Cartoon: Unemployment

Unemployment Chart Updated

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Cartoon: Tax Hikes

Did the Stimulus Work?

A recent paper by Alan Blinder and Mark Zandi claims that if not for the response of the federal government, the unemployment rate would be 15.7 percent, far higher than the current 9.5 percent. The press quickly reported that this vindicated the Obama stimulus plan. But the fact is that most of the positive effects cited in their paper came not from the stimulus but from stabilizing actions of the Federal Reserve, the FDIC, and TARP...

The Romer-Bernstein paper has often been cited as saying that if the package passed, the unemployment rate would peak below 8 percent in the middle of 2009 and would decline to below 7.5 percent by now. Obviously this has not happened. The administration, along with Blinder and Zandi, argue that it is not fair to conclude that this proves the package was a failure since Romer and Bern-stein underestimated the severity of the recession and that unemployment was already 8.2 percent in the first quarter of 2009, higher than the assumed peak.

I am sympathetic to their argument and Chart 1 corrects for their complaint by raising their estimate of where unemployment started in their experiment. The lowest line provides the original estimate of the path of unemployment provided by Romer and Bernstein on January 9, 2009. The second line replicates the Romer and Bernstein path, but raises the initial unemployment rate from their assumed 7.5 percent to 8.2 percent. This was the actual average of the unemployment rate in the first quarter of 2009, the period in which the stimulus was passed. The third line provides a more extreme alternative by raising the initial unemployment rate to the 9.3 percent average of the second quarter 2009. The first modification fully compensates for their objection while the second modification more than compensates for their concern...

Our policy problem today is that the bill that was actually passed into law was both so expensive and so badly flawed that it gives the whole concept of macroeconomic stimulus a bad name.

read the entire article

Financial Reform: Barely Understandable Fine Print

President Obama signed into law on Wednesday a sweeping expansion of federal financial regulation….

A number of the details have been left for regulators to work out, inevitably setting off complicated tangles down the road that could last for years…complex legislation, with its dense pages on derivatives practices….

“If you’ve ever applied for a credit card, a student loan, or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print,” Mr. Obama said.

from the NYTimes

Financial Reform Bill Signed into Law

President Obama will sign into law Wednesday the Wall Street reform bill -- the most-sweeping set of changes to America's financial regulatory system since the 1930s.

The legislation will vastly reform the way big financial firms do business.

This is "reform that will prevent the kind of shadowy deals that led to this crisis, reform that would never again put taxpayers on the hook for Wall Street's mistakes," the president said last week.

The bill aims to strengthen consumer protection, rein in complex financial products and head off more bank bailouts...

The legislation would establish a Consumer Financial Protection Bureau inside the Federal Reserve that could write new rules to protect consumers from unfair or abusive practices in mortgages and credit cards.

The bill creates a new council of regulators, lead by the Treasury Department, that would set new standards for how much cash banks must keep on hand to prevent them from triggering a financial crisis. It would also establish new procedures for shutting down giant financial firms that are collapsing.

The measure would put new limits on Wall Street banks' speculative bets for their own accounts and their ability to own hedge funds, while leaving the door open for some investment activities.

read the CNN article

Private Sector v Government Sector

Bill Bonner writes:

A chart that showed past presidents and the percentage of each president’s cabinet appointees who had previously worked in the private sector – you know, a real life business, not a government job? Remember what that is? A private business?

• Roosevelt – 38%
• Taft – 40%
• Wilson – 52%
• Harding – 49%
• Coolidge – 48%
• Hoover – 42%
• FDR – 50%
• Truman – 50%
• Eisenhower – 57%
• Kennedy – 30%
• LBJ – 47%
• Nixon – 53%
• Ford – 42%
• Carter – 32%
• Reagan – 56%
• GHWB – 51%
• Clinton – 39%
• GWB – 55%

And the Chicken Dinner Winner is…………………….

• Obama – 8%*

This is the guy who wants to tell YOU how to run YOUR life!

ONLY ONE IN TWELVE in the Obama Cabinet HAS EVER HAD A JOB.

*YEP, EIGHT PERCENT!

And these are the guys holding a “job summit”; going to tell us how to run our businesses, make our decisions for us? Do you want to trust them with every aspect of your life?

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Stimulus Failure

In the world’s leading economy, 8 million jobs have been lost. The US government disappeared almost a million jobseekers from the unemployment lists in the last two months to try to make the numbers look better. Still, fewer people have jobs now than when the stimulus began. Those workers with jobs earn less than they did then. And those who lose their jobs wait longer than ever to find a new one. Housing is sinking again, too, with nearly half of all the mortgaged houses already worth less than their mortgages. Illinois has stopped paying its bills. California is laying people off wholesale...

