Category: Markets, Business, and the Economy

It’s going to be a long, slow crawl out of this economic pit.

Visualize if you will, two triangles. These triangles meet at the middle, like a bow tie. Please excuse my crude little sketch.

That middle point we will call Consumer spending. It depends on how much money people have, which in turn depends on whether they have jobs. It also depends on their other expenses and what access they have to credit/loans. Right now the consumer has it rough — unless he or she is in the top 1% of earners. The good news (sort of) is that new unemployment claims are down; the bad news is that those claims are still way too high. For reference, the poverty line on a family of 4 is just under $22,000.

On one side of the triangle, we have housing and banks. We all know real estate prices have plummeted. This drop is even worse if you look at housing priced in gold. I put banks at the top of this triangle because they hold all the cards. They are involved in every mortgage, both good and bad. They effectively control housing in many markets not only through mortgage origination, but through sale of foreclosures and pre-foreclosures. They also directly control consumer credit, and therefore whether people have the ability to spend. Bank lending standards are notoriously tight right now.

The other triangle is more complicated. Insurance is at the bottom because, like housing, it is an expense. In fact it’s a wildly rising expense, having gone up a minimum of 88% in the last decade.  This is clearly not a sustainable trend. Because most Americans get insurance through their employers, this impacts whether or not employers can afford to hire; indeed it impacts whether employers can continue to employ. Why employers aren’t begging for Medicare for all or at least a public option I have no idea.

That arrow between banks and employers reflects that they depend on one another. Employers put their money in banks; employers often need loans from banks. This is particularly true of start-up companies that need funds to buy supplies and equipment before they can hire people. Those tight lending criteria I mentioned before also effect employers and impact whether they can be in business.

The points on these triangles are connected, and we won’t see an improvement in consumer spending until something is done about banks, housing, employment, and insurance. They simply have nothing to spend.

Here’s to the American worker, even the ones doing the dirtiest jobs on their street.

Many of our younger workers are still living with their parents, and/or doing without health insurance.

For many, Labor Day has changed from just the end of Summer to become a day of thankfulness that some workers do in fact have jobs. Our economy is losing jobs — over 203,000 jobs lost in the last 10 years — and those with jobs are making less money. Many people have been unemployed so long that they have stopped actively looking for work. Many of our unemployed have lost their job for the first time ever and are having a hard time coping. Two thirds of them are borrowing money from friends and family. A quarter of them are college graduates.

We now have over a million homeless school kids in this nation. Next time some personal responsibility zealot starts talking about how people need to stop being so lazy or whatever it is that they’re on about, ask what should be done about these million plus kids who through no fault of their own don’t have a place to call home. It’s not like they can just tell mom and dad where to get off and rent apartments of their own. Add colorful language as appropriate.

Without access to capital and affordable insurance, entrepreneurs cannot start businesses that will hire the unemployed, the discouraged, the parents of homeless kids. If we are going to count on big business to get us out of this Great Recession, we’re going to be here a very long time indeed.

To those of you who are employed, Happy Labor Day. To those of you who want a job, I hope you land an interview tomorrow. To those of you who are homeless, or living with your parents, or not able to pay all your bills, I wish you better times for the future.

In Closing: a few obligatory words about health insurance reform; Helen tells you how it is.

It was during the Reagan Administration. My dad lost his job as a computer programmer — back before anybody ever heard of the “new economy” and “information technology”, but even then computers were considered a necessary way forward. As good as he was at his job, the fact remained that he had learned what he knew in the trenches. He had no college degree, and thus was at a disadvantage applying for computer industry jobs by 1982.

So he did what any sensible boomer of the day did when faced with unemployment: he became an entrepreneur. There were a lot of computer equipment companies founded in the Carter and Reagan years. Many of them are still in business. But that isn’t what my dad did. Dad sold Amway. Then he sold motivational cassette tapes. And finally, he sold wholesale beauty supplies.

Many companies are started by entrepreneurs in periods of recession or other game-changing economic periods. These new businesses employ people, pick up the slack of closing businesses, and ultimately help lead us out of problem periods. This time, we cannot count on entrepreneurs.

