Why aren’t we seeing a jobs recovery? Maybe it’s ObamaCare’s fault
So you’re wondering why the “recovery” stalled? Well we all know that correlation is not causation, but this sure looks suspicious doesn’t it?
So looking at the chart, we see job growth starting to pick up at an average of 67,000 a month. Not earth shattering, but much better than the average (ten times less) after the passage of ObamaCare.
Why, people wonder, would something like that happen with the passage of a bill that is supposed to improve health care and make it cheaper to boot? Wouldn’t that encourage people to hire and expand.
Well … no. Because we had to pass the bill to find out what was in the bill. And what we’ve found out is none to pleasing.
As Tina Korb points out at Hot Air:
As the report states, correlation cannot prove causation — but the change in course is statistically measurable and testing reveals a structural break between April and May of 2010. Moreover, small-business owners have said Obamacare is a deterrent to hiring. Take Scott Womack, the owner of 12 IHOP restaurants in Indiana and Ohio, as just one example. Before Obamacare became law, he had development plans in Ohio. Now, he’s worried he won’t be able to carry out his original plans unless Obamacare is repealed. Those restaurants he planned to open would provide jobs not only for his future employees, but also for everyone involved in the construction of the restaurant buildings themselves.
But … and you knew there was one, this threw a wrench into everyone’s works. Why? The Heritage Foundation points out 3 reasons businesses are discouraged from doing so by the law:
- Businesses with fewer than 50 workers have a strong incentive to maintain this size, which allows them to avoid the mandate to provide government-approved health coverage or face a penalty;
- Businesses with more than 50 workers will see their costs for health coverage rise—they must purchase more expensive government-approved insurance or pay a penalty; and
- Employers face considerable uncertainty about what constitutes qualifying health coverage and what it will cost. They also do not know what the health care market or their health care costs will look like in four years. This makes planning for the future difficult.
Korb provides the link between what that law is doing and the current debt and deficit talks going on in Congress:
The Heritage report recommends repeal — and comes as a welcome reminder that the health care law can’t be ignored as the president and Congress attempt to address the debt and deficit or as the nation attempts to right the still-struggling economy. Nor can it be ignored in the upcoming presidential election. Likely U.S. voters have said jobs and the economy are their No. 1 issue. That means the repeal of Obamacare should be a top priority, too.
Couldn’t agree more. I’ve seen any number of people saying “yeah, repeal it” but then asking “what are you going to replace it with”?
Uh, personal responsibility? How about we try that for a change? It is each citizen’s job to care for themselves and do (and pay for) those things necessary to see that they aren’t a burden on the rest of the citizenry.
What a concept, huh?
~McQ
Twitter: @McQandO
How screwed are we?
I have to admit, I sometimes get tired of being the voice of doom. Sadly, our political class–Republicans and Democrats alike–seems determined to follow the worst policy options available. So, doom slouches closer. The proximate doom they’re fiddling with this time is the approaching debt limit. Now, I yield to no man in my hatred for ever-increasing government spending, but this debt-limit battle is pointless. We will increase the debt limit. We have no choice.
Here’s the current situation:
OMB estimates federal revenues for 2011 will hit $2.17 trillion. Granny, our servicemen, and other such untouchables — by which I take him to mean Social Security, Medicare, national defense, and debt-service payments — will add up to $2.21 trillion, meaning that even if we cut the rest of the federal budget to $0.00 — no Medicaid, no food stamps, no Air Force One — revenues still would not cover these untouchables, according to OMB estimates…
Our deficit is about 40 percent of spending this year; continued recovery, if the estimates hold, will do some of the work for the 2013 regime, but even under current forecasts that are arguably too rosy, we’ll still be running a 26 percent deficit in 2013.
Even if we eliminate every penny of spending this year except for Social Security, Medicare, and Defense, we still can’t cover this year’s spending. And next year’s spending projects an economic recovery will save us, and reduce the deficit to 26% of spending. Absent such a recovery, next year we’ll be back to another 40% deficit.
And the politicians of both parties are nowhere near to making the appropriate cuts in the budget in years farther out than that. The biggest deficit reduction package currently on the table is for $4 trillion over the next 10 years. Which sounds impressive, until you remember that the actual projected budget deficit over the next 10 years is $13 trillion. So, we’re still $9 trillion short of closing the budget deficit for the next 10 years.
