TheCenterLane.com

© 2008 – 2017 John T. Burke, Jr.

Magic Show Returns to Wall Street

Comments Off on Magic Show Returns to Wall Street

Quantitative easing is back.  For those of you who still aren’t familiar with what quantitative easing is, I have provided a link to this short, funny cartoon, which explains everything.

The first two phases of quantitative easing brought enormous gains to the stock market.  In fact, that was probably all they accomplished.  Nevertheless, if there had been no QE or QE 2, most people’s 401(k) plans would be worth only a fraction of what they are worth today.  The idea was that the “wealth effect” provided by an inflated stock market would both enable and encourage people to buy houses, new cars and other “big ticket” items – thus bringing demand back to the economy.  Since the American economy is 70 percent consumer-drivendemand is the engine that creates new jobs.

It took a while for most of us to understand quantitative easing’s impact on the stock market.  After the Fed began its program to buy $600 billion in mortgage-backed securities in November of 2008, some suspicious trading patterns began to emerge.  I voiced my own “conspiracy theory” back on December 18, 2008:

I have a pet theory concerning the almost-daily spate of “late-day rallies” in the equities markets.  I’ve discussed it with some knowledgeable investors.  I suspect that some of the bailout money squandered by Treasury Secretary Paulson has found its way into the hands of some miscreants who are using this money to manipulate the stock markets.  I have a hunch that their plan is to run up stock prices at the end of the day before those numbers have a chance to settle back down to the level where the market would normally have them.  The inflated “closing price” for the day is then perceived as the market value of the stock.  This plan would be an effort to con investors into believing that the market has pulled out of its slump.  Eventually the victims would find themselves hosed once again at the next “market correction”.

Felix Salmon eventually provided this critique of the obsession with closing levels and – beyond that – the performance of a stock on one particular day:

Or, most invidiously, the idea that the most interesting and important time period when looking at the stock market is one day.  The single most reported statistic with regard to the stock market is where it closed, today, compared to where it closed yesterday.  It’s an utterly random and pointless number, but because the media treats it with such reverence, the public inevitably gets the impression that it matters.

In March of 2009, those suspicious “late day rallies” returned and by August of that year, the process was explained as the “POMO effect” in a paper by Precision Capital Management entitled, “A Grand Unified Theory of Market Manipulation”.

By the time QE 2 actually started on November 12, 2010 – most investors were familiar with how the game would be played:  The New York Fed would conduct POMO auctions, wherein it would purchase Treasury securities – worth billions of dollars – on an almost-daily basis.  After the auctions, the Primary Dealers would take the sales proceeds to their proprietary trading desks, where the funds would be leveraged and used to purchase stocks.  Thanks to QE 2, the stock market enjoyed another nice run.

This time around, QE 3 will involve the purchase of mortgage-backed securities, as did QE 1.  Unfortunately, the New York Fed’s  new POMO schedule is not nearly as informative as it was during QE1 and QE 2, when we were provided with a list of the dates and times when the POMO auctions would take place.  Back then, the FRBNY made it relatively easy to anticipate when you might see some of those good-old, late-day rallies.  The new POMO schedule simply informs us that  “(t)he Desk plans to purchase $23 billion in additional agency MBS through the end of September.”  We are also advised that with respect to the September 14 – October 11 time frame,  “(t)he Desk plans to purchase approximately $37 billion in its reinvestment purchase operations over the noted monthly period.”

It is pretty obvious that the New York Fed does not want the “little people” partaking in the windfalls enjoyed by the prop traders for the Primary Dealers as was the case during QE 1 and QE 2.  This probably explains the choice of language used at the top of the website’s POMO schedule page:

In order to ensure the transparency of its agency mortgage-backed securities (MBS) transactions, the Open Market Trading Desk (the Desk) at the New York Fed will publish historical operational results, including information on the transaction prices in individual operations, at the end of each monthly period shown in the table below.

In other words, the New York Fed’s idea of transparency does not involve disclosure of the scheduling of its agency MBS transactions before they occur.  That information is none of your damned business!

Christina Romer Was Right

Comments Off on Christina Romer Was Right

Now it’s official.  Christina Romer was right.  The signs that she was about to be proven correct had been turning up everywhere.  When Charles Kaldec of Forbes reminded us – yet again – of President Obama’s willful refusal to seriously consider the advice of the former Chair of his Council of Economic Advisers, it became apparent that something was about to happen  .  .  .

On Friday morning, the highly-anticipated non-farm payrolls report for April was released by the Department of Labor’s Bureau of Labor Statistics (BLS).  Although economists had been anticipating an increase of 165,000 jobs during the past month, the report disclosed that only 115,000 jobs were added.  In other words, the headline number was 50,000 less than the anticipated figure, missing economists’ expectations by a whopping 31 percent.  The weak 115,000 total failed to match the 120,000 jobs added in March.  Worse yet, even if payrolls were expanding at twice that rate, it would take more than five years to significantly reduce the jobs backlog and create new jobs to replace the 5.3 million lost during the recession.

Because this is an election year, Republicans are highlighting the ongoing unemployment crisis as a failure of the Obama Presidency.  On Friday evening’s CNN program, Anderson Cooper 360, economist Paul Krugman insisted that this crisis has resulted from Republican intransigence.  Bohemian Grove delegate David Gergen rebutted Krugman’s claim by emphasizing that Obama’s 2009 economic stimulus program was inadequate to address the task of bringing unemployment back to pre-crisis levels.  What annoyed me about Gergen’s response was his dishonest implication that President Obama’s semi-stimulus was Christina Romer’s brainchild.  Nothing could be further from the truth.  The stimulus program proposed by Romer would have involved a more significant, $1.8 trillion investment.  Beyond that, the fact that unemployment continues for so many millions of people who lost their jobs during the recession is precisely because of Barack Obama’s decision to ignore Christina Romer.  I have been groaning about that decision for a long time, as I discussed here and here.

My February 13 discussion of Noam Scheiber’s book, The Escape Artists, demonstrated how abso-fucking-lutely wrong David Gergen was when he tried to align Christina Romer with Obama’s stimulus:

The book tells the tale of a President in a struggle to create a centrist persona, with no roadmap of his own.  In fact, it was Obama’s decision to follow the advice of Peter Orszag, to the exclusion of the opinions offered by Christina Romer and Larry Summers – which prolonged the unemployment crisis.

*   *   *

The Escape Artists takes us back to the pivotal year of 2009 – Obama’s first year in the White House.  Noam Scheiber provided us with a taste of his new book by way of an article published in The New Republic entitled, “Obama’s Worst Year”.  Scheiber gave the reader an insider’s look at Obama’s clueless indecision at the fork in the road between deficit hawkishness vs. economic stimulus.  Ultimately, Obama decided to maintain the illusion of centrism by following the austerity program suggested by Peter Orszag:

BACK IN THE SUMMER of 2009, David Axelrod, the president’s top political aide, was peppering White House economist Christina Romer with questions in preparation for a talk-show appearance.  With unemployment nearing 10 percent, many commentators on the left were second-guessing the size of the original stimulus, and so Axelrod asked if it had been big enough.  “Abso-fucking-lutely not,” Romer responded.  She said it half-jokingly, but the joke was that she would use the line on television.  She was dead serious about the sentiment.  Axelrod did not seem amused.