It isn’t just the way that small businesses get financing, although that is still an issue (see also, the SBA can do little more for start-ups than help obtain a second mortgage and nobody has equity any more). There is an even bigger obstacle to starting a business.

That obstacle is health insurance. It is a much bigger issue than it was in the early 80s because health care and insurance costs are so much higher now than they were then (and much higher than in any other industrialized nation). Entrepreneurs can’t afford decent health insurance. That means that if they don’t have a spouse who is gainfully employed such that she/he can get affordable insurance for the whole family, the business fails. And since many successful ventures at least initially count on support (read: unpaid labor) from family members, that’s a problem.

And this is when everybody is healthy. It doesn’t even address medical catastrophe, chronic conditions, or medical related bankruptcy.

The longer I look at the issues, the more fervently I believe that true health insurance reform is vital to the economic recovery of this country. Not mandatory insurance, not anything the health insurers are going to like, but true and comprehensive reform.

In closing: 5 Japanese things we screwed up; the ultimate portable stove; Thom Hartmann and Dave Johnson have related thoughts (I still think the focus needs to be on automatic coverage for kids because they don’t have employers and are often uninsured through no fault whatsoever of their own — I mean really, can you see a kindergartner filling out a Medicaid application?); buy American? How?; an Eliza Doolittle from Malawi; much too bigger to fail; Department of Energy wasting energy; the cause of the next stock market crash will be retiring boomers (assuming they can retire); Smart Child Left Behind (nothing new here, more the pity); Return of the Robber Barons; and I just can’t resist linking the Purina Diet.

In April, the American economy lost over half a million jobs, and that’s still not quite as bad as expected. The Economic Policy Institute did all the heavy math to show us that we need 7 million new jobs — that’s 7,000,000 — to get back to where we were before the recession began. Don’t forget to look at their charts for job losses and unemployment rising as compared with past recessions.

Things are bad enough that USA Today had to run an item on whether or not multi-level marketing plans were “a good choice for you.” Well here’s a hint folks: when someone would rather sell you their business than their product, you don’t want it. If the product is so good, why on earth would they want more competitors selling it? 

In Closing: Worst CEOs Ever; 33rd bank failure of the year (exceeding last year’s total already, and it’s only May); when torture enhanced interrogation becomes murder, you don’t get any “valuable intelligence” from them anymore; why Republicans wanted to curtail the ability of bankruptcy judges to address debtors’ biggest debt; the President demands a bill to crack down on credit card abuses; and Happy Mothers Day.

On one hand, it’s nice to see people agree with me. On the other hand, I wish the economy would turn around. 

We’ve had 15 months of fewer jobs, pushing the unemployment rate nationally up to 8.5%. It is of course worse in some places than others. Remember, these figures don’t include people who simply never were able to find a job upon entering the workforce. If we use the most conservative number economists think we need for those new people, we’re talking about 1,875,000 jobless people unaccounted for. The actual number might be as high as 3,000,000. Nor do the official unemployment numbers include the millions of people who have given up looking for work.  Some sources are predicting double digit unemployment unless we have “systemic reforms.” 

Some companies are choosing to cut benefits such as 401k contributions rather than cutting more jobs. I think this is a sign that viable companies have already cut all the jobs they can and still conduct business. 

As a direct result of increasing joblessness, we have 1 in every 10 Americans on Food Stamps. Yeah, I am guessing that any movement to make those people submit to random drug screening is dead. 

Another direct result is a larger than expected growth in bankruptcy filings. A quite understandable result of that is credit card companies slashing the credit lines of people who have accounts in good standing. They don’t want to find themselves on the hook for money that people may not be able to pay in the future. Of course the other side of that is that a credit card may mean the difference between making it through a rough patch and economic disaster. Paid back with interest. A true double-edged sword of Damocles.