But, wait! It gets better! This $13 trillion figure assumes that interest rates will remain stable where the currently are. If interest rates for treasuries go up by 1%, that wil add 1.3 trillion to the deficit over the same period. As the moment, the Office of Management and the Budget (OMB) projections are for a stable average interest rate of 2.5%. Of course, the current 20-year average is closer to 5.5%, so a return even to normal interest rates will add up to $3.9 trillion to the deficit.
But the magic doesn’t stop yet! OMB forecasts growth rates of between 4%-4.5% from 2014 to 2014. The average trend rate of growth is between 2.5%-3% however. So, if we don’t get the strong growth the OMB is predicting over the next three years, and the following years, we’ll need to add another $3 trillion or so to the deficit over the next decade. And, frankly, if you believe Goldman Sachs today, a return to trend rates of growth seems..unlikely, as they’ve lowered 2Q GDP growth to 1.5% from 2.5% and 3Q to 2.5% from 3.25%. They also forecast unemployment at end of 2012 to be 8.75%.
So, the best case scenario is that we’ll add $9 trillion to the deficit over the next decade. A return to historical growth and interest rates–even if we assume the $4 trillion of budget cuts will actually happen–means a 10-year deficit of $16 trillion. Essentially, we will more than double the National Debt, pushing the debt to GDP ratio to about 160% by 2021.
And that’s the good news.
The bad news is that, in the current debate over the debt ceiling, everyone involved seems determined to play chicken with a default–even if only a selective default–of US treasury obligations.
Tim Pawlenty even suggested that a technical default might be exactly what Washington needs to send a wake-up call to the politicians about how serious the situation is. Others, like Michelle Bachmann, and a not inconsequential number of Tea Party caucus members are steadfastly against raising the debt ceiling for any reason at all.
This is insanity.
Any sort of default, even a selective default that would suspend interest payments only to securities held by the government, while paying all private bondholders in full, will have completely unpredictable results. The least predictable result, however, would be business as usual. A technical default–i.e., delaying interest payments for a few days–or selective default, or any other kind of default is…well…a default. It is a failure to make interest payments.
The most obvious possible result of any sort of default will be to eliminate the US Treasury’s AAA rating, and push interest rates up sharply. If we’re lucky, we’d be talking about a yield of 9%-10%…and an additional $5 trillion added to the deficit (running total in 2021: $21 trillion added to the national debt).
And, again, that’s a best case scenario. Because it assumes that everyone will be willing to hold their T-Notes through all of this. If any major overseas institution or government–say, China–decides to unload their holdings, it could be the start of a flight from treasuries that will destroy the US Dollar in the FOREX, vastly increase the price of imported goods, like, say, oil, and spark uncontrollable hyperinflation in the US. The life savings of every person and institution would be wiped out.
Naturally, yields on interest-bearing instruments would then pull back on the stick and climb for the skies. Not that it’d matter much at that point, since the currency would merely be ornately engraved pieces of durable paper. Suitable for burning in the Franklin Stoves with which we will be heating our homes, in the absence of oil.
Flirting with default is extraordinarily reckless. I don’t even have the words to begin to describe how badly any sort of default might go.
The thing is, we don’t know–we can’t know–what the results of a technical or selective default might be. It might be the judgement of worldwide investors that there are no better alternatives to US-denominated securities, so they’ll just have to ride out a technical default, and accept their interest payments coming a few days late. It might be their judgement that unloading their US-denominated securities and losing a little money is better than the risk of losing everything through a currency collapse. It might be a lot of things, and we have no way of knowing which of those things might come to pass.
As Tim Pawlenty says, a default might be a wake up call. From an exploding phone filled with napalm and plutonium.
Whatever political points might be at stake, is it worth this level of risk?
The safe path here is a simple $500 billion debt limit increase. That’ll give us 6 months to figure things out, and try to discover some way to get our fiscal picture under control, and avoid a default. Government spending is out of control, but a default is really not the best way to impose fiscal discipline.
~
Dale Franks
Twitter: @DaleFranks
What a difference a percentage point makes
Especially when you’re talking about GDP growth:
The "new normal" is a term coined by the brain trust at the giant bond fund PIMCO. Anthony Crescenzi, a PIMCO vice president, strategist and portfolio manager, is part of that brain trust.
