The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

More Economic Reality

Posted on | April 5, 2010 | 7 Comments

President Obama’s biggest obstacle? Arithmetic:

The increase in jobs highlighted in the nation’s most recent unemployment report carried the sound of economic promise, but Obama administration officials said Sunday that the public shouldn’t expect any dramatic improvement in the jobless rate, largely because of the effect of thousands of “discouraged” unemployed people who have resumed their search for work.
Some economists assert that the unemployment rate, which held steady at 9.7 percent in March, is likely to be driven higher as many more such people are lured into looking for work by signs of recovery.
The number of people looking for jobs rose by more than 200,000 last month compared with February . . .
But the supply of new jobs — 162,000 in March, the biggest monthly increase in three years — will accommodate only a fraction of the unemployed. Some economists say the jobless rate will not recede to pre-recession levels near 5 percent for four more years. . . .

Meanwhile, the Senate went on their Easter recess without extending unemployment benefits — from my perspective, a very good thing, since the only way to extend the benefits is more deficit spending, but probably not viewed so favorably by those counting on an unemployment check.

The idiotic suggestion that the U.S. economy has “turned a corner” and is now in recovery — that we are on a glide-path to an unemployment rate at “pre-recession levels near 5 percent” by 2014 — requires us to ignore several potential impending catastrophes. The first of these is a likely wave of bank failures resulting from the implosion of the commercial real-estate market, possibly a financial meltdown as bad as the 2008 crisis caused by the bursting of the housing bubble.

The second looming catastrophic impact is the government “debt trap” that’s already struck Greece and now threatens Great Britain:

One of the world’s most powerful investment houses has given notice that Britain’s cherished AAA credit rating could be lost within a year, with disastrous consequences for the public finances and the stability of the financial system.
Scott Mather, the head of global portfolio management at the world’s largest bond investor Pacific Investment Management Co (Pimco), also said the eurozone’s potential joint bailout of Greece with the International Monetary Fund would be ineffective.
On Monday, there was a marked sell-off of Greek government debt and an auction of bonds on Tuesday went badly. The spread between the yield on Greek bonds and German Bunds soared again to 340 basis points. Pimco has previously said that Greece’s “initial conditions and demographics are abominable”.
Pimco is reducing the weight of UK, US and European sovereign debt in its portfolios. “Miracles are needed in the next six months in order to keep economic growth in the developed world,” Mr Mather said. Pimco stated last month that it was keeping its negative outlook on British gilts because of fears of inflation and a further deprecation of sterling.

The bond market does not recognize Hope and Change as legal tender.

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Category: Barack Obama, Economics

Comments

7 Responses to “More Economic Reality”

  1. Roxeanne de Luca
    April 5th, 2010 @ 4:23 pm

    If math were required to get into law school, we wouldn’t have so many dumb lawyers out there.

    Moving onwards:

    Obama administration officials said Sunday that the public shouldn’t expect any dramatic improvement in the jobless rate, largely because of the effect of thousands of “discouraged” unemployed people who have resumed their search for work.

    Rant time: if the “jobless rate” is objective, it should not change on whether or not people are “actively searching” for jobs. Another way to put this is that the “jobless rate” of 9.7 percent is total b.s. and understates the magnitude of the problem.

  2. Roxeanne de Luca
    April 5th, 2010 @ 11:23 am

    If math were required to get into law school, we wouldn’t have so many dumb lawyers out there.

    Moving onwards:

    Obama administration officials said Sunday that the public shouldn’t expect any dramatic improvement in the jobless rate, largely because of the effect of thousands of “discouraged” unemployed people who have resumed their search for work.

    Rant time: if the “jobless rate” is objective, it should not change on whether or not people are “actively searching” for jobs. Another way to put this is that the “jobless rate” of 9.7 percent is total b.s. and understates the magnitude of the problem.

  3. Howard Towt
    April 5th, 2010 @ 4:46 pm

    Stacy:

    Another math equation is Y = C+I+G.

    Normally, we expect “C” (consumption by consumers) to carry the day and move our economy forward. Unfortunately, when “G” (government stimulus) is what is driving our economy, it is coming at the expense of consumption by Americans.

    Big government inevitably fails when there is no more “C” to tax…

  4. Howard Towt
    April 5th, 2010 @ 11:46 am

    Stacy:

    Another math equation is Y = C+I+G.

    Normally, we expect “C” (consumption by consumers) to carry the day and move our economy forward. Unfortunately, when “G” (government stimulus) is what is driving our economy, it is coming at the expense of consumption by Americans.

    Big government inevitably fails when there is no more “C” to tax…

  5. Ira
    April 5th, 2010 @ 5:55 pm

    “around the corner” — didn’t Hoover use that phrase..?

  6. Ira
    April 5th, 2010 @ 12:55 pm

    “around the corner” — didn’t Hoover use that phrase..?

  7. Cleaning Out The Cache « The Camp Of The Saints
    April 7th, 2010 @ 8:11 pm

    […] From his first one: The idiotic suggestion that the U.S. economy has “turned a corner” and is now in recovery — that we are on a glide-path to an unemployment rate at ”pre-recession levels near 5 percent” by 2014 — requires us to ignore several potential impending catastrophes. The first of these is a likely wave of bank failures resulting from the implosion of the commercial real-estate market, possibly a financial meltdown as bad as the 2008 crisis caused by the bursting of the housing bubble. […]