Perhaps a factor, perhaps a result, we now find out that there is a serious delinquency problem not just on sub-prime mortgages, but standard ones as well! Would they have ever been a problem if not for the subprime mess or the job losses? I doubt anyone will ever know. The important thing to remember is that this bodes ill for the housing market on the national level until the economy recovers and perhaps a year beyond as the properties in question are foreclosed and resold.

Robert Reich is just the latest economist to go out there and call it a Depression. He joins The Economist magazine (hardly an alarmist lot), Eric Sprott, Frederic Mishkin (who says this is actually worse than a depression), and others.

There are a couple of bright spots. In truth, they are really “not quite as dismal” spots, but let’s take what we can get. Some companies are offering “free services” to the unemployed. Locally, Kinkos has offered resume printing, and a daycare has offered a free day so people can go to job interviews. 

Another good thing is that for the first time in some years, Congress has actually passed a budget before the beginning of the fiscal year in October. It’s not the final version, and the Republicans are still calling for “restraint” (without offering much in the way of details beyond “spend less”), but it’s something. It’s worth noting what happens to our deficits when the Republicans get their way on the budget. So much for “fiscal responsibility” and “reducing debt.”

At least Wall Street is happy.

In Closing: the ACLU guide to the rights of women; which is very much in contrast to the “rights” women “enjoy” in Afghanistan; two items from Seeing the Forest on food are don’t listen to scary people who say the feds want to take away your right to garden and the effects of being a vegetarian for just one day; your meds might interact with grapefruit; North Dakota finally realizes it’s a bad idea for Zygotes to have the full range of human rights even if you are “Pro-life”; now that we know the Binghamton shooter was a disgruntled Vietnamese man who had trouble learning English, can we stop giving lip service to the nut to claimed responsibility in the name of the Taliban?; and finally, Defective Yeti’s always hilarious collected Bad Movie Reviews. I don’t know how he has the patience to read the reviews in the first place.

Most of us know what the International Monetary Fund prescription for saving any given economy is, right? Drastically cut spending. No really, cut it. Slash it to the bone. Even military spending. Cut cut cut cut cut! This approach has opened them to criticism both from true conservatives and progressives.

So then,  you know it’s a big deal on those rare occasions that the IMF tells a country they need to spend more money.

Yesterday, the IMF urged the 20 largest economies to spend more on stimulus, to the tune of 2% of their entire Gross Domestic Product. In addition, some central banks may need to take “unprecedented” measures.

Meanwhile, the GOP is railing against the Obama Administration’s first budget as spending way too much money: “Republicans say the path to prosperity is not the excessive spending proposed by President Obama but limited spending that holds down the growth of government, taxes and debt.”

Clearly what is happening to the economy — not just here but in all developed nations — is unlike anything that has happened in recent decades. The measures that got us out of recessions since the 80s are probably not enough to restore our economy to health.

Cross-posted at The Moderate Voice.

Important Update: the former Chief Economist of the IMF on world crises, how they compare to what is going on in the United States, and what must be done now. Very sensible stuff, but be warned that a) he’s an economist b) it’s in the Atlantic, so it may be a little dry for some readers. Try to make it through to the end, because it’s good.

I arrived to Geithner’s speech a little late. Just a minute or two before he began to talk about “initiatives to strentghen funding for small businesses.”  Here: 

We have agreed to expand this program to target the markets for small business lending, student loans, consumer and auto finance, and commercial mortgages.

And because small businesses are so important to our economy, we’re going to take additional steps to make it easier for them to get credit from community banks and large banks. By increasing the federally guaranteed portion of SBA loans, and giving more power to the SBA to expedite loan approvals, we believe we can turn around the dramatic decline in SBA lending we have seen in recent months.

Now let me tear this down for you with the voice of experience. Every time I have ever tried to deal with the SBA — every time anybody I have ever known has tried to deal with the SBA — it has ended up being all about home equity loans. I realize I have somewhat less than a statistically significant sampling, but it’s large enough to include white men, women, and minorities. All these people had detailed business plans that involved tens of thousands to hundreds of thousands of dollars in equipment purchases and buildouts.