"The difference between 2 percent growth and 3 percent growth is of major importance and has major implications for the entire economy, for financial markets, for the budget," he says. And the heart of the problem is job creation.
Crescenzi and his colleagues argue that the U.S. economy could actually grow 2 percent a year without adding any new jobs. That’s because the productivity of current workers is rising at about 2 percent a year. "In other words a company can produce 2 percent more goods and/or services a year even if it doesn’t increase the number of people it employs," he says.
Smaller Incomes Mark Zandi, chief economist at Moody’s Analytics, thinks some new jobs would be added in an economy growing 2 percent a year, but far fewer than one growing 3 percent. "In a 3 percent world we’d create roughly 1.6 million jobs a year," he says. But he says that in a 2 percent world, job creation would be less than half — around 700,000 jobs.
Meanwhile, in China, growth hit 9.5%. So what is China doing, policy wise, that the US isn’t? Well, for one thing it is encouraging businesses and has established a positive business climate. Additionally, it isn’t borrowing money to pump into some black hole it calls “stimulus” at a rate faster than we’ve seen in recent history. Etc.
It’s pretty bad when you have to look to China to point out what the US should be doing. As Henry Kissinger recently said, the Chinese used to think we had the financial side of things pretty much figured out. Then this mess and resultant stupidity in reaction to it. The one thing we should have had the inside track on, we didn’t, because we chose to recreate the failed policies of the Hoover/FDR era without a world war to finally pull us out of the mess (or at least I hope that’s the case).
Is this the “new normal” as Crescenzi claims? PIMCO, btw, is the world’s largest bond fund (almost 2 trillion). PIMCO also recently announced that it would no longer be buying US debt.
Why? Because no one is confident the Federal Reserve knows what it is doing:
Some Fed officials at the June meeting also said additional monetary stimulus would be appropriate “if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated,” according to the minutes.
Really?
So they are considering a “QE3”? Note the change from “last August” to now.
Last August, when Bernanke signaled in a speech in Jackson Hole, Wyoming, that the Fed would embark on a second round of Treasury bond purchases, employers were cutting jobs, pushing up the unemployment rate to 9.6 percent. The weakness in the economy prompted Bernanke to focus on the possibility of deflation, or a broad-based drop in prices and asset values including homes and stocks.
The economy is in better shape now than in August, though hiring remains “frustratingly slow,” Bernanke said at a June 22 news conference. Employers added 18,000 jobs to their payrolls last month, the fewest in nine months, the government reported last week.
The Fed’s $600 billion Treasury bond-buying program, completed in June, was designed to spur economic growth, employment and consumer spending by lifting stock prices and reducing borrowing costs.
Is the economy in “better shape now than in August”? I say ‘no’. And so do most of the economic indicators. Dr. Robert Barro, Paul M Warburg Professor of Economics at Harvard University makes it clear where the current policy is leading:
Turning to quantitative easing, he warned that the US and UK are storing up inflation and that the Bank of England may be too complacent. Although there is no threat to inflation now, he said: "You have to have an exit strategy. Ben Bernanke [chairman of the US Federal Reserve] and [Bank Governor] Mervyn King are aware of this, but I think they are a little over confident about how they can accomplish it. Because you want to have this exit strategy without having a lot of inflation.
"That’s when the inflation would occur. If there’s a recovery and there’s all this liquidity and somehow the central bank has to reverse it."
That’s precisely where this is all headed – somehow at, at some point, the Fed has to wring out all this money it pumped into the economy. And that stored up inflation is likely to explode during that process – a real economy killer. Barro is saying he has little confidence in the Fed, deeming them “over confident” in their ability to do that while avoiding letting the inflation dragon out of the cage.
Meanwhile, in Europe …
Yeah, it’s a mess. And given the propensity of our policy makers to recreate the policies of the Great Depression, I don’t see it getting better any time soon. So yes, for at least the foreseeable future, the “new normal” may be 9.2% unemployment. Because there is still no reason or incentive for US businesses to take the chance of expanding and hiring in such an uncertain economic atmosphere.
Until they are much more confident in the policies of this administration and the Federal Reserve, few if any are going to change the status quo.