For Romer, the crusade was a lonely one.  While she believed the economy needed another boost in order to recover, many in the administration were insisting on cuts.  The chief proponent of this view was budget director Peter Orszag.  Worried that the deficit was undermining the confidence of businessmen, Orszag lobbied to pare down the budget in August, six months ahead of the usual budget schedule.      .   .   .

The debate was not only a question of policy.  It was also about governing style – and, in a sense, about the very nature of the Obama presidency.  Pitching a deficit-reduction plan would be a concession to critics on the right, who argued that the original stimulus and the health care bill amounted to liberal overreach.  It would be premised on the notion that bipartisan compromise on a major issue was still possible.  A play for more stimulus, on the other hand, would be a defiant action, and Obama clearly recognized this.  When Romer later urged him to double-down, he groused, “The American people don’t think it worked, so I can’t do it.”

That’s a fine example of great leadership – isn’t it?  “The American people don’t think it worked, so I can’t do it.”  In 2009, the fierce urgency of the unemployment and economic crises demanded a leader who would not feel intimidated by the sheeple’s erroneous belief that the Economic Recovery Act had not “worked”.

Ron Suskind’s book, Confidence Men is another source which contradicts David Gergen’s attempt to characterize Obama’s stimulus as Romer’s baby.  Last fall, Berkeley economics professor, Brad DeLong had been posting and discussing excerpts from the book at his own website, Grasping Reality With Both Hands.  On September 19, Professor DeLong posted a passage from Suskind’s book, which revealed Obama’s expressed belief (in November of 2009) that high unemployment was a result of productivity gains in the economy.  Both Larry Summers (Chair of the National Economic Council) and Christina Romer (Chair of the Council of Economic Advisers) were shocked and puzzled by Obama’s ignorance on this subject:

“What was driving unemployment was clearly deficient aggregate demand,” Romer said.  “We wondered where this could be coming from.  We both tried to convince him otherwise.  He wouldn’t budge.”

Obama’s willful refusal to heed the advice of Cristina Romer has facilitated the persistence of our nation’s unemployment problem.  As Ron Suskind remarked in the previously-quoted passage:

The implications were significant.  If Obama felt that 10 percent unemployment was the product of sound, productivity-driven decisions by American business, then short-term government measures to spur hiring were not only futile but unwise.

There you have it.  Despite the efforts of Obama’s apologists to blame Larry Summers or others on the President’s economic team for persistent unemployment, it wasn’t simply a matter of “the buck stopping” on the President’s desk.  Obama himself  has been the villain, hypocritically advocating a strategy of “trickle-down economics” – in breach of  his campaign promise to do the exact opposite.

As Election Day approaches, it becomes increasingly obvious that the unemployment situation will persist through autumn – and it could get worse.  This is not Christina Romer’s fault.  It is President Obama’s legacy.  Christina Romer was right and President Obama was wrong.


 

No Consensus About the Future

Comments Off on No Consensus About the Future

As the election year progresses, we are exposed to wildly diverging predictions about the future of the American economy.  The Democrats are telling us that in President Obama’s capable hands, the American economy keeps improving every day – despite the constant efforts by Congressional Republicans to derail the Recovery Express.  On the other hand, the Republicans keep warning us that a second Obama term could crush the American economy with unrestrained spending on entitlement programs.  Meanwhile, in (what should be) the more sober arena of serious economics, there is a wide spectrum of expectations, motivated by concerns other than partisan politics.  Underlying all of these debates is a simple question:  How can one predict the future of the economy without an accurate understanding of what is happening in the present?  Before asking about where we are headed, it might be a good idea to get a grip on where we are now.  Nevertheless, exclusive fixation on past and present conditions can allow future developments to sneak up on us, if we are not watching.

Those who anticipate a less resilient economy consistently emphasize that the “rose-colored glasses crowd” has been basing its expectations on a review of lagging and concurrent economic indicators rather than an analysis of leading economic indicators.  One of the most prominent economists to emphasize this distinction is John Hussman of the Hussman Funds.  Hussman’s most recent Weekly Market Comment contains what has become a weekly reminder of the flawed analysis used by the optimists:

On the economy, our broad view is based on dozens of indicators and multiple methods, and the overall picture is much better described as a modest rebound within still-fragile conditions, rather than a recovery or a clear expansion.  The optimism of the economic consensus seems to largely reflect an over-extrapolation of weather-induced boosts to coincident and lagging economic indicators — particularly jobs data.  Recall that seasonal adjustments in the winter months presume significant layoffs in the retail sector and slow hiring elsewhere, and therefore add back “phantom” jobs to compensate.

Hussman’s kindred spirit, Lakshman Achuthan of the Economic Cycle Research Institute (ECRI), has been criticized for the predictiction he made last September that the United States would fall back into recession.  Nevertheless, the ECRI reaffirmed that position on March 15 with a website posting entitled, “Why Our Recession Call Stands”.  Again, note the emphasis on leading economic indicators – rather than concurrent and lagging economic indicators:

How about forward-looking indicators?  We find that year-over-year growth in ECRI’s Weekly Leading Index (WLI) remains in a cyclical downturn . . .  and, as of early March, is near its worst reading since July 2009.  Close observers of this index might be understandably surprised by this persistent weakness, since the WLI’s smoothed annualized growth rate, which is much better known, has turned decidedly less negative in recent months.

Unlike the partisan political rhetoric about the economy, prognostication expressed by economists can be a bit more subtle.  In fact, many of the recent, upbeat commentaries have quite restrained and cautious.  Consider this piece from The Economist:

A year ago total bank loans were shrinking.  Now they are growing.  Loans to consumers have risen by 5% in the past year, which has accompanied healthy gains in car sales (see chart).  Mortgage lending was still contracting as of late 2011 but although house prices are still edging lower both sales and construction are rising.

*   *   *

At present just four states are reporting mid-year budget gaps, according to the National Conference of State Legislatures; this time last year, 15 did; the year before that, 36. State and local employment, which declined by 655,000 between August 2008 and last December – a fall of 3.3% – has actually edged up since.

*   *   *

Manufacturing employment, which declined almost continuously from 1998 through 2009, has since risen by nearly 4%, and the average length of time factories work is as high as at any time since 1945.  Since the end of the recession exports have risen by 39%, much faster than overall GDP.  Neither is as impressive as it sounds:  manufacturing employment remains a smaller share of the private workforce than in 2007, and imports have recently grown even faster than exports as global growth has faltered and the dollar has climbed.  Trade, which was a contributor to economic growth in the first years of recovery, has lately been a drag.

