not going to go back to the policies that took Bill Clinton’s surplus and in eight years turned it into record deficits."

Really?

That’s obviously not how the American people are seeing those policies and their effect.  There’s nothing in the Bush years that even approach the record deficits being piled (and projected) by this administration.

So that old song and dance seem to finally be getting old.  And it is surprising the White House is still trying to push it.  You’d think they’d understand that it was a perishable excuse and it has long since passed its expiration date.  And, as the poll indicates, people have grown tired of it and just don’t accept it as a reasonable excuse anymore.

Not that it will stop the "Blameshifter-in-Chief” and his henchmen from continuing to trot it out there at every opportunity.  Their problem is it just isn’t viable anymore.

~McQ

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Will a desperate Obama administration spring an "August surprise" for political gain?

James Pethokoukis is hearing the rumors of something which might put a number of you in the situation where you’re paying down your neighbor’s mortgage – all in the name of politics. I’ll let him explain:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

Essentially Fannie Mae and Freddie Mac would be the vehicles for this $800 billion bailout.  As mentioned above, the “$400 billion limit” for financial assistance to the two institutions was waived by Congress.  And, HARP has been extended.  The ability to do what Pethokoukis is hearing certainly exists.

As I mentioned in the previous post, the election this November isn’t shaping up well for Democrats.  And the administration knows that without the majority in the House and Senate, its agenda is dead.  As Pethokoukis points out, the midterms are expected to be a blood bath for Democrats and this sort of a move may be seen as a last hour way to change that outcome.  The GSEs (Freddie and Fannie) are about the only “levers” left for the White House to pull. And with the economy slowing and the President’s approval ratings tanking, those levers are looking mighty tempting:

The mortgage Hail Mary would be a last-gasp effort to prevent this [loss of House and working majority in Senate] from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.

And, of course, it would be a backdoor “stimulus” that many on the left think is needed.

It may not happen, but as pointed out, the rumors are pretty darn strong with Wall Street firms privately warning their clients it is a distinct possibility.  It would be an incredible move that, given the mood of the country, could backfire spectacularly if done.  But the political calculation may be that if Democrats are supposed to lose badly in November anyway, why not try.

The financial consequence?  Bah … we’re talking politics here, the “religion of the left”.  They’re likely to do whatever they think is necessary, consequences be damned.  And we’ll be left, as usual, holding the bag.

~McQ

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“Stimulus” an expensive bust

The so-called "stimulus", upon closer examination, looks like most government spending – excessive, poorly targeted, poorly monitored and not at all accomplishing what was intended.

Senators Tom Coburn and John McCain have issued a report that details some of the most dubious "stimulus" spending. That’s over and above the money that just disappeared after being sent to non-existent congressional districts and zip codes.

For instance:

$700,000 for a researcher to study improvised music. For a project on interactive dance, 44 percent of the money goes to "overhead."

The $1.9 million spent to photograph ants in foreign countries has created two jobs created so far. That’s better than other ant research stimulus projects: $451,000 has created one job,

$276,000 spent on another created six one-hundredths of a job, and the $800,000 spent on a different one created no jobs.

The $144,000 spent to study the behavior of monkeys on cocaine created four-tenths of a job. To study why monkeys respond to unfairness cost $677,000 – and has created no jobs yet – except maybe for the monkeys.

And my guess is that they will find that monkeys react to cocaine much the same way humans do. Of course the White House claims, most likely through some model in which they plug in a factor (something like x number of jobs are created when y dollars are spent), that 3 million jobs have been "created or saved". But at what cost? Note the amounts spent above to "create" each job. And then there’s the ironic side of the story:

In the state of Washington, another stimulus project may be hurting those it was designed to help. Construction began one year ago today in front of the Archery Bistro Restaurant. The owner says it’s shut off business like a fly in a bowl of soup. He’s had to stop serving lunch, close two days a week and, ironically, lay off 12 workers.

The "stimulus" has been an expensive bust.

What positions have been “created” are temporary at best and will disappear when the tax dollars run out.  Additionally, much of the money is consumed in bureaucratic overhead – certainly “saving” and perhaps expanding those non-productive jobs.

But as for “stimulating” the economy – well, look around.  As my mom used to say, “the proof is in the pudding”.

~McQ

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Quote of the day – why we’re not yet in a recovery edition

Yeah, I know, there are technical definitions of what constitutes a recession and a recovery.  But if you’re unemployed, underemployed or given up on finding a job, you find  none of those technical definitions unimpressive.

Anyway, this particular quote, in a nutshell, tells you why the “recovery” isn’t much to write home about:

Data released by the Bureau of Economic Analysis at the Commerce Department this morning shows that Americans earned a bit more, spent a bit less and saved more in June — all in line with economists’ expectations. Consumer spending drives about 60 percent of the economy, therefore, economists do not expect the recovery to take strong hold until American families feel secure enough and are earning enough to spend again. Unemployment, of course, remains a major drag on the economy.