~McQ
Twitter: @McQandO
NY Times still clueless about economic woes
Cluelessness seems to be a fairly rampant disease among those who seem unable to peer objectively at reality and analyze it. They prefer to pretend they know what they’re talking about and unhelpfully prescribe exactly the wrong antidote every single time (in this case, more of what we’ve watched fail for two plus years). And, as it turns out, the New York Times editorial board is peerless among that group:
It was not surprising to hear the Republican presidential candidates repeat their tiresome claim that excessive government spending and borrowing were behind Friday’s terrible unemployment report. It was depressing to hear President Obama sound as if he agreed with them.
And the NYT’s claim as to why that’s not the case?
There has never been any evidence that the federal debt is primarily responsible for the persistent joblessness that began with the 2008 recession. The numbers have remained high because of weak consumer demand and stagnant wage growth, along with an imbalance between jobs and job skills.
Who has ever argued that “federal debt is primarily responsible for the persistent joblessness?” Certainly there are other factors. However, there’s no question that excessive government spending – i.e. borrowing to spend – has had a hand in the stagnation we’re now undergoing. In fact, increased and excessive government spending has had no effect and, given the promises made, could be argued to have had a negative effect.
The debt is the indicator of the problem – excessive and unaffordable spending. As we’ve been pointing out for months, revenue isn’t the problem – spending is. So pointing to this strawman, as the NY Times does, is just more politics from the side who thinks it prudent to penalize those who produce in order to bail out those who spend what they produce (and the reason the Democrats insist on calling the present income tax levels “Bush tax cuts”). What doesn’t seem to penetrate the thinking of those who continue to push this line is one of the reasons we’ve had weak consumer demand and stagnant wage growth is the unsettled business and regulatory atmosphere this administration has created in its 2 plus years. That, of course is pushed aside by the NYT in favor of this argument:
The president may have a nebulous approach to unemployment, but he is hardly indifferent to it. His re-election hinges on reducing it. It is hard to understand, though, why Mr. Obama has adopted the language of his opponents in connecting the economy to the debt. To his credit, he talked about the one step that would work — investing money in rebuilding the country. But the debt-ceiling ideas he is now considering would make that investment much less likely by pulling hundreds of billions of dollars out of the economy at precisely the moment when the spending is needed most.
Yeah, there’s absolutely no connection between the “economy” and the “debt” is there? Of course there is? And pretending that borrowing money we don’t have to push it out in the economy and calling it an ‘investment’ doesn’t fool most rational folks. The NYT even points out that the last time the money was thrown out there is it mostly went to service state debt which only delayed the inevitable. Now, apparently, that will somehow be different in the face of “weak consumer demand”. Really? And, of course, the jobs the NYT laments about aren’t private sector jobs but government jobs (state and local) which we all know are the engine of our economy (/sarc).
The types of increases in revenue that government should be encouraging are those that come from private sector jobs. They provide tax revenue from created wealth. They don’t require the government to borrow money to “invest” (i.e. borrow money, create jobs and then tax the jobs created with the borrowed money and claim “increased revenue”. Make sense to you?).
So while I don’t disagree with the Times when it says “his re-election hinges on reducing” unemployment, it appears the Times would opt for the easy and wrong way to do it – borrow more money, pump it into creating make-work jobs just long enough to get Obama past the 2012 election. Then, who care? Debt ceiling, increased drag on the economy’s GDP and all that stuff, forgetaboutit. Well, at least till they get this guy re-elected. Then, of course, I expect a clarion call by the Times wondering how this could have all be so mismanaged and spinning and twisting it, as they have in this editorial, so it all ends up being the fault of the Republicans.
~McQ
Twitter: @McQandO
Geithner claims GOP has no right to question debt ceiling because Constitution prohibits it
Treasury Secretary Turbo Tax Tim Geithner, who is reportedly thinking about leaving the administration (and I say good riddance), is also, apparently, a constitutional scholar as well as a tax cheat.
While speaking with Mike Allen of POLITICO, Gethner held that the debt ceiling was likely unconstitutional:
"I think there are some people who are pretending not to understand it, who think there’s leverage for them in threatening a default," Geithner said. "I don’t understand it as a negotiating position. I mean really think about it, you’re going to say that– can I read you the 14th amendment?"
He then read it out loud:
"’The validity of the public debt of the United States, authorized by law, including debts incurred for the payments of pension and bounties for services in suppressing insurrection or rebellion’ — this is the important thing — ‘shall not be questioned.
