Paging Dr Doom
Dr. Nouriel Roubini was right about the bubble. Let's hope he's not right about this:
Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.
While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.
Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.
So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.
There's really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.
The long-term picture for workers and families is even worse than current job loss numbers alone would suggest.
The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession.
As a result of these terribly weak labor markets, we can expect weak recovery of consumption and economic growth; larger budget deficits; greater delinquencies in residential and commercial real estate and greater fall in home and commercial real estate prices; greater losses for banks and financial institutions on residential and commercial real estate mortgages, and in credit cards, auto loans and student loans and thus a greater rate of failures of banks; and greater protectionist pressures.
The damage will be extensive and severe unless bold policy action is undertaken now.
He prescribes another strong stimulus package. Unfortunately, it looks like we're going to inexplicably start a deficit reduction program instead.
Here are Wolf Blitzer and Peter Orszag yesterday, "explaining" why this is necessary:
BLITZER: Trillion dollar-plus deficits as far as the eye can see? That's going to cause enormous long-term damage to average folks. Explain why you're so concerned about these enormous deficits.
Ok, Let's stop right there. How is this going to cause enormous long-term damage to average folks? Well, he never actually tells us, but we know it just must be true.
Orszag half heartedly tries to pull the discussion to the present, but doesn't really succeed:
ORSZAG: Well, we first have to explain that right now the deficit is actually ironically helping the economy. The tax relief and additional spending helps to bolster demand when the economy is very weak.
The problem is at some point, whether it's in 2011 or 2012 or 2013, the situation starts to reverse and at that point deficits crowd out private investment and become a harm. We need to get ahead of that problem and that's the line we're trying to walk in the budget that we're putting together for next February.
BLITZER: Because so much of US taxpayer dollars already is being spent simply to finance, to pay the interest on those loans we're getting, on the t-bills we're selling to China or Saudi Arabia or other countries that are helping to finance this budget deficit.
ORSZAG: That's correct although we need to remember, we're in an exceptional time right now. Total borrowing has imploded. Private borrowing has collapsed. In fact, the treasury department is the last borrower left standing. For right now, long-term interest rates are very low. We need to get ahead of the problem because as private borrowing starts to pick up, that situation's going to change.
We need to get ahead of the problem even as unemployment continues to go up and there is very little sign that the economy is recovering. And by "getting ahead" of the deficit problem, we'll very likely make the current problem worse, not to mention hamstringing the administration's ability to react. Excellent.
BLITZER: How worried are you that some of these foreign creditors of ours are going to lose confidence in the dollar and they're going to, for example, start buying gold as a hedge, India, for example, has recently done that, and that the value of the dollar will go down as a result?
ORSZAG: Well, I'm going to leave comments about the dollar to our treasury secretary. But again, if you look at the interest rate on our long-term government bonds, right now the ten-year bond is -- has a yield, an interest rate, of under 4 percent. It's very low and that's because we're in such an exceptional period. That is going to change at some point, and we need to act before that happens.
Again, we are anticipating problems instead of dealing with the catastrophe that facing us right now.
BLITZER: One way of dealing with these budget deficits is to raise taxes. Is that right?
ORSZAG: Well, a deficit reflects an imbalance between spending and revenue. So narrowing it requires acting on one, the other or both.
BLITZER: So when does that go into effect? The president said repeatedly during the campaign he wants to increase taxes for those making more than $250,000 a year. When will that go into effect?
ORSZAG: Well, under the budget that we put out this year, that would go into effect at the beginning of 2011. Again, above $250,000. So for a very small share of American taxpayers.
BLITZER: We got a question on Twitter. From someone who asked us this question. Mac1014. He says, when in our history has raising taxes produced private sector jobs?
ORSZAG: Well, I think what we need to remember is that budget deficits can impede economic activity. If you look back during the 1990s, for example, in 1993, there was a very significant effort to reduce the budget deficit including through some revenue increases. The result was a very robust period of economic growth throughout the 1990s. And as we look past this immediate crisis and look to the future, we need to put the nation back on a sounder fiscal course, again, to build a stable economic foundation.
BLITZER: And when you say revenue, what was the phrase you used? Revenue enhancers?
ORSZAG: Revenue increases.
BLITZER: You mean tax increases, right?
ORSZAG: That would be another way of putting it.
BLITZER: I just want to make a fine point on that.
Of course you do
BLITZER: Here are some numbers from our recent CNN/opinion research corporation poll.
Do you approve of how President Obama is handling unemployment? He's proposed a jobs summit next month or jobs forum he's calling it. 47 percent say they now approve of how he's handling it, but in March it was 64 . Jobs, jobs, jobs. Here's the question. You got this forum coming up next month in December. What's taking so long? It's because the jobs have been a critical issue all these 10 months that he's been in office.
ORSZAG: Well, I think what we're seeing is the jobs market is still unacceptably weak. It's still too high, but what's happened is at least we've gotten some economic growth going again. In fact, if you went back a year, November 2008, and anyone told you that real GDP growth in the third quarter of this year was going to be 3.5 percent, I think they would have been quite surprised. So we're getting some economic growth, but that needs to now translate into job growth. And we're focused on that process.
BLITZER: How worried are you that the trillion-dollar-plus price tag for health care reform will convince some moderate democrats, for example, in the senate not to support it?
ORSZAG: Well, I think what we're seeing, again, in the Senate legislation, you have a deficit-reducing package that not only reduces the deficit over the first decade of its existence --
BLITZER: I'm talking about the house package.
ORSZAG: Well, again, in the house bill, there's also -- it also does reduce the deficit over the first decade. It reduces the deficit thereafter, too, and includes some important reforms to how health care is practiced in the United States. As the debate shifts to the Senate, I think you're going to see, again, attention focused on those cost containment provisions which are solid.
BLITZER: Peter Orszag is the White House budget director. Good luck.
Good luck is right.
This is what comes of never challenging conservative economic orthodoxy. Total economic gibberish. The government needs to spend money because nobody is lending but it also has to stop spending because it is in debt. And there 's something about India buying gold and the value of the dollar and some stuff about China and raising taxes. Meanwhile, unemployment is through the roof and health care is either going to raise the deficit or lower it.
Do you feel informed by that exchange? No wonder people say "the deficit" is the cause of all our economic woes. It might as well be for all anyone knows from watching that.
People seem to assume that the administration is reacting to the stunning new political landscape which has deficit reduction as a top priority among uninformed Americans who voted in Virginia two weeks ago but since they have been talking about this since before the inauguration, it's clear that it's always been part of their agenda. Whether they are actually part of the shock doctrine crowd or whether they think it's politically necessary is unknown. But if it's the latter, they wouldn't have to do this if they and the rest of the Democratic party had spent even a moment educating the public about what's really happened to this economy instead of lazily riding on the back of the laissez-faire, free trading, multi-national, anti-welfare state plutocrats who are using this situation to engineer an austerity program that may end up screwing people harder than they ever imagined being screwed.
But deficit hysteria is out there and nobody is working it harder than the gasbags like Wolf Blitzer whose presentation of the problem is designed to make deficit reduction the answer to our economic woes.
For what might actually work, here's Ian Welsh, who agrees with Roubinion the need for another stimulus. Unfortunately, all this blather about the urgent need to "get ahead" of deficits makes that nearly impossible. Heckuva job.
h/t to bb