So, while savings is good in general, it’s not good in a macro sense when you’re in a recession.  And, as the quote notes (and I frankly think the number is low) when 60% of the economy is driven by consumption, increased savings and less spending is not a good sign.  It’s all about confidence, and consumers simply aren’t feeling it.

That may be because of the last sentence which has my vote for the understatement of the year. 

The good news, however, is there was nothing, apparently, “unexpected” about these numbers.

~McQ

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Quote of the day – why we’re not yet in a recovery edition

Yeah, I know, there are technical definitions of what constitutes a recession and a recovery.  But if you’re unemployed, underemployed or given up on finding a job, you find  none of those technical definitions unimpressive.

Anyway, this particular quote, in a nutshell, tells you why the “recovery” isn’t much to write home about:

Data released by the Bureau of Economic Analysis at the Commerce Department this morning shows that Americans earned a bit more, spent a bit less and saved more in June — all in line with economists’ expectations. Consumer spending drives about 60 percent of the economy, therefore, economists do not expect the recovery to take strong hold until American families feel secure enough and are earning enough to spend again. Unemployment, of course, remains a major drag on the economy.

So, while savings is good in general, it’s not good in a macro sense when you’re in a recession.  And, as the quote notes (and I frankly think the number is low) when 60% of the economy is driven by consumption, increased savings and less spending is not a good sign.  It’s all about confidence, and consumers simply aren’t feeling it.

That may be because of the last sentence which has my vote for the understatement of the year. 

The good news, however, is there was nothing, apparently, “unexpected” about these numbers.

~McQ

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Wow – if this is "recovery", I’d hate to see "recession"

Tim "Turbo Tax" Geithner has an op-ed in the New York Times entitled, "Welcome to recovery".

No, really.

Or perhaps I should say that it is a litany of liberal talking points and just plain old fantasy. He has a list of indicators which he’d like you to believe prove we’re just around the corner from full recovery.

I don’t have the time to go through all of them, as much as I’d like too, but a couple caught my eye. For instance, jobs:

Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months.

That’s just nonsense on a stick. If your best example is a major economic sector which may be adding 23,000 jobs a month, you haven’t much to crow about. Not when you look at the jobs that are going away each month. The reports are not good and pretending they are doesn’t impress anyone and makes what little credibility you might still retain suspect.

And this:

The auto industry is coming back, and the Big Three — Chrysler, Ford and General Motors — are now leaner, generating profits despite lower annual sales.

That’s either a flat out lie or it’s from a second set of books.

e21 points out that if you analyze the auto industry, the news is not good:

The auto companies are certainly not out of the woods yet.  There has been a massive rebuild of negative working capital balances at GM (and Ford).  What does that mean?  Well, working capital is current assets minus liabilities – and it’s a good way to measure whether a company has the liquid assets to grow or build the business (and add shareholder value).  Positive working capital is also a useful measure for gauging a company’s financial resilience.  Negative working capital, on the other hand, means that current liabilities exceed assets – and a firm in this situation can’t spend as aggressively.

How massive is the “rebuild of negative working capital?”  Massive:

07292010_detroit

Those are monthly figures (GM’s only from Jul 09 when it emerged from bankruptcy).  There’s nothing in those figures that makes any sort of case that the companies are turning a profit.  In fact, if you look at what e21 says, it is clear that they’re still doing what got them into the shape they were in previous to the financial downturn.

Certainly their position hasn’t been helped by slow auto sales (even during the “recovery”), but what all of them could use is some investment help.  Ford could possibly get it but it is also possible investors are not likely to risk their capital on an industry that has a government presence.  Again e21 explains:

The roughshod methods that were used against bondholders in the bailout, the questionable methods used to pick winners and losers in the rush to close thousands of auto dealerships and the favorable treatment given to the unions (followed by the codification of this policy in the Orderly Liquidation Authority in the Dodd-Frank financial regulation bill) serve as the case study for why investors and lenders will be skittish about lending or investing in U.S. companies that have a big union presence and/or would be deemed Too Big To Fail by the government.

And then there’s all the money they owe under TARP.

Like I said, just two of the many examples which are pure fiction.

The rest of his article is an attempt to write a favorable history of the government’s effort – but those who watched it and assessed its results aren’t particularly impressed.  Geithner ends his ramble with this:

And as the president said last week, no one should bet against the American worker, American business and American ingenuity.

No one should be at war against any of those either, yet this administration has been at war with the financial industry, the energy industry and business in general from it’s first day in office.   Perhaps it is time for a little internal administration introspection – honest introspection – with the aim of determining whether they’re part of the problem of part of the solution.  If they actually did that, they’d have to honestly assess themselves as part of the problem.  Geithner’s fantasy piece is all the proof you’ll ever need to know that will never happen.

~McQ

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