But economic recovery doesn’t have to wait for all of America’s imbalances to be corrected.  It only needs the process to advance far enough for the normal cyclical forces of employment, income and spending to take hold.  And though their grip may be tenuous, and a shock might yet dislodge it, it now seems that, at last, they have.

A great deal of enthusiastic commentary was published in reaction to the results from the recent round of bank stress tests, released by the Federal Reserve.  The stress test results revealed that 15 of the 19 banks tested could survive a stress scenario which included a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices.  Time magazine published an important article on the Fed’s stress test results.  It was written by a gentleman named Christopher Matthews, who used to write for Forbes and the Financial Times.  (He is a bit younger than the host of Hardball.)  In a surprising departure from traditional, “mainstream media propaganda”, Mr. Matthews demonstrated a unique ability to look “behind the curtain” to give his readers a better idea of where we are now:

Christopher Whalen, a bank analyst and frequent critic of the big banks, penned an article in ZeroHedge questioning the assumptions, both by the Fed and the banks themselves, that went into the tests.  It’s well known that housing remains a thorn in the side of the big banks, and depressed real estate prices are the biggest risk to bank balance sheets.  The banks are making their own assumptions, however, with regards to the value of their real estate holdings, and Whalen is dubious of what the banks are reporting on their balance sheets. The Fed, he says, is happy to go along with this massaging of the data. He writes,

“The Fed does not want to believe that there is a problem with real estate. As my friend Tom Day wrote for PRMIA’s DC chapter yesterday:  ‘It remains hard to believe, on the face of it, that many of the more damaged balance sheets could, in fact, withstand another financial tsunami of the magnitude we have recenlty experienced and, to a large extent, continue to grapple with.’ ”

Even those that are more credulous are taking exception to the Fed’s decision to allow the banks to increase dividends and stock buybacks.  The Bloomberg editorial board wrote an opinion yesterday criticizing this decision:

 “Good as the stress tests were, they don’t mean the U.S. banking system is out of the woods.  Three major banks – Ally Financial Inc., Citigroup Inc. and SunTrust Banks Inc. – didn’t pass, and investors still don’t have much faith in the reported capital levels of many of the rest.  If the Fed wants the positive results of the stress tests to last, it should err on the side of caution in approving banks’ plans to pay dividends and buy back shares – moves that benefit shareholders but also deplete capital.”

So there’s still plenty for skeptics to read into Tuesday’s report.  For those who want to doubt the veracity of the banks’ bookkeeping, you can look to Whalen’s report.  For those who like to question the Fed’s decision making, Bloomberg’s argument is as good as any.  But at the same time, we all know from experience that things could be much worse, and Tuesday’s announcement appears to be another in a string of recent good news that, unfortunately, comes packaged with a few caveats.  When all is said and done, this most recent test may turn out to be another small, “I think I can” from the little recovery that could.

When mainstream publications such as Time and Bloomberg News present reasoned analysis about the economy, it should serve as reminder to political bloviators that the only audience for the partisan rhetoric consists of “low-information voters”.  The old paradigm – based on campaign funding payola from lobbyists combined with support from low-information voters – is being challenged by what Marshall McLuhan called “the electronic information environment”.  Let’s hope that sane economic policy prevails.


 

Thinking Clearly During An Election Year

Comments Off on Thinking Clearly During An Election Year

The non-stop bombardment of inane, partisan yammering which assaults us during an election year, makes it even more refreshing when a level-headed, clear thinker catches our attention.  One popular subject of debate during the current election cycle has been the American Recovery and Reinvestment Act (the 2009 stimulus bill).  In stark contrast with the propaganda you have been hearing about the 2009 stimulus (from both political parties), a new book by Mike Grabell of ProPublica entitled, Money Well Spent? brought us a rare, objective analysis of what the stimulus did – and did not – accomplish.

Matt Steinglass of The Economist recently wrote a great essay on the “stimulus vs. austerity” debate, which included a discussion of Mike Grabell’s new book:

The debate we had about the stimulus probably should have been a lot like the book Mr Grabell has written:  a detailed investigation of what does and doesn’t work in stimulus spending and whether the government really can jump-start a promising industry through investments, tax breaks and industrial policy.  But that wasn’t the debate we had.  Instead we had a debate about the very concept of whether the government ought to spend money counter-cyclically during a recession in order to keep the economy from collapsing, or whether it should tighten its belt along with consumers and businesses in order to generate confidence in the financial markets and allow markets to clear.  We had a debate about whether governments should respond to recessions with deficit spending or austerity.

The ProPublica website gave us a peek at Mike Grabell’s book by publishing a passage concerning how the stimulus helped America maintain its status as a competitor in the electric car industry.  Nevertheless, America’s failure to support the new technology with the same zeal as its Asian competitors could push domestic manufacturers completely out of the market:

A report by congressional researchers last year concluded that the cost of batteries, anxiety over mileage range and more efficient internal combustion engines could make it difficult to achieve Obama’s goal of a million electric vehicles by 2015.  Even many in the industry say the target is unreachable.

While the $2.4 billion in stimulus money has increased battery manufacturing, the congressional report noted that United States might not be able to keep up in the long run.  South Korea and China have announced plans to invest more than five times that amount over the next decade.

As Matt Steinglass concluded in his essay for The Economist, current economic circumstances (as well as the changed opinions of economists John Cochrane and Niall Ferguson) indicate that the proponents of economic stimulus have won the “stimulus vs. austerity” debate:

The 2010 elections took place at a moment when people seemed to have lost faith in Keynesianism.  The 2012 elections are taking place at a moment when people have lost faith in expansionary austerity.

Although the oil industry has done a successful job of convincing the public that jobs will be lost if the Keystone Pipeline is not approved, big oil has done a better job of distracting the public from understanding how many jobs will be lost if America fails to earn a niche in the electric vehicle market.

The politicization of the debate over how to address the ongoing unemployment crisis was the subject of a February 2 Washington Post commentary by Mohamed El-Erian (co-CEO of PIMCO).  El-Erian lamented that – despite the slight progress achieved in reducing unemployment – the situation remains at a crisis level, demanding immediate efforts toward resolution:

The longer that corrective measures are delayed, the harder the task at hand will be and the greater the eventual costs to society.

*   *   *

In fact, our current unemployment crisis is a force for broad and disruptive economic, political and social dislocations.

Mr. El-Erian noted that there is a faction – among the opposing forces in the debate over how to address unemployment – seeking a “killer app” which would effectuate dramatic and immediate progress.  He explained why those people aren’t being realistic:

There is no killer app.  Instead, Congress and the administration need to move simultaneously on three fronts that incorporate multiple measures:  those that address the immediate impediments to job creation, including a better mix of demand stimulus and medium-term fiscal reform involving both federal spending and revenue, as well as stronger remedies for housing and housing finance; those that deal with the longer-term enablers of productive employment, such as education, retraining and retooling; and those that strengthen the social safety nets to appropriately protect citizens in the interim.