Every time, the end conversation has become “Why exactly am I considering filling out a bunch of government paperwork about my business instead of just talking to Ditech?” 

So then, let me explain to the esteemed Secretary why SBA loan applications have plummeted: nobody’s got any home equity anymore. I’m not a fan of Zillow’s research, but they’re only observing the same reality most homeowners face. You can’t get a home equity loan when you have no equity.

So Mr. Secretary, if you would like to actually help small businesses instead of giving the usual lip service, here’s my wish list:

* Direct SBA to guaranty loans secured by equipment purchases, to include reasonable start-up costs when the company agrees to allow SBA review and approval of the business plan. Yes, approval. Some business ideas are stupid. Others have clear but avoidable flaws.

* Make it an SBA priority to provide low-cost consulting and other services to start-ups and businesses in their first year. They already offer some services, but not enough.

* Most importantly, make SBA able to help people buy low-cost, quality health insurance policies for entrepreneurs and their families of the sort that these job-creators would have had if they were content to take a paycheck instead. In fact, make SBA the de facto place for businesses with 12 or fewer employees (“small businesses”) to get group coverage. Don’t tell me they aren’t set up to be an insurance company, because the government already runs several of those. If Blue Cross wants to compete (ha!), let them come up with a cost-competitive plan.

Do us all a favor and do things that will actually help small businesses. And stop trying to pretend we can solve all our financial problems with home equity.

In Closing: I hope everybody has seen this chart of job losses and gains already? How about this one of the S&P 500 adjusted for inflation? Good; Children get it worst in this economy and this stimulus bill (so far); try to live on the minimum wage in any town; getting a job is no longer as simple as moving to where the jobs are; Ezra calls for an end to the filibuster; great pictures of the salvage of flight 1549; and last, even if we have to agree to disagree about whether waterboarding is torture, can we at least agree that slicing someone’s genitals with a scalpel is torture? Please? Sheesh.

 
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All I can say is this:  wow.

We knew that almost a quarter million layoffs were announced in January. 

And we knew that first time unemployment filings topped 600,000 last week, a level not seen since the Reagan Administration.

But now we also know that the economy lost 598,000 jobs in January and that the unemployment rate jumped to 7.6%. The economy hasn’t lost that many jobs in one month since the Nixon Administration, and the unemployment rate hasn’t been this high since the very beginning of the Clinton Administration. Oh, and they revised the December job losses upwards. Adding things up, that’s 2,500,000 jobs lost in the last 5 months. 

Wow.

And things don’t look better when you compare employment to population. Furthermore, the losses were in pretty much every sector.

The job losses obviously have fallout in other parts of the economy, and forming a feedback loop:  people aren’t going to the mall or eating out or even getting expensive coffee; people are cancelling cable and getting their news on the internet; people are going without health insurance, because even the researchers have had to admit that the unemployed can’t afford COBRA; enrollment at community colleges is up; CNN is running articles with titles like 10 meals for $10 each. People don’t have money so they don’t spend money so business dries up so more people lose their jobs so more people don’t have money….

And yet the stimulus package is delayed, and some guys like Grover “drown the government in the bathtub” Norquist have the nerve to blame this mess on the new administration. Yeah, cause Obama totally wrecked the economy in less than 3 weeks.  Way to go.

 
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In Closing: the House passed a bill that would make it easier for innocent Americans to get off the no-fly list; I could add more, but Johnny asked the right questions; Hollywood is officially out of ideas, and is clearly toked up; Economic Illiteracy; Chuck Butcher’s quote of the day, “I can state that nothing is gained by panic, which is simple enough to say, another thing in practice”; Wired notes a Playmate trend; can’t decide if the tea shark is clever or “ew”; best anti-drug ad since “this is your brain on drugs”; didn’t I say Dean should be HHS Secretary ages ago, perhaps even before the inauguration?; and yet one more actor who wants to be Governor.

I’ve been chewing on this Forbes piece for a while.  Briefly and slightly oversimplified, it says that “deficit spending is bad and doesn’t stimulate the economy ever, unless it’s for defense.” Let’s run that theory to ground.