Spend now; cut later,’ is still his advice. But with so much spending…and so little to show for it…you’d think he’d be shy about proposing more. At least, he might feel the burden of proof more heavily upon his shoulders. Is there any evidence that increased government spending – even in time of private sector retrenching – makes people better off? And even if ‘spend now, cut later’ were good advice, is there any evidence that they can actually do it? None that we know of.

Based on the experience of the ’80s and ’90s, we observed last week that it didn’t seem to matter what governments did or what they said…the markets went about their business. Today, we add a further provocation.

Let us take a look back at the penultimate budget of the Clinton years:

“Eight years ago, our future was at risk,” Bill Clinton congratulated himself on Sept. 27, 2000. “Economic growth was low, unemployment was high, interest rates were high, the federal debt had quadrupled in the previous 12 years. When Vice President Gore and I took office, the budget deficit was $290 billion, and it was projected this year the budget deficit would be $455 billion.”...

The Clinton era boom is now the Obama era bust. When the contraction hit, the feds followed the formula. They mustered their fiscal and monetary stimulus. But they got no recovery. Spending more now won’t help. Not because the Obama team is less competent than the Clinton crowd. They are just unluckier. Credit is contracting.

So Krugman will be proven right after all after all. Austerity will not bring prosperity. But then, neither would stimulus. Krugman will say ‘I told you so’…and spend the rest of his career in darkness and confirmed delusion.

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Obama's Economic Policy: A Critique

As the government runs from one whimsical plan to another, all that market participants can be sure of is that there will be more regulation and intervention, and that the people will be soaked by taxes either direct or indirect. Since businesses are unsure of the economic environment, but rightfully anticipating (though, in my opinion, underestimating) an increase in outright socialism, this uncertainty will surely quell economic growth.

Thus, we see that Obama's policies are not only misguided but also incredibly destructive. If instead of letting the economy liquidate, painful as it may be, we try to continue the illusory boom, we will be doomed to years of unemployment, stagnation, and ultimately the "crack-up boom" of the economy. And this isn't even to mention the threats posed to our economy by national healthcare, cap-and-tax, and, even scarier, Mr. Obama's foreign policy.

Each and every one of these policies retards the necessary adjustment, depriving businesses of valuable assets that can be put to more profitable lines of work and depriving consumers of the products they seek at true fair-market value. The only way to create jobs and fix a broken economic model is to release the entrepreneurial forces of America. Unfortunately, it appears that President Obama does not care for this solution, preferring to ensure a prolonged depression to serve his political ends.

read the entire essay

TARP and the Budget Deficit

The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue.

The administration wants to keep some of the unspent funds available for emergencies, but is considering setting aside a chunk for debt reduction, according to people familiar with the matter. It is also expected to lower the projected long-term cost of the program -- the amount it expects to lose -- to as little as $200 billion from $341 billion estimated in August...

The White House is in the early stages of considering what bigger moves it might make for next year's budget. The Office of Management and Budget has asked all cabinet agencies, except defense and veterans affairs, to prepare two budget proposals for fiscal 2011, which begins Oct 1, 2010. One would freeze spending at current levels. The other would cut spending by 5%.

read the WSJ article

Economic Forecasts

2009
CBO Unemployment 9.3% Real GDP -2.5%
OMB Unemployment 9.3% Real GDP -2.8%

2010
CBO Unemployment 10.2% Real GDP 1.7%
OMB Unemployment 9.8% Real GDP 2.0%

2011
CBO Unemployment 9.1% Real GDP 3.5%
OMB Unemployment 8.6% Real GDP 3.8%

2012
CBO Unemployment 6.4% Real GDP 4.7%
OMB Unemployment 7.7% Real GDP 4.3%

The Obama administration said Tuesday that it now expects the 10-year budget deficit to reach $9 trillion, or about $2 trillion more than it estimated earlier in the year...

A 10-year deficit of that magnitude means the debt held by the public -- the accumulation of all annual deficits over the decades -- would reach 82% of gross domestic product. That's double the 41% recorded in 2008...


read the CNN story

The Worst is Ahead of Us

In fact, not only have Obama’s policies made this downturn worse, the policies have not yet begun to run their full course, and that means we have further to go before we hit bottom...

First, we have to realize that the trends of mass layoffs had to end, albeit temporarily...