Have no doubt, this is a complex, multiyear effort that involves several government agencies acting in a delicate, coordinated effort.  It will not happen unless our political leaders come together to address what constitutes America’s biggest national challenge. And sustained implementation will not be possible nor effective without much clearer personal accountability.

One would think that, given all this, it has become more than paramount for Washington to elevate – not just in rhetoric but, critically, through sustained actions – the urgency of today’s unemployment crisis to the same level that it placed the financial crisis three years ago.  But watching the actions in the nation’s capital, I and many others are worried that our politicians will wait at least until the November elections before dealing more seriously with the unemployment crisis.

In other words, while the election year lunacy continues, the unemployment crisis continues to act as “a force for broad and disruptive economic, political and social dislocations”.  Worse yet, the expectation that our political leaders could “come together to address what constitutes America’s biggest national challenge” seems nearly as unrealistic as waiting for that “killer app”.  This is yet another reason why Peter Schweizer’s cause – as expressed in his book, Throw Them All Out, should be on everyone’s front burner during the 2012 election year.


wordpress stats

Recession Watch

Comments Off on Recession Watch

A recession relapse is the last thing Team Obama wants to see during this election year.  The President’s State of the Union address featured plenty of “happy talk” about how the economy is improving.  Nevertheless, more than a few wise people have expressed their concerns that we might be headed back into another period of at least six months of economic contraction.

Last fall, the Economic Cycle Research Institute (ECRI) predicted that the United States would fall back into recession.  More recently, the ECRI’s weekly leading index has been showing small increments of improvement, although not enough to dispel the possibility of a relapse.  Take a look at the chart which accompanied the January 27 article by Mark Gongloff of The Wall Street Journal.  Here are some of Mr. Gongloff’s observations:

The index itself actually ticked down a bit, to 122.8 from 123.3 the week before, but that’s still among the highest readings since this summer.

*   *   *

That’s still not great, still in negative territory where it has been since the late summer.  But it is the best growth rate since September 2.

Whatever that means.  It’s hard to say this index is telling us whether a recession is coming or not, because the ECRI’s recession call is based on top-secret longer leading indexes.

Economist John Hussman of the Hussman Funds has been in full agreement with the ECRI’s recession call since it was first published.  In his most recent Weekly Market Comment, Dr. Hussman discussed the impact of an increasingly probable recession on deteriorating stock market conditions:

Once again, we now have a set of market conditions that is associated almost exclusively with steeply negative outcomes.  In this case, we’re observing an “exhaustion” syndrome that has typically been followed by market losses on the order of 25% over the following 6-7 month period (not a typo).  Worse, this is coupled with evidence from leading economic measures that continue to be associated with a very high risk of oncoming recession in the U.S. – despite a modest firming in various lagging and coincident economic indicators, at still-tepid levels.  Compound this with unresolved credit strains and an effectively insolvent banking system in Europe, and we face a likely outcome aptly described as a Goat Rodeo.

My concern is that an improbably large number of things will have to go right in order to avoid a major decline in stock market value in the months ahead.

Another fund manager expressing similar concern is bond guru Jeffrey Gundlach of DoubleLine Capital. Daniel Fisher of Forbes recently interviewed Gundlach, who explained that he is more afraid of recession than of higher interest rates.

Many commentators have discussed a new, global recession, sparked by a recession across Europe.  Mike Shedlock (a/k/a Mish), recently emphasized that “without a doubt Europe is already in recession.”  It is feared that the recession in Europe – where America exports most of its products – could cause another recession in the United States, as a result of decreased demand for the products we manufacture.  The January 24 World Economic Outlook Update issued by the IMF offered this insight:

The euro area economy is now expected to go into a mild recession in 2012 – consistent with what was presented as a downside scenario in the January 2011 WEO Update.

*   *   *

For the United States, the growth impact of such spillovers is broadly offset by stronger underlying domestic demand dynamics in 2012.  Nonetheless, activity slows from the pace reached during the second half of 2011, as higher risk aversion tightens financial conditions and fiscal policy turns more contractionary.

On January 28, Steve Odland of Forbes suggested that the Great Recession, which began in the fourth quarter of 2007, never really ended.  Odland emphasized that the continuing drag of the housing market, the lack of liquidity for small businesses to create jobs, despite trillions of dollars in cash on the sidelines, has resulted in an “invisible recovery”.

Jennifer Smith of The Wall Street Journal explained how this situation has played out at law firms:

Conditions at law firms have stabilized since 2009, when the legal industry shed 41,900 positions, according to the Labor Department.  Cuts were more moderate last year, with some 2,700 positions eliminated, and recruiters report more opportunities for experienced midlevel associates.

But many elite firms have shrunk their ranks of entry-level lawyers by as much as half from 2008, when market turmoil was at its peak.

Regardless of whether the economic recovery may have been “invisible”, economist Nouriel Roubini (a/k/a Dr. Doom) has consistently described the recovery as “U-shaped” rather than the usual “V-shaped” graph pattern we have seen depicting previous recessions.  Today Online reported on a discussion Dr. Roubini held concerning this matter at the World Economic Forum’s meeting in Davos:

Slow growth in advanced economies will likely lead to “a U-shaped recovery rather than a typical V”, and could last up to 10 years if there is too much debt in the public and private sector, he said.

At a panel discussion yesterday, Dr Roubini also said Greece will probably leave Europe’s single currency within 12 months and could soon be followed by Portugal.

“The euro zone is a slow-motion train wreck,” he said.  “Not only Greece, other countries as well are insolvent.”

In a December 8 interview conducted by Tom Keene on Bloomberg Television’s “Surveillance Midday”, Lakshman Achuthan, chief operations officer of the Economic Cycle Research Institute, explained his position:

“The downturn we have now is very different than the downturn in 2010, which did not persist.  This one is persisting.”

*  *  *

“If there’s no recession in Q4 or in the first half I’d say of 2012, then we’re wrong.  …   You’re not going to know whether or not we’re wrong until a year from now.”

I’m afraid that we might know the answer before then.


 

wordpress stats

Too Cool To Fool

Comments Off on Too Cool To Fool

It’s always reassuring to see that there are a good number of people among us who aren’t easily manipulated by “the powers that be”.  Let’s take a look at some examples:

Glen Ford is the executive editor of the Black Agenda Report.  On January 11, Mr. Ford discussed how – up until now – the Occupy Wall Street movement has managed to avoid being co-opted by the Democratic Party and MoveOn.org.  Unfortunately, the Obama regime may have succeeded in establishing a grip on OWS.  Glen Ford offered this explanation:

The Democratic Party may have entered the Occupy Wall Street movement through the “Black door,” in the form of Occupy The Dream, the Black ministers’ group led by former NAACP chief and Million Man March national director Dr. Benjamin Chavis and Baltimore mega-church pastor Rev. Jamal Bryant.  Both are fervent supporters of President Obama.