So:
"So as a negotiating strategy you say: ‘If you don’t do things my way, I’m going to force the United States to default–not pay the legacy of bills accumulated by my predecessors in Congress.’ It’s not a credible negotiating strategy, and it’s not going to happen," Geithner insisted.
Wait. Hold on. Is Geithner saying that the Constitution, via the 14th Amendment, essentially gives Congress unlimited spending power that can’t be questioned? Because that’s what it seems he’s saying.
Secondly, there are ways to pay “debts”, “pensions”, etc. without breaking the debt ceiling – cut spending in other areas.
Finally, depending on the interpretation, a debt ceiling could indeed be an authorized law which limits what can be incurred as public debt – and shouldn’t be questioned. I doubt the founders had any intent to allow Congress to authorize unlimited and unquestioned spending. Anyone who can find that sort of an intent stated anywhere by the will truly be informing me of something I didn’t know.
Always good to know you have a Treasury Secretary who sees unlimited spending as a feature, not a bug, and wants it clearly understood that the “important thing” is it shouldn’t be questioned.
Don’t let the doorknob hit you in the ass on the way out, Tim.
~McQ
Twitter: @McQandO
Common sense reasons why GOP should stand firm on tax increases
James Pethokoukis provides the reasons. As you’ll note, economically, they’re not rocket science, but they certainly are something that the left seems to want to ignore in focusing its solutions to the debt problem on getting tax increases included.
One – the economy will not tolerate a tax increase at this time. It is simply not in the shape in which it can shrug a tax increase off. And it certainly won’t matter if the tax is only on “the rich”. As someone once asked, “ever get a job from a poor man?” The increase in revenues generated by taxing the rich (or anyone for that matter) will not offset the loss it will generate in hiring or expansion of business. Pethokoukis points out that the economy is in incredibly fragile shape at the moment. Thus:
…[T]he economic recovery is sputtering with stall speed fast approaching. Now would be a terrible time to penalize investors and business, both big and small, with new taxes.
Common sense 101.
Two – Tax revenue isn’t our problem when it comes to debt. Spending is the problem. Yet as I pointed out Saturday, the solution the left seems to prefer involves nothing but tax revenue increases or tax increases. What they’re less inclined to do is focus on the spending problem and make appropriate spending cuts. “Greek heroin” is the reason. Take a look at this:
By 2021, the the CBO says, the annual budget deficit would be 7.5 percent of GDP and by 2035 a truly monstrous 15.5 percent. Throughout this period, tax revenue would be 18.4 percent, right around the historical average. But spending would be 25.9 percent in 2021, 33.9 percent in 2035 vs. an average of roughly 21 percent. It’s spending that’s way out of whack, not revenue.
That means that if the so-called “Bush tax cuts” (they’re just the current tax rates) are left in place, that’s where we find ourselves in 2035. As Pethokoukis proves, it isn’t tax revenue that’s the problem. Unless you believe that it’s the government’s money in the first place and they have every right to determine how much you get to keep.
Let’s go with that. Let’s see what happens if the left gets its way:
But let’s say all the Bush tax cuts were left to expire, as was AMT relief. Assuming no economic fallout, according to the CBO, revenue would be 23.2 percent of GDP by 2035. Three problems here: a) even with all those tax increases, the annual budget deficit would still be nearly an unsustainable 10.7 percent of GDP in 2035; b) the U.S. tax code has never generated that level of revenue and almost certainly can’t without a value-added tax; and c) there would be tremendous economic fallout. Axing all the Bush tax cuts would chop three percentage points off GDP growth, according to Goldman Sachs, certainly sending America back into recession. Tax revenue would again plummet.
Spending, not tax revenue, is the obvious problem.
Common sense 101.
Three – boosting economic growth is the fastest way to increasing tax revenues. However there’s one problem to that as far as an intrusive government is concerned. It has to get out of the way.
Pethokoukis and I part ways a bit here as he endorses a consumption tax vs. an income tax and further endorses raising the revenue percentage of government’s part of the GDP to 19%. Can’t go there with him even if Rep. Paul Ryan’s plan is similar. I’m not so much against a consumption tax (it at least taxes what you consume thereby not penalizing you for what you save, nor do you get double taxed assuming the income tax goes away) but I am against such an increase in the tax percentage. I think very aggressive cuts in government spending plus fairly massive deregulation (and the obvious cuts in compliance spending by businesses that would save) would yield a fast recovering and growing economy. Granting an increase in the historic percentage of GDP that government has taken opens a door of precedence I don’t want opened. It is time government lived within its means and understood that that economic growth takes precedence over government growth – every time.
