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Economics / Recession 2008 - 2010 Nov 09, 2009 - 01:02 AM GMT

By: Mike_Whitney

Economics

Best Financial Markets Analysis ArticleThis is bad. Double-digit unemployment. In October, unemployment soared to 10.2%. 16 million people are out of work. The average work week is down to 33 hours. Payrolls have contracted 22 months straight. The "real" jobless rate (underemployment) is now 17.5% and rising. These are Great Depression numbers. The country is in a Depression. So, why is there no talk of federal work programs? Why no WPA?


The dot.com boom fizzled and the housing boom is kaput. There's no driver for new jobs; no more bubbles. Personal bankruptcies are up, foreclosures are soaring, the food banks are maxed out, and the homeless shelters are bulging. Everyone is poorer and the economy is broken. People need jobs, good paying jobs with benefits. Government jobs.

Where's Obama? Preparing his next speech?

No more speeches. No more grand oratory or gibberish about "change". Think: debt relief. Think: targeted stimulus. Think: jobs. And, then, get on with it.

NO JOBS AND NO CREDIT


Consumer credit is shrinking at record pace, $14.8 billion in September alone, 7.2 percent annually. People are paying off balances or writing-down debts. When credit shrivels and wages stagnate, the economy tanks. It doesn't matter how much liquidity the Fed pumps into the stock market, the underlying economy is still contracting. The economy needs stimulus, and lots of it. Anyone can see it.


Consumer prices have been wracked by deflation. The consumer price index (CPI) has declined for six straight months, the longest slide since 1954. And it's getting worse. The banks can't lend because (according to the IMF) they're still buried under $2.8 trillion in rotten mortgage paper. The banks will be treading water for a decade or more. That means tight credit, less demand, fewer jobs, and more misery.

Jobs, wages, and credit; these are the issues, not the fireworks on Wall Street.

THE HOUSING FIASCO

The Fed has shoved $1 trillion under housing and still can't keep the market from teetering. Last week, Fed chair Ben Bernanke announced that the Fed would phase out its purchase of mortgage-backed securities (MBS) and US Treasurys by the end of the 1 Quarter 2010. The Fed will start withdrawing some of the $1 trillion in excess reserves it's added to the banks reserves. Bernanke thinks that private investors are ready to resume purchasing MBS and provide sufficient funding to keep the housing market from crashing. It's a pipedream. Investors got burned big-time on securitzed garbage and they aren't coming back. Here's a clip from McClatchy News:

"The foundation of U.S. credit expansion for the past 20 years is in ruins. Since the 1980s, banks haven’t kept loans on their balance sheets; instead, they sold them into a secondary market, where they were pooled for sale to investors as securities. The process, called securitization, fueled a rapid expansion of credit to consumers and businesses. By passing their loans on to investors, banks were freed to lend more.

Today, securitization is all but dead. Investors have little appetite for risky securities. Few buyers want a security based on pools of mortgages, car loans, student loans and the like. (McClatchy News)

And this is from the Wall Street Journal:

"According to reports issued by the major rating agencies, in 2007, $700 billion of asset-backed securities were underwritten. Only $10 billion has been issued in 2009. This has a significant knock-on effect across every sector of the economy."

2007 asset-backed garbage=$700 billion

2009 asset-backed garbage=$10 billion

Securitization is dead. Bernanke is in La-la land.

The banks that received bailout money via the TARP reduced their lending by $54 billion in July. That doesn't hurt the big corporations, that can still get credit on demand, but the smaller and medium sized businesses are really feeling the pinch. Large businesses shed 60,000 jobs in August, but small and medium-sized and small businesses laid off 238,000 workers (4x as many) in that same period. Small and medium sized businesses account for 90 million jobs, whereas, according to Ann Lee writing in the Wall Street Journal:

"Large businesses account for just 17 million. Without access to capital, these small and medium-sized businesses will continue to lay off their employees, creating a vicious cycle of shrinking consumer credit and demand." ("The Banking System Is Still Broken", Ann Lee, Wall Street Journal)

So why is the Fed helping the big corporations when it's the mid-sized businesses that create jobs? Does anyone in the administration have the foggiest idea of what's going on?

