Saturday, December 6, 2008

Jobless Spike, and How to Stop the Bleeding

Key points to keep in mind from the current news:

-Jobless rates are under-reported, because people who stop searching are not counted. The real jobless rate is much higher than currently reported.
-The only employment growth is in non-wealth-producing industries (government, education, and health services). Our productive economy is dying, we are getting poorer by the day.
-The so-called experts are unprepared, as they did not expect things to get this bad this fast, and they are clueless about what to do (the Fed Chairman is only now beginning to talk about the one step which must be accomplished first: shore up home values).

Fed Reserve Chairman Bernanke is just now calling for efforts to attack the root of problem: falling home prices. Until home prices stabilize, nothing else will work because of the general deflation, but they are just now talking about dealing with this root cause. Instead Congress is talking about budget bailouts, Medicaid aid, fixing potholes, and green-technology subsidies. The last thing we need to do now is subsidize activities that are unprofitable, the very definition of good money chasing bad.

The focus on jobs is sign one that these people do not understand the economy. The only jobs that matter are jobs that create wealth. Government programs to employ people are counter-productive, robbing money from the productive economy to feed nonproductive job growth, with ever-growing governmental costs skimming a percent off the top. It is a direct formula