*   *   *

It appears that Occupy Wall Street’s new Black affiliate is also in “lock-step” with the corporate Democrat in the White House, whose administration has funneled trillions of dollars to Wall Street and greatly expanded U.S. theaters of war.

*   *   *

Black ministers in campaign mode routinely depict Obama’s political troubles as indistinguishable from threats to “The Dream,” whose embodiment is ensconced in the White House.  That’s simply common currency among Black preachers pushing for Obama.

*   *   *

It is highly unlikely – damn near inconceivable – that Occupy The Dream will do anything that might embarrass this president.  Its ministers can be expected to electioneer for Obama at every opportunity.  Their January 16 actions are directed at the Federal Reserve, which is technically independent from the executive branch of government – although, in practice, the Fed has been Obama’s principal mechanism for bailing out the banks.  Will the ministers pretend, next Monday, that the president is somehow removed from the Fed’s massive transfers of the people’s credit and cash to Wall Street over the past three years?

*   *   *

At this late stage, there is no antidote to the potential cooptation, except to rev up the movement’s confrontation with the oligarchic powers-that-be – including Wall Street’s guy in the White House.  Let’s see what happens if OWS demonstrators join with Occupy The Dream at Federal Reserve sites on January 16 carrying placards unequivocally implicating Obama in the Fed’s bailouts of the banksters, as Occupy demonstrators have done so often in the past.  Will the Dream’s leadership be in “lock-step” with that?  Maybe so – I’ve heard that miracles sometimes do happen.

Anyone who challenges the Obama administration’s symbiotic relationship with the Wall Street banksters invites accusations of advancing the Republican agenda for regaining control of the White House.  This problem will be solved once a populist third-party or Independent candidate rises to pose a serious challenge to the incumbent.  Beyond that, an African-American commentator who dares to expose Obama as a tool of Wall Street is likely to face harsh criticism.  Glen Ford has demonstrated more courage than most Americans by taking a stand against this venal administration.

Another exemplary individual, whose opinions were never compromised to justify or rationalize the current administration’s tactics, has been economist Joseph Stiglitz – the Nobel laureate who found himself ignored and shut out by the Obama administration ab initio.  Professor Stiglitz recently wrote a commentary entitled, “The Perils of 2012” in which he dared to predict an election year fraught with economic despair.  Such conditions make for an incumbent President’s worst nightmare.  As a result, non-Republican economists are expected to avoid such prognostication.  Nevertheless, Professor Stiglitz proceeded to paint an ugly picture of what we can expect in the near term, after first reminding us that there has been no sound policy advanced for mitigating the devastation experienced by the middle class as a result of the 2008 financial crisis:

The year 2011 will be remembered as the time when many ever-optimistic Americans began to give up hope.  President John F. Kennedy once said that a rising tide lifts all boats.  But now, in the receding tide, Americans are beginning to see not only that those with taller masts had been lifted far higher, but also that many of the smaller boats had been dashed to pieces in their wake.

In that brief moment when the rising tide was indeed rising, millions of people believed that they might have a fair chance of realizing the “American Dream.”  Now those dreams, too, are receding.  By 2011, the savings of those who had lost their jobs in 2008 or 2009 had been spent.  Unemployment checks had run out.  Headlines announcing new hiring – still not enough to keep pace with the number of those who would normally have entered the labor force – meant little to the 50 year olds with little hope of ever holding a job again.

Indeed, middle-aged people who thought that they would be unemployed for a few months have now realized that they were, in fact, forcibly retired.  Young people who graduated from college with tens of thousands of dollars of education debt cannot find any jobs at all.  People who moved in with friends and relatives have become homeless.  Houses bought during the property boom are still on the market or have been sold at a loss.  More than seven million American families have lost their homes.

*   *   *

The pragmatic commitment to growth that one sees in Asia and other emerging markets today stands in contrast to the West’s misguided policies, which, driven by a combination of ideology and vested interests, almost seem to reflect a commitment not to grow.

As a result, global economic rebalancing is likely to accelerate, almost inevitably giving rise to political tensions.  With all of the problems confronting the global economy, we will be lucky if these strains do not begin to manifest themselves within the next twelve months.

Another commentator who has been “too cool to fool” is equities market analyst, Barry Ritholtz.  One of his recent blog postings documented how Ritholtz never accepted the propagandistic pronouncements of the National Retailers Association about Christmas season retail sales.  Once the hype began on Black Friday, Ritholtz began his own campaign of debunking the questionable data, touted to boost unjustified confidence about the direction of our economy.  Ritholtz concluded the piece with this statement:

Those of you who may have downplayed the potential for a recession to start over the next 12-18 months way want to revisit your views on this.  It is far from the low possibility many economists have it pegged at.

Fortunately, not everyone has been as imperceptive as those on the Obama administration’s economic team who admitted that as late as 2009, they underestimated the extent of economic contraction resulting from the 2008 crisis.  It’s time for the voting public to dis-employ the political hacks who have allowed this condition to fester.  One effective path toward this goal involves voting against incumbents in primary elections.  Keep in mind that America’s Congressional districts have been gerrymandered to protect incumbents.  As a result, any plan to defeat those officeholders in a general election could be an exercise in futility.  Voting against current members of Congress during the primary process can open the door for more capable candidates during the general election.  Peter Schweizer’s cause – as expressed in his book, Throw Them All Out, should be on everyone’s front burner during the 2012 primary season.


 

wordpress stats

Secret Phone Call

Comments Off on Secret Phone Call

I’ve been reading a great number of articles by commentators who have expressed outrage concerning President Obama’s shocking capitulation in the negotiations involving the debt ceiling bill.  Despite the Democratic Party’s tactic of blaming the “Tea Party terrorists” for the all cuts – no revenue, pro-billionaire legislation, a few pundits have seen through this fog to point out that Obama actually got the bill he secretly wanted all along.  Glenn Greenwald presented a solid case for this theory at Salon.

Polling guru Nate Silver wrote two items on August 1, in which he analyzed the Congressional voting and demonstrated that President Obama – despite having been afforded the opportunity to include provisions in the bill to make it more economically stimulative and less onerous for those experiencing the greatest hardship from the economic crisis – decided to leave some available provisions “on the table”.

Nate Silver initially made this observation:

Fiscal austerity at a time of economic distress, and on largely Republican terms, is not what Democrats thought they were getting when they elected Mr. Obama in 2008.  Mr. Obama might have done more to make short-term stimulus – like further reductions to the payroll tax, which would not have violated the Republicans’ ostensible goals – the  price for long-term austerity.

Although it is impossible to prove one way or the other, I am not persuaded by the notion that Mr. Obama could not have delivered a better result to Democrats had he done more to stand his ground.  Despite the dissent in the Republican caucus, which had originally seemed like a tactical victory for Democrats, the compromise wound up looking more like Mr. Boehner’s original bill than Mr. Reid’s.