Suppose we spend some round but arbitrary number on, say, sending a soldier to Iraq. While some money goes to the rent on his stateside place, he’s not spending money here in the United States for the most part. Sure, we also have to spend money outfitting him, making sure he has adequate supplies. Nevertheless, he is not spending his whole paycheck here.

On the other hand, let’s say we spend the same amount of money building a road.  Perhaps we spend it merely widening an existing road and renovating an existing bridge. That seems kind of important, doesn’t it? The guys building that bridge are going to spend their paycheck here.  They are going to buy lunch near the jobsite. They are going to pay rent and buy steel-toed shoes right here in the United States. 

But wait, there’s more.

When that road project is done, it will continue to benefit the community. People will use that road to shorten their commutes and improve their quality of life — perhaps making a house a little further out economically viable. People will use that road to get to businesses, and spend money there. Businesses will move in to locations near the new road and take advantage of the improved traffic flow. Delivery vehicles will take advantage of the more efficient road to boost productivity. Someday in the future, that road will require maintenance, and then we will be able to put people to work all over again.

So no, tax cuts and military spending are not the cure-all for this or any other economy.

In closing: scientists recently dug up — separately of course — a prehistoric snake 43 feet long, a 635 million year old sponge, and an 18th century warship; it’s not a cliche, it’s a trope; look who slithered out of his undisclosed location to warn about pestilence and terrorist attacks; and the doctor whose Lexus blew up this morning?  Earlier the cops swore no, it wasn’t a bomb, the hybrid motor must have malfunctioned.  Mere hours later (and one must assume a few phone calls with Lexus later), they’ve decided it was a bomb after all.  No idea who planted it or why.  How old school.

Well, actually it’s more like bullfighting. The kind where they slaughter the bull at the end?

Just to get us in the proper mood, Harper’s reminds us that everything is worse than it at first appears, thanks to pollyannaish manipulation of the actual data. Really, most of this stuff you already know if you’ve been reading ShortWoman for long enough, but this article traces each tweak to its roots. 

The Economic Policy Institute was on yesterday about how the number of job applicants is surging while the number of actual jobs to apply for is plummeting.  Today we found out that the number of first time jobless claims is higher than it has been in the last 26 years.  The 4 week moving average is up over 500,000, which would tend to indicate that 2 million people have applied for unemployment for the first time in the last month alone.  Why do I say “tend to indicate”?  Because that number is seasonally adjusted. Nevertheless, Ouch!

Nor are things tough all over only for individuals.  It so happens that 43 of our 50 states are in financial trouble, too.  

As crazy as the stock market has been, there is some chart-based evidence to support (heh, support. a stock charting joke) the idea that even now, the S&P 500 is going to drop at least another 10% just to “revert to the mean,” or the average growth it has had not just since the Great Depression, but since 1870. 

There is some good news.  Or is it bad news?  For the first time since they started measuring it, household debt has declined!  People are paying cash, using “lay-a-way” plans, anything but running up more debt. Even if they wanted more debt, American families are having a tough time finding someone who wants to lend. The “bad” part of this is it means a drop in spending. 

A site that is only recently added to my list of Things To Read is Calculated Risk. Two recommended items are on net worth and home equity. 

Yeah I know, I don’t go linking Kos very often, but “how we crashed the economy” is a good read. 

A UCLA economist says that as bad as things are right now, 2009 is going to be worse. 

And finally, some recommendations on public works that will do the public good in the long run.

Let’s hope it really is darkest before the dawn. 

In closing:  Enquiring minds really do want to know, What on earth was the Governor of Illinois thinking??; somebody spells out what actual Biblically based marriage would look like (hint, it isn’t pretty);  Can Steve Jobs save GM?; a bunch of guys whose jobs depend on high college enrollment rates say that a college degree is vital (nope, no enlightened self-interest there); it may be that a Big Three bailout would primarily benefit former Treasury Secretary John Snow! (You remember, Mr. “A strong currency is hard to counterfeit“?); and cathouse.