It is spending – uncontrolled and wasteful spending – that is our problem. Not tax revenue. Government must be cut and cut fairly severely. That’s something the heroin addicts don’t want to hear. So they spin out solutions which always end up in one place – “the problem is revenue, we need more revenue”.
No. They don’t.
And the GOP, if it is to have any credibility with voters come 2012, had best not cave on this point.
Again, Common Sense 101.
~McQ
Twitter: @McQandO
The Greek tragedy (or socialism runs out of other people’s money)
And, of course, Greece isn’t the only country going through this at the moment, it is only the worst off of the bunch. In fact, it is a case study in the end result of socialist programs (although you’d think, given its fairly recent collapse, that much could have been learned from the Soviet Union). Greece has, for decades, piled up more and more debt than the other European socialist countries and, with the global economic downturn, was the first of the Euro zone to hit the shoals of bankruptcy – although Europe is doing everything it can to forestall that.
The problem is that socialism and its benefits (whether they’re affordable or not) are like being hooked on heroin. Even if you know you have too, you just can’t seem to get off the stuff. Addicts deny reality, fight the cure because it is horribly painful and thus somehow come to believe they can continue to survive on the drug as they have before. And it slowly and inexorably kills them.
Greece, if it isn’t able to kick the habit, is on its economic death bed. Europe understands this and also sees the possibility that Greece’s inability to break this habit, i.e. pass and impose austerity measure – draconian austerity measures – might also mean the death of Europe’s currency, the Euro and conceivably the break up of the European union.
That’s how serious it is.
But the addict continues to fight the cure. Led by the two major unions, Greece has been shut down for 2 days as protesters vent their spleen about the unacceptability of these austerity measures. The irony, of course, is the measures are being imposed by a socialist government which has been given no choice but to impose such measures.
However, that government is seen as week and socialist members who supported the measures at first are now opposing them.
But the austerity program has met with resistance from within the ranks of Mr. Papandreou’s own party, especially over the privatization of state companies whose workers have traditionally been at the heart of the Socialists’ constituency.
As many as four Socialists in Parliament have said they will consider opposing the measures, including one who opposes the planned privatization of the water utility of Thessaloniki, in her district.
Another Socialist, Alexandros Athanasiadis, said he would vote against the plan to reduce the state’s stake in the Public Power Company to 34 percent from 51 percent. Some of the company’s coal-burning plants are in his district in northeastern Greece.
Naturally the socialists oppose privatization because, you know, the government has done such a bang up job to this point of running businesses it has no business being involved in. Why? Because the government, and therefore the parliamentary members, control the jobs, pay and pensions. More heroin. As government gets more involved in areas it has no business and it (those who run it) begin to understand the power such intrusion brings them, they’re loathe to give it up, even when they’re doing a horrible, inefficient and costly job that could be better and more cheaply done by private industry.
The symbiotic relationship between the unions and the MPs is mutually beneficial and ensures an incumbent who properly plays the game (support union demands) remains in power (see public sector unions and Democrats here). That, of course, has led to unaffordable pensions, wages which aren’t competitive and a public stuck with the ever increasing bill.
Well, the bill has come due.
On Monday, Mr. Venizelos, a Socialist veteran known for his ability to rally his troops, told lawmakers that the measures might be “tough and even unfair” but that they were unavoidable. “We have to finally come to our senses and get serious,” he said.
With 2 days of protests, one has to wonder whether indeed the Greeks are going to actually come to their senses and get serious”, because if they don’t the repercussions could be devastating.
And knowing all of that, and looking at our debt problems, one also has to wonder why we seem bent on creating an addiction of our own, given the real world examples of where that must eventually lead.
It makes absolutely no sense, does it?
~McQ
Twitter: @McQandO
US in worse shape than Greece
I’m not sure how many times we or our politicians have to hear this, but to this point, it hasn’t made the impression it should:
Much of the public focus is on the nation’s public debt, which is $14.3 trillion. But that doesn’t include money guaranteed for Medicare, Medicaid and Social Security, which comes to close to $50 trillion, according to government figures.