Later that evening, Mr. Silver provided an analysis, which exposed Obama’s abandonment of the objectives he was elected to promote:

These results seem to suggest that Mr. Obama left something on the table.  That is, Mr. Obama could have shifted the deal tangibly toward the left and still gotten a bill through without too much of a problem.  For instance, even if all members of the Tea Party Caucus had voted against the bill, it would still have passed 237-to-193, and that’s with 95 Democrats voting against it.

Specifically, it seems likely that Mr. Obama could have gotten an extension of the payroll tax cut included in the bill, or unemployment benefits, either of which would have had a stimulative effect.

*   *   *

With that payroll tax cut, the deal becomes a much easier sell to Democrats – and perhaps also to swing voters, particularly given that nobody spent much time during this debate talking about jobs.  Plus, it would have improved growth in 2012 and, depending on how literally you take the economic models, improved Mr. Obama’s re-election chances.

As many observers have noted, the plutocracy has been able to accomplish much more with Obama in the White House, than what would have been achievable with a Republican President.  This latest example of a bipartisan effort to trample “the little people” has reinforced my belief that the fake “two-party system” is a sideshow – designed to obfuscate the insidious activities of the Republi-Cratic Corporatist Party.

What follows is the transcript of an imaginary telephone conversation between President Obama and Roger Ailes of Fox News:

Obama:  Hi Rodge!

Ailes:  Hi Barry!  Congratulations on the debt ceiling bill!  Great work!

Obama:  Thanks.  I won’t have to renew the Bush tax cuts again until after the election.  That’s a relief!  Unfortunately, we’re getting some bad polling numbers now.  Problems with the base.  I need you guys to lean on the “liberal” stuff a little harder.  Both O’Reilly and Hannity have been doing OK on it – but I just wish they would get back to some more of the “socialist” accusations.  That would really help rehabilitate my cred with my estranged base.

Ailes:       The “socialist” shtick was more Beck’s routine – but I’ll get them on it.

Obama:   I found some old pictures of myself with Bill Ayers that you guys might want to use    . . .

Ailes:       Ayers is sooooo 2008!  We need something new.  We need to get you to Syria for a meeting with Bashar al-Assad.  When you shake hands with him – make sure you bow!  We can get a lot of mileage here from that!

Obama:   No!  That will piss off too many liberals – especially the Jews.  I’m trying to keep the smart people in my corner!

Ailes:       OK.  OK.  We just really need to get you on some sort of apology tour or something.  You could start traveling around to abortion clinics and promising them some federal aid  .  .  .

Obama:   Great one, Rodge!  I love that!

Ailes:       I’ll plant some of our protesters along the way – the ones who’ve already been cleared by the Secret Service.

Obama:   Yeah!  Bring back that guy with the fake assault rifle!  He was a trip!

Ailes:       I have someone better.  This guy has been posing as a “Tea Party activist” at “town meetings”.  He’s a great new talent!

Obama:   We could set up another “Joe the Plumber”-type of confrontation with that guy!

Ailes:       Definately!  I’ll have my people put a script together.  That story will have some legs that will carry us all the way to the election!  . . .  Speaking of legs – I’m getting some good numbers in on Bachmann!

Obama:   How’s our girl doing?

Ailes:       Great!  She’s really gonna’ kick some ass in Iowa!

Obama:   I saw her on with Sean the other day.  She’s doing a great job!  Are you guys going to start a scandal involving Mitt?

Ailes:       I need to maintain plausible deniability about what Rupert’s operatives are up to.  You know  .  .  .

Obama:   Gotcha!  ‘Nuff said!

Ailes:       Well, I’ll let you get back to work.  You must have loads of angry campaign donors trying to bend your ear right about now  . . .

Obama:   Yeah  . . .  But that’s not where the real money is.

Ailes:       Amen!


 

wordpress stats

Looking Beyond The Smokescreen

Comments Off on Looking Beyond The Smokescreen

We bloggers have the mainstream news outlets to thank for our readership.  The inane, single-minded focus on a particular story, simply because it brings a huge audience to one’s competitors, regularly provides the driving force behind programming decisions made by those news producers.  As a result, America’s more discerning, critical thinkers have turned to internet-based news sources (and blogs) to familiarize themselves with the more important stories of these turbulent times.

Robert Oak, at The Economic Populist website, recently expressed his outrage concerning the fact that a certain over-publicized murder trial has eclipsed coverage of more important matters:

For over a week we’ve heard nothing else by the press but Casey Anthony.  Imagine what would happen if Nancy Grace used her never ending tape loop rants of hatred against tot mom to spew and prattle about the U.S. economy? Instead of some bizarre post traumatic public stress disorder, stuck in a rut, obsessive thought mantra, repeating ad nauseum, she’s guilty, we might hear our politicians are selling this nation down the river.

*   *   *

Folks, don’t you think the economy is just a little more important and actually impacts your lives than one crime and trial?  The reality is any story which really impacts the daily lives of working America is not covered or spun to fiction.

The fact that “our politicians are selling this nation down the river” has not been overlooked by Brett Arends at MarketWatch.  He recently wrote a great essay entitled, “The Next, Worse Financial Crisis”, wherein he discussed ten reasons “why we are doomed to repeat 2008”.  Of the ten reasons, my favorite was number 7, “The ancient regime is in the saddle”:

I have to laugh whenever I hear Republicans ranting that Barack Obama is a “liberal” or a “socialist” or a communist.  Are you kidding me?  Obama is Bush 44.  He’s a bit more like the old man than the younger one.  But look at who’s still running the economy: Bernanke. Geithner. Summers. Goldman Sachs. J.P. Morgan Chase. We’ve had the same establishment in charge since at least 1987, when Paul Volcker stood down as Fed chairman.  Change?  What “change”?  (And even the little we had was too much for Wall Street, which bought itself a new, more compliant Congress in 2010.)

As the 2012 campaign season begins, one need not look too far to find criticism of President Obama. Nevertheless, as Brett Arends explained, most of that criticism is a re-hash of the same, tired talking points we have been hearing since Obama took office.  We are only now beginning to hear a broader chorus of pushback from commentators who see Obama as the President I have often described as the “Dissapointer-In-Chief”.  Marshall Auerback wasn’t so restrained in his recent appraisal of Obama’s maladroit response to our economic crisis, choosing instead to ratify a well-deserved putdown, which most commentators felt obligated to denounce:

It may not have been the most felicitous choice of phrase, but Mark Halperin’s characterization of Barack Obama was not far off the mark, even if he did get suspended for it.  The President is a dick, at least as far as his understanding of basic economics goes.  Obama’s perverse fixation with deficit reduction uber alles takes him to areas where even George W. Bush and Ronald Reagan dared not to venture.  Medicare and Social Security are now on the table.  In fact entitlements of all kinds (excluding the myriad of subsidies still present to Wall Street) are all deemed fair game.