Here's Wall Street analyst Meredith Whitney on the same topic:

"Anyone counting on a meaningful economic recovery will be greatly disappointed. How do I know? I follow credit, and credit is contracting. Access to credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan...Since the onset of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, and that phenomenon is reflected in dismal consumer spending trends.


Small businesses primarily fund themselves through credit cards and loans from local lenders. In the past two years, credit-card lines have been cut by over $1.25 trillion. During the same time, 10% of all credit-card accounts have been canceled. ... 79% of small businesses surveyed tell the Small Business Association that credit-card lending standards have tightened drastically and their access to credit lines has decreased materially." ("The Credit Crunch Continues" Meredith Whitney, Wall Street Journal)

The Fed's programs are strangling mid-sized companies by diverting a larger share of capital to politically-connected behemoths. It's lunacy. The recovery plan is tantamount to suicide.

WHO WILL CLOSE THE DEMAND-GAP?

Wall Street is finally beginning to grasp that US consumers are busted and won't be able to provide sufficient demand to grow the economy. That's why policymakers are pushing China and India to "develop their domestic markets" to take up the slack in supply. It's another pipedream. Americans consumed nearly $9 trillion last year while China's consumers gobbled a mere $1.2 trillion and India about $650 billion. No one is going to replace the US consumer. The only way forward is government jobs programs, higher taxes for the rich, and price of living increases for workers across the board. A strong economy requires strong demand, that means aggressive redistribution policies that put more money in the hands of people who will spend it---workers. It's not rocket science.


All the deficit scaremongering is just more right-wing blather aimed at destroying Social Security. It's 100% bunkum. The same gaggle of crackpots who wanted to invade Iraq, now want to take last crust of bread from Grandma's plate. Vile people. The US has the advantage of paying its debts in its own currency. It can print as much money as it wants. And, if it needs to employ its people and put the country back to work, then it should damn-well keep the printing presses running at full-throttle 24-7. Remember, every dollar that goes into a government work program, is one less dollar for the crooksters on Wall Street.

It's not a matter of whether "we can" put the country back to work again or not. It's a matter of whether "we will". Whether Obama will get the guts to ignore his shyster advisors and the big banks and do what's best for the country.

Here's how Franklin D. Roosevelt summed it up 70 years ago:

“Appraising the situation in the bitter dawn of a cold morning after, what do we find? We find two-thirds of American industry concentrated in a few hundred corporations…We find more than half of the savings of the country invested in corporate stocks and bonds, and made the sport of the American stock market. We find fewer than three dozen private banking houses, and stock-selling adjuncts of commercial banks, directing the flow of American capital. In other words, we find concentrated economic power in a few hands…We find a great part of our working population with no chance of earning a living except by grace of this concentrated industrial machine; and we find that millions and millions of Americans are out of work, throwing upon the already burdened Government the necessity of relief…We find the Republican leaders proposing no solution except more debts, more conferences under the same bewildered leadership, more Government money in business but no Government attempt to wrestle with basic problems…I believe that our industrial and economic system is made for individual men and women, and not individual men and women for the benefit of the system.” (quote from Pam Martens, Why 2008 Feels Like 1932, counterpunch)

The economy should serve the people, not the corporations and not Wall Street. For God sakes, Obama, strap on a pair and get to it, man.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

Mike Whitney Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Jim W
30 Mar 10, 12:14
UNENEMPLOYED

Ever since Busch took office in 2000, I lost 2 corporate careeers of 24 years. The companies were taken over and we all got laid off. I have applied at over 500 companies and no offers. Now I am in my 50's and no one will touch me. (age discrimination is alive and well in the good old USA). And now my wife has left me and I lost my home after 24 years.

Thank you W. and DICK !!


cory taylor
21 Jun 12, 20:12
obama coal jobs/jobs

barack obama is the worst terriorst attack this country has ever seen.


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