The government also is on the hook for other debts such as the programs related to the bailout of the financial system following the crisis of 2008 and 2009, government figures show.
Taken together, Gross puts the total at "nearly $100 trillion," that while perhaps a bit on the high side, places the country in a highly unenviable fiscal position that he said won’t find a solution overnight.
Bill Gross runs Pimco, a based in Newport Beach, Calif., manages more than $1.2 trillion in assets and runs the largest bond fund in the world. Gross went on to say:
"To think that we can reduce that within the space of a year or two is not a realistic assumption," Gross said in a live interview. "That’s much more than Greece, that’s much more than almost any other developed country. We’ve got a problem and we have to get after it quickly."
[…]
"We’ve always wondered who will buy Treasuries" after the Federal Reserve purchases the last of its $600 billion to end the second leg of its quantitative easing program later this month, Gross said. "It’s certainly not Pimco and it’s probably not the bond funds of the world."
Now whether you realize it or not, that’s a good share of the bond market saying, "yeah, you know, not interested". That’s scary. And with China recently unloading some of its US debt notes, it’s not a happy picture for the US, fiscally. As Gross points out, in overall financial condition, we’re worse off than the basket case of Europe – Greece.
We have been getting these warning for literally decades. We’ve done absolutely nothing substantial to mitigate them. In fact, we added more to the pile (Medicare D and ObamaCare). We’re going to crash. It is time for a huge reality check, gut check or whatever you want to call it. But like the shopping addicted, we have got to cut up the credit cards, cut spending to the bone, get government out of areas it has no business and take as much power of the purse away from the Fed as we can.
This is beyond absurd. And the time to address it is now (if it’s not already too late).
~McQ
Twitter: @McQandO
Does the economy doom Obama’s re-election hopes?
I’m beginning to wonder if the Republicans can run just about anyone for President (note the qualifier – “just about” – not everyone, even among the declared candidates) and win given this economy and this president:
Americans’ disapproval of how President Barack Obama is handling the economy and its growing budget deficit has reached new highs amid broad frustration over the slow pace of economic recovery, according to a Washington Post-ABC New poll released on Tuesday.
The ratings boost Obama received after the killing of Osama bin Laden has dissipated with his job approval rating back to 47 percent. Forty-nine percent disapprove of his performance.
Obama’s approval rating bounced to 56 immediately after bin Laden was killed last month.
But it went back to a plurality very quickly. On the key issue, however, it hasn’t returned to a particular percentage – it’s gotten worse. Much worse:
Fifty-nine percent, a new high, gave Obama negative marks for his handling of the economy, up from 55 percent a month earlier.
Obama’s approval rating on the deficit issue hit a new low of 33 percent, down 6 points since April.
Anyone who doesn’t understand that is where the election will be decided hasn’t been paying attention to politics very long. Bill Clinton knew it when he rode to victory on his “It’s the economy, stupid”. Ronald Reagan knew it when he continually asked, “are you better off now than you were 4 years ago”? And Barack Obama would probably kill to have the economic problems Jimmy Carter faced – not that he’d do any better than Carter.
The point is, in bad economic times, incumbents have a tough road ahead of them at election time. That’s because economic issues, joblessness, insecurity and fear are felt and understood by everyone. Pocketbook issues are personal issues. And the public has always voted those issues in general elections – much to the disadvantage of incumbent politicians, especially presidents. There’s a number going around out there which claims that no president since FDR has been re-elected with unemployment over 7.2% . Of course keep in mind only a some of them since then have run for re-election and not all of them had bad unemployment numbers at the time. The point, however, is that this sort of issue is critical to re-election chances.
The survey reflects a broadly pessimistic public mood as high gasoline prices, sliding home values and high unemployment numbers raised concerns about the pace of the U.S. economic recovery, The Washington Post said.
Eighty-nine percent of Americans say the economy is in bad shape; 57 percent say the recovery has not started and 66 percent said the United States was seriously on the wrong track.
Forty-five percent said they trust congressional Republicans over Obama to handle the economy, up 11 points since March.
If much of what is listed in the first paragraph isn’t improving fairly dramatically when 2012 arrives, Obama is in for a long year and, just guessing here, an “upset” loss. The shine has worn off. The cache of electing a black president has run its course. History has been made. And now the results part of the show come to bear. Having been a moment in history won’t save Obama if the economy still sucks as badly as it does now.