To what end?  Deficit control and deficit reduction, despite the fact that at present, the US has massive excess capacity including millions of unemployed and underemployed, a negative contribution from net exports, and a stagnant private spending growth horizon.  Yet the President marches on, oblivious to the harm his policies would introduce to an already bleeding economy, using the tired analogy between a household and a sovereign government to support his tired arguments.  It may have been impolitic, but “dick” is what immediately sprang to mind as one listened incredulously to the President’s press conference, which went from the sublime to the ridiculous.

*   *   *

Let’s state it again:  households do not have the power to levy taxes, to issue the currency we use, and to demand that those taxes are paid in the currency it issues.  Rather, households are users of the currency issued by the sovereign government.  Here the same distinction applies to private businesses, which are also users of the currency.  There’s a big difference, as all us on this blog have repeatedly stressed:  Users of a currency do face an external constraint in a way that a sovereign issuer of its currency does not.

*   *   *

The President has the causation here totally backward.  A growing economy, characterized by rising employment, rising incomes and rising capacity utilization causes the deficit to shrink, not the other way around.  Rising prosperity means rising tax revenues and reduced social welfare payments, whereas there is an overwhelming body of evidence to support the opposite – cutting budget deficits when there is slack private spending growth and external deficits will erode growth and destroy net jobs.

The increasing, widespread awareness of Obama’s mishandling of the economic crisis has resulted in a great cover story for New York Magazine by Frank Rich, entitled, “Obama’s Original Sin”.  While discussing Rich’s article, Yves Smith of Naked Capitalism lamented the fact that Obama is – again – the beneficiary of undeserved restraint:

Even Rich’s solid piece treats Obama more kindly that he should be.  He depicts the President as too easily won over by “the best and the brightest” in the guise of folks like Robert Rubin and his protégé Timothy Geithner.

We think this characterization is far too charitable.  Obama had a window in time in which he could have acted, decisively, to rein the financial services in, and he and his aides chose to let it pass and throw their lot in with the banksters.  That fatal decision has severely constrained their freedom of action, as we explain .  .  .

Miscreants such as Casey Anthony serve as convenient decoys for public anger.  Hopefully, by Election Day, the voters will realize that Casey Anthony isn’t to blame for the pathetic state of America’s economy and they will vote accordingly.


 

wordpress stats

Wisconsin Bogeymen Could Save Democrats From Themselves

Comments Off on Wisconsin Bogeymen Could Save Democrats From Themselves

Until this week, it was beginning to appear as though November 6, 2012 would be the day when Barack Obama and the entire Democratic Party would fall victim to their incurable case of The Smug.  I discussed this syndrome back on December 2:

The Democratic Party is suffering from a case of terminal smugness. Democrats ignored the warning back in 2006, when the South Park television series ran the episode, “Smug Alert”.

*   *   *

In the 2008 Democratic Primary elections, voters chose “change” rather than another Clinton administration.  Nevertheless, what the voters got was another Clinton administration.  After establishing an economic advisory team consisting of retreads from the Clinton White House, President Obama has persisted in approaching the 2010 economy as though it were the 1996 economy.  Obama’s creation of a bipartisan deficit commission has been widely criticized as an inept fallback to the obsolete Bill Clinton playbook.  Robert Reich, Labor Secretary for the original Clinton administration recently upbraided President Obama for this wrongheaded approach:

Bill Clinton had a rapidly expanding economy to fall back on, so his appeasement of Republicans didn’t legitimize the Republican world view.  Obama doesn’t have that luxury.  The American public is still hurting and they want to know why.

More recently, Robert Scheer lamented how President Obama’s economic team of recycled Clinton advisors shared the blame with Republicans in helping bring about the financial crisis and the ever-worsening income inequality between the “haves” and the “have nots”.  Mr. Scheer reminded us that the Democrats who promised “change” have been no less corrupted by lobbyists than their Republican counterparts:

The lobbyists are deliberately bipartisan in their bribery, and the authors of our demise are equally marked as Democrats and Republicans.  Ronald Reagan first effectively sang the siren song of ending government’s role in corporate crime prevention, but it was Democrat Bill Clinton who accomplished much of that goal.  It is the enduring conceit of the top Democratic leaders that they are valiantly holding back the forces of evil when they actually have continuously been complicit.

*   *   *

Thanks to President Clinton’s deregulation and the save-the-rich policies of George W. Bush, the situation deteriorated further from 2002 to 2006, a period in which the top 1 percent increased its income 11 percent annually while the rest of Americans had a truly paltry gain of 1 percent per year.

And that was before the meltdown that wiped out the jobs and home values of so many tens of millions of American families.

Thanks to Wisconsin Governor Scott Walker and Wisconsin Congressman Paul Ryan, the Democrats now have two bogeymen, who can personify the “reverse Robin Hood” crusade of the modern Republican Party.  E.J. Dionne of The Washington Post recently placed the burden on centrists to prevent the draconian budget proposal introduced by Representative Ryan, from finding its way to the President’s desk (probably because it would be signed if it got there):

Ryan’s truly outrageous proposal, built on heaping sacrifice onto the poor, slashing scholarship aid to college students and bestowing benefits on the rich, ought to force middle-of-the-roaders to take sides.  No one who is even remotely moderate can possibly support what Ryan has in mind.

Mr. Dionne then focused his attack more directly on two “middle-of-the-road” political figures:

Erskine Bowles and Alan Simpson, the co-chairs of the deficit commission and the heroes of the budget-cutting center, put out a statement saying some nice things about the idea of the Ryan budget.  They called it “serious, honest, straightforward,” even though there is much about its accounting that is none of those.

What Mr. Dionne conveniently ignores is that it was President Obama who appointed Erskine Bowles and Alan Simpson as co-chairs of the deficit commission.  Those guys were never my heroes.  Last December, when I criticized Obama’s elevation of Alan Simpson and a Clinton retread to leadership of his own deficit commission, I incorporated some pointed observations by Cullen Roche of Pragmatic Capitalism.  The platitudinous insistence by Erskine Bowles (Clinton’s former Chief of Staff) that it’s time for an “adult conversation about the dangers of this debt” drew this blistering retort from Cullen Roche:

Yes.  America has a debt problem.  We have a very serious household, municipality and state debt crisis that is in many ways similar to what is going on in Europe.   What we absolutely don’t have is a federal government debt problem.  After all, a nation with monopoly supply of currency in a floating exchange rate system never really has “debt” unless that debt is denominated in a foreign currency.  He says this conversation is the:

“exact same conversation every family, every single business, every single state and every single municipality has been having these last few years.”

There is only one problem with this remark.  The federal government is NOTHING like a household, state or municipality.   These entities are all revenue constrained.  The Federal government has no such constraint.  We don’t need China to lend us money.  We don’t need to raise taxes to spend money.  When the US government wants to spend money it sends men and women into a room where they mark up accounts in a computer system.   They don’t call China first or check their tax revenues.   They just spend the money.