Second, the effects of the environmental policies such as “cap and trade” and other new regulations have not yet been fully felt by U.S. employers...

Third, increases in the minimum wage will take their toll on lower-wage workers, while other new labor and “workplace safety” policies are going to make it more costly to run a business...

Last, whether or not Obama’s health plan will pass Congress intact is irrelevant. The government is going to make medical care more costly, less available, and a greater financial burden on employers and employees. That is a given, and it also translates into higher rates of unemployment.

At best, the “stimulus” has created a lull in the downturn, an eye in the economic hurricane...

From its expensive wars abroad to its multitrillion-dollar borrowing to the continued criminalization of routine business practices, the government has sent a message to private enterprise that it is the enemy. The rest of us will feel the blunt edge of government policy as we watch the economy implode.

read the entire essay

Economists Rate Obama

When I look at other areas in the economy, I think their tax policy will be a disaster, and their budget proposals are jaw dropping. The types of budget deficits he would run, the amount of government debt he would propose is staggering and would stagger the economy if they were allowed to be implemented. We can't function in a good sense with debt levels in the 60% to 80% debt-to-GDP range. These are numbers that are beyond the pale.

Martin Regalia

I think he inherited a real mess. But my view is he's compounding a mess and not really putting the economy on the right track. I think he really botched the whole stimulus package. Most of it comes into play 2010, 2011 rather than 2009 when it's really needed.
There are two things that worry me. One is, Are they laying the basis for a good recovery from the current recession? The second issue is, Where are they putting this country from a long-run point of view? When I see the fiscal numbers the Congressional Budget Office is projecting, it's really scary. They're rather cavalier with how much health care is going to cost, how are we going to finance it. I just think they're being plain irresponsible.

Desmond Lachman

read the CNN article

Obama: The First 200 Days

The nation's economy has continued to shrink since President Obama took office. But the rate of decline has been less severe and there are signs the 18-month old recession is winding down.

Gross domestic product, the broadest measure of economic activity, fell at an annual rate of 1% in the second quarter. That came after a 6.4% drop in the first quarter, which was the worst drop in GDP since the early 1980s.

Many economists believe the economy may register modest growth in the current quarter. "There's no doubt that the speed of the decline has slowed," said Bernard Baumohl, chief global economist at the Economic Outlook Group. "I think the recession is history."


The stock market has rallied since Obama took office, with the Dow Jones industrial average up nearly 17% since Inauguration Day.

After last year's historic declines, investors have been wading back into the market as the economy has shown some signs of stabilization. Still, the blue-chip average is 35% below the highs of November 2007.


Since the administration took office in January, the economy has lost a total of 3.38 million jobs. The unemployment rate, which stood at 7.6% when Obama was inaugurated, has risen to 9.5% as of June.

"Employment is going to continue to be weak for the next few quarters," said Ed Friedman of Moody's Economy.com. "The unemployment rate is going to peak above 10% around the end of the year."

The deficit grew by $776.51 billion from January to June, and has already topped $1 trillion since the government's fiscal year started in October. The administration has said it expects the fiscal 2009 deficit to reach $1.75 trillion. That would be 12.3% of U.S. gross domestic product -- the highest since World War II.

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Cartoon: Obama's Economic Plan

Markets and the Stimulus

Spending is stimulus, the president augues, but one has to be a true believer to ride the Keynesian test car all the way to a $1.75 trillion 2009 deficit. At 12 percent of gross domestic product, it doubles the previous post-war deficit high, 6 percent in 1983. That was when unemployment topped out at 10.8 percent; the Congressional Budget Office projects the jobless rate to go "only" to 9.2 percent in this recession. Last summer, President George W. Bush's projected $482 billion deficit was blasted by Democrats as profligate. Team Obama's first month added an increment larger than that entire amount...

Will the U.S. strategy work? Because we have never run peacetime deficits close to this size, predictions are tenuous. Keynesian models see a pickup in growth, but others forecast none. For its part, the CBO sees long-run fiscal costs with little short-term benefit...

The Obama administration has much to blame on its predecessor. But its own fiscal strategy is highly leveraged on a theory that has not scored well in previous runs. Markets are dubious that the "stimulus" will stimulate. And investors are losing patience with the federal fixes offered for the banking crisis. If the warning signs of the Dow are not heeded by policymakers, they will be by others.

read the entire essay

My thoughts: You can not spend yourself into prosperity.

Cartoon: Obamanomics

Cartoon: Fiscal Irresponsiblity/Responsibility

Cartoon: Obama Spending

Cartoon: Shovel Ready Projects