My dad used to always tell us boys, “you live between your ears”, meaning attitude was critical to how you approached life and overcame obstacles. Attitude is also critical in economies. Pessimism isn’t the predominant mood one wants within the citizenry when they’re hoping to see it turn around. And it certainly isn’t the mood a president wants through out the lane when he’s running for re-election.
Yeah, this is going to be an interesting year and a half until election day 2012. I’m betting it’s not better economically and, again depending on who the GOP eventually nominates, Republicans stand to win the election. Or, and you heard it here first with all the caveats – it is most likely the Republican’s election to lose.
Of course, knowing them, I have little doubt they can manage to do that.
~McQ
Twitter: @McQandO
College grads finding job market “humbling”
In line with the recent posts here on the worth of college education (and Bryan’s post on a possible loan bubble) it seems that the job market is also making a statement on college:
Now evidence is emerging that the damage wrought by the sour economy is more widespread than just a few careers led astray or postponed. Even for college graduates — the people who were most protected from the slings and arrows of recession — the outlook is rather bleak.
Employment rates for new college graduates have fallen sharply in the last two years, as have starting salaries for those who can find work. What’s more, only half of the jobs landed by these new graduates even require a college degree, reviving debates about whether higher education is “worth it” after all.
Of course in any economic downturn, especially in one which unemployment is high, this sort of thing is going to happen. According to the NY Times story, 22.4% of recent graduates are not working. 22% are not working in jobs that require a college degree. And, of course, of the 55.6% who are working in jobs requiring a degree, many are not working in their degree area. It also appears that the median salary has dropped significantly during the recession – after all, it’s a buyer’s market:
The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday by the John J. Heldrich Center for Workforce Development at Rutgers University. That is a decline of 10 percent, even before taking inflation into account.
That’s a significant drop and again, it makes the argument that going to work for 4 years instead of college may have two benefits: 1) no college loan debt and 2) 4 year work history which would most likely see a salary or earnings well above the median starting salary for college students. And as might be expected, it is those college students who are graduates from liberal arts programs who are suffering most.
The choice of major is quite important. Certain majors had better luck finding a job that required a college degree, according to an analysis by Andrew M. Sum, an economist at Northeastern University, of 2009 Labor Department data for college graduates under 25.
Young graduates who majored in education and teaching or engineering were most likely to find a job requiring a college degree, while area studies majors — those who majored in Latin American studies, for example — and humanities majors were least likely to do so. Among all recent education graduates, 71.1 percent were in jobs that required a college degree; of all area studies majors, the share was 44.7 percent.
So what sort of jobs are those who are degreed but not working in a job requiring a degree holding?
An analysis by The New York Times of Labor Department data about college graduates aged 25 to 34 found that the number of these workers employed in food service, restaurants and bars had risen 17 percent in 2009 from 2008, though the sample size was small. There were similar or bigger employment increases at gas stations and fuel dealers, food and alcohol stores, and taxi and limousine services.
Of course that has a ripple effect in which less-educated workers may be displaced.
“The less schooling you had, the more likely you were to get thrown out of the labor market altogether,” said Mr. Sum, noting that unemployment rates for high school graduates and dropouts are always much higher than those for college graduates. “There is complete displacement all the way down.”
Obviously the lesson here is education is still valuable, the question however is “how valuable”? Valuable enough to commit to the tremendous debt a college degree can bring? It is that sort of ROI that young people must begin making – especially those considering liberal arts programs. Assuming a desire by most who attend college to use their credentials to get a high paying job and secure a better future than foregoing such a program of study has to be under scrutiny by those in such a situation.
Opting to begin work out of high school vs. pursuing a college degree may become a real possibility. And naturally that will have another ripple effect. Colleges and universities will see decreased attendance which will in turn mean less revenue and possibly spur competition among them to attract students.
I actually see that as a beneficial effect, especially given the cost of higher education today, that may eventually make the ROI work somewhat better for potential college students. It is obvious the cost of higher education has risen much higher than any inflation rate. That’s a bubble that needs to be popped and popped rather quickly. Dropping enrollment because of a perception of not receiving the value for what is paid may be the motivator for higher education to cut their prices or suffer the consequences.
~McQ
Twitter: @McQandO