Month: September 2013

The truth behind those unemployment figures

Posted on by j.giglio

As we all know, the world economy recently endured a precipitous tumble. Even five years after the near-depression ‘s onset, unemployment remains high and economic growth is constipated. The financial crisis opened up a sinkhole in which millions of Americans lost their jobs. No one has been more affected by the debacle than young people.

To the average American, the unemployment rate is the indicator to which they pay the closest attention. As well they might, when you consider that unemployment is the black mark on the American economy .

The August headline unemployment rate dropped from 7.4 to 7.3 percent and 169,000 new jobs were reported, but that was fewer than expected. Unemployment is at its lowest rate since December 2008, but the rate fell for the wrong reason: another 312,000 Americans stopped looking for work and are no longer counted as unemployed.

These people essentially become nonexistent, usually a sign of an ailing economy, not a recovering one. If the economy were growing, the unemployment rate would decline because people found jobs, not because they quit looking.

From a broader perspective, current views of the labor market can roughly be divided into two groups. One argues that the weak labor market is the result of a shortfall in aggregate demand and argues for continuing an aggressive monetary policy known as quantitative easing, whereby the U.S. Treasury buys up billions of dollars of debt.

The other group notes that structural factors such as the rise of technology are the major challenges for the labor force. That means firms have jobs but can’t find qualified workers. For this crowd, greater emphasis must be placed on programs such as job training and mobility assistance.

It is generally believed that 250,000 new jobs are needed every month to keep pace with population growth and people entering the workforce for the first time. In addition to the anemic August jobs report, the federal Bureau of Labor Statistics also revised its June and July figures sharply downward.

It turns out that June’s job growth was not 188,000 as previously reported, but only 172,000. July’s numbers got knocked down all the way from 162,000 to 104,000. Does this suggest a correction next month to the August increase of 169,000jobs?

Labor participation, the percentage of Americans over 16 who have jobs or are looking for them, declined slightly from July to August and is at a 35-year low. BLS reports that 90 million eligible workers are sitting on the sidelines who don’t count as unemployed. The recent decline in the unemployment rate reflects reduced labor force participation, not increased employment.

The labor market is worse than government numbers reflect. Businesses are not hiring because of stagnant demand, and sales are not growing because consumers have less money. Consumers have less money because stagnant demand means businesses are not hiring full-time employees. It’s a classic Catch 22.

Many subgroups, especially the young, less educated and minority groups, are facing unemployment rates well into the double digits. Young workers have been the hardest hit. The recession and weak recovery have sharply reduced opportunities for entry-level workers in virtually every industry. The August unemployment rate for Americans under 25 was 15.6 percent, more than two and halftimes the rate for those 25 and older.

This may explain why young people are so pessimistic about the future; perhaps they fear they will be part of a “lost generation.” Many of these future leaders are sitting on the sidelines, having trouble finding full-time work that will help them develop the skills they need to transition to higher paying employment. They are struggling to pay off massive student loan debts and living with their parents because they can’t make the loan payments while living on their own.

The jobless economic recovery and the absence of bright, young people in the labor market do not portend well for our country. Instead of buying homes and creating new households, more young people are becoming dependent on government benefits, not paying taxes and creating a new underclass that will endanger America’s future.

originally published: September 21, 2013

A glossary to the Great Recession

Posted on by j.giglio

Five years ago this month, a financial meltdown didn’t merely plunge America into the Great Recession, it drove the country into the worst economic crisis since the 1930s. It’s not hyperbole to call the 2008 meltdown one of the most critical events in American history.

This was a cataclysm far worse than any natural disaster in the nation’s experience and it has given rise to its own terminology.

Financial Meltdown: A biblical-style plague that drained nearly 60 percent of the stock market’s value and killed off other financial and credit markets in the process. Banks and other businesses either vanished into bankruptcy as the nation’s credit system froze up and forced the federal government to spend $2.8 trillion and commit another $8.2 trillion in taxpayer funds to bail out major corporations like General Motors, Chrysler, Citigroup, Bank of America, AIG, and a host of other “too-big-to-fail” private-sector institutions even as those taxpayers were themselves crippled by some $11 trillion of wealth and eight million jobs being wiped out.

Economic Crisis: What we seem to be stuck in right now. Middle America struggles with rising food and gas prices, finding or keeping a job and simply keeping their heads above water. The rich get richer and everyone else gets poorer. It is marked by an economy that can’t seem to grow its way out of a paper bag. Instead of early retirement, countless Americans will have to keep working until they drop because half the value of their 401(k) vanished into thin air. Paying for their children’s college education is entirely out of reach.

Lascivines: The CEOs of these firms were the modem equivalent of saloonkeepers in classic Westerns who paid the usual “gaudy ladies” to hover at the bar and sweet talk us into drinking overpriced, watered-down whiskey while their painted eyes promised that we can “take them upstairs” later.