*   *   *
Mr. Bowles finished his press conference by saying that the American people get it:

“There is one thing I am absolutely sure of.  If nothing else, I know deep down the American people get it.   They know this is the moment of truth”

The American people most certainly don’t get it.  And how can you blame them?  When a supposed financial expert like Mr. Bowles can’t grasp these concepts how could we ever expect the average American to understand it?  It’s time for an adult conversation to begin before this misguided conversation regarding the future bankruptcy of America sends us towards our own “moment of truth” – a 1937 moment.

We centrists actually know better than to take Simpson and Bowles seriously.  Unfortunately, E.J. Dionne’s hero – Barack Obama – doesn’t.

Wisconsin Governor Scott Walker has become the second bogeyman for the Democrats to spotlight in their efforts to cleanse their own tarnished images after selling out to Wall Street lobbyists.  As Amanda Terkel reported for The Huffington Post:

A divisive budget battle between labor unions and Gov. Scott Walker (R-Wis.) turned a state Supreme Court race into a nationally watched bellwether on the electorate’s mood heading into a recall campaign and the 2012 elections.

Nearly 1.5 million people turned out to vote, representing 33.5 percent of voting-age adults — 68 percent higher than the 20 percent turnout officials had expected.  JoAnne Kloppenburg has already declared victory, with the vote tallies showing her beating incumbent David Prosser by just a couple hundred votes.  The race is expected to head to a recount.

*   *   *

There were no party affiliations on the ballot, but Kloppenburg was heavily backed by Democrats and Prosser by Republicans, making it a fierce proxy battle for the two parties.

Will the Wisconsin Bogeymen provide the Democrats with the inspiration and motivation they need to put the interests of the American middle class ahead of the goals of the Plutocracy?  Don’t bet on it.


wordpress stats


Magic Numbers

Comments Off on Magic Numbers

As soon as I got a look at the March Nonfarm Payrolls Report from the Bureau of Labor Statistics on April 1, I knew that the cheerleaders from the “rose-colored glasses” crowd would be trumpeting the onset of some sort of new era, or “golden age”.  I wasn’t too far off.  My own reaction to the BLS report was similar to that expressed by Bill McBride of Calculated Risk:

The March employment report was another small step in the right direction, but the overall employment situation remains grim:  There are 7.25 million fewer payroll jobs now than before the recession started in 2007 with 13.5 million Americans currently unemployed.  Another 8.4 million are working part time for economic reasons, and about 4 million more workers have left the labor force.  Of those unemployed, 6.1 million have been unemployed for six months or more.

Nevertheless, the opening words of the BLS report, asserting that nonfarm payroll employment increased by 216,000 in March, were all that the cheerleaders wanted to hear.  My cynicism about the unjustified enthusiasm was shared by economist Dean Baker:

Okay, this celebration around the jobs report is really getting out of hand.  Both the Post and Times had front page pieces touting the good news.  The Post gets the award for being the more breathless of the two   .   .   .

Brad DeLong had some fun letting the air out of the party balloons floating around in a brief piece by Gregory Ip of The Economist.  Mr. Ip began with this happy thought:

TURN off the alarms.  After several weeks when the data pointed to a recovery still struggling to achieve escape velocity, the March employment report provided reassuring evidence that, at a minimum, it is still gaining altitude.

After completely deconstructing Mr. Ip’s essay by emphasizing the painfully not-so-happy undercurrents lurking within the piece (apparently included out of concern that the Federal Reserve might take away the Quantitative Easing crack pipe) Professor DeLong re-visited Ip’s initial statement in the sobering light of day:

There is “recovery” in a sense that the output gap and the employment gap are no longer shrinking — and so that real GDP is growing at the rate of growth of potential output.  But this is not reason to “turn off the alarms.”  This is not reason to talk about “pieces [of recovery] … falling into place.”  And I am not sure I would describe this as “gaining altitude” with respect to the state of the business cycle.

The exploitation of the March Nonfarm Payrolls Report for bolstering claims that economic conditions are better than they really are is just the latest example of how the beauty of a given statistic can exist in the eye of the beholder – depending on the context in which that statistic is presented.   Economist David J. Merkel recently wrote an interesting essay, which concluded with this important admonition:

Be wary.  Look at a broader range of statistics, and take apart the existing statistics.  Don’t just take the pronouncements of our government at face value.  They are experts in saying what is technically true, while implying what is false.  Be wary.

David Merkel’s posting focused on the positive spin provided by a representative of Morgan Stanley concerning 4th Quarter 2010 Gross Domestic Product.  Merkel’s analysis of this statistic included some good advice:

In 4Q 2010 real GDP rose 3.1%, while real Gross Domestic Purchases fell 0.2%.  Why?  Energy and other import costs rose which depressed the price indexes for GDP versus Gross Domestic Purchases.

Over the long haul, the two series are close to equal, but when they diverge, they tell a story.  The current story is that average consumers in the US are doing badly, while those benefiting from high corporate profits, and increasing exports are doing well.

In general, I am not impressed with statistics collected by our government, or how they use them.  But it’s useful to understand what they mean — to understand the limitations of the statistics, so that when naive/conniving politicians use them wrongly, one can see through the error.

David Merkel’s point about “understanding the limitations of the statistics” is something that a good commentator should “fess up to” when discussing particular stats.  Michael Shedlock’s analysis of the March Nonfarm Payrolls Report provides a refreshing example of that type of candor:

Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is hard to discuss the numbers.

The official unemployment rate is 8.8%.  However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is.  That number is in the last row labeled U-6.

While the “official” unemployment rate is an unacceptable 8.8%, U-6 is much higher at 15.7%.

Things are much worse than the reported numbers would have you believe.

That said, this was a solid jobs report, not as measured by the typical recovery, but one of the better reports we have seen for years.

On the negative side, wages are not keeping up with the CPI, wage growth is skewed to the top end, and full time jobs are hard to come by.

At the current pace, the unemployment number would ordinarily drop, but not fast.  However, many of those millions who dropped out of the workforce could start looking if they think jobs may be out there.  Should that happen, the unemployment rate could rise, even if the economy adds jobs at this pace.  It is very questionable if this pace of jobs keeps up.

In other words, if a significant number of those people the BLS has ignored as having “dropped out of the workforce” prove the BLS wrong by actually applying for new job opportunities as they appear, the BLS will have to reconcile their reporting with that “new reality”.  Perhaps many of those “phantom people” were really there all along and the only thing preventing their detection was the absence of job opportunities.  As those “workforce dropouts” return to the BLS radar screen by applying for new job opportunities, the BLS will report it as a “rise” in the unemployment rate.  In reality, that updated statistic will reflect what the unemployment rate had been all along.  An improving job market will just make it easier to face the truth.