Rocket Scientists: Bright young nerds with Ph.D.s in math or physics from major universities who found that earning a decent living in the academic world was tougher than earning a decent living by becoming the intellectual equivalent of Broadway actors. Their technical backgrounds let them quickly master the intricacies of”Quantitative Finance Theory” and engineer all kinds of wild derivative securities that are too complicated for most people to understand, but very profitable for their employers.

Master of the Universe (actually the reincarnation of 1980s terminology): An infantile term of “respect” for anyone in the financial industry who’s aggressive enough to generate big dollars for his firm (by hook or crook).

Is it any wonder that increasing numbers of outraged Americans are screaming that there ought to be laws against allowing just anybody to hold senior positions in industries so important to the public welfare? Shouldn’t they be required to possess licenses testifying to their qualifications, like physicians and lawyers? Accountants are prohibited from expressing formal opinions about the “adequacy” of corporate financial statements until they’ve passed the Certified Public Accountants exam and worked in their field for a number of years. Why not have the same kind of rigorous licensing requirements for top management jobs in critical industries, including administering competency tests to all graduates of MBA programs.

After all, the senior managers at Lehman Brothers, Merrill Lynch, Bear Steams, AIG and so many other financial-services firms were totally clueless to the dangers of undue risk, excessive leverage and abusing lax regulations, all while being more outrageously overpaid than top managers in any of the world’s other major industries.

Americans can’t forget the financial meltdown of 2008 because they are still dealing with its effects. Like any victims, two things that would help them process the trauma would be for those responsible for it to finally be brought to justice and for safeguards to be put in place to prevent a reoccurrence.

originally published: September 14, 2013

The continuing resolution continues

Posted on by j.giglio

While the average American family is working out daunting problems of health care coverage, home mortgage payments, financing a college education and making ends meet -not to mention saying goodbye to summer – Congress returns on Sept. 9.

Those same average Americans want the feds to round up the folks responsible for paternity of the economic crisis, slap the cuffs on them and send them to Guantanamo. But they have come to understand that no wealthy client is ever guilty until they run out of money.

The long August recess was a chance for lawmakers to hear from constituents, chill out and recharge their batteries before returning to the capitol to address two major budget deadlines: Funding the government for the 2014 fiscal year that begins Oct. 1, and once again raising the nation’s debt ceiling.

Since Congress is only in session for nine days in September and there is little hope for a broader deficit reduction agreement with the White House, lawmakers will likely pass a continuing resolution to avoid a partial government shutdown. Republicans will try to leverage the need to raise the debt ceiling to extract cuts in Obamacare and other government spending. The debt ceiling is the maximum amount of gross debt Congress allows the federal government to carry. The current limit is $16.7 trillion.

In the summer of 2011, the White House and congressional Republicans locked horns in a bitter fight over the ceiling. An agreement was finally reached in August to increase the debt ceiling through the early part of 2013 as part of the Budget Control Act, which set caps on certain spending levels and led to across-the-board “sequester” cuts that are scheduled to continue through 2021. After this debt ceiling debacle, Standard & Poor’s reduced its rating on long-term U.S. debt from AAA to AA+ reflecting the federal government’s dysfunctional politics.

The Treasury Department says the government will reach its borrowing limit in mid-October and be unable to pay all its bills soon after. The feds actually hit the ceiling on what it could borrow in May. Since then, Treasury has used a variety of accounting techniques to continue to borrow. A sharp decline in spending this year and repayments from bailed out mortgage fmance giants Fannie Mae and Freddie Mac also eased the reliance on debt.

Republicans are demanding significant new spending cuts in exchange for increasing the $16.7 trillion debt limit, with some also insisting on delaying or scrapping Obamacare. They want any increase in the debt limit offset dollar-for-dollar by other cost savings.

Meanwhile, the President insists he will not negotiate on the debt limit to pay the bills Congress has racked up. It is worthwhile noting that as a senator, President Obama voted against raising the debt ceiling. This debt ceiling stalemate could shut down the government, force the first default on U.S. debt in the nation’s history and add to the general anxiety besetting the average American, who has come to believe that what passes for fiscal governance is a political gong show.

This just isn’t a problem with politicians, it’s also a problem with voters, who say deficits and debt are major concerns, but favor government spending to create jobs and oppose major cuts to most government programs. They want something for nothing.

What lies ahead is another replay of this tired script and before the ink is even dry on the latest budget deals; they will become part of the permanent, rolling fiscal cliff. The choices are pure Woody Allen: “More than at any other time in history, mankind is at a crossroads. One path leads to despair and utter hopelessness, the other to extinction. Let us pray we have the wisdom to choose correctly.”

originally published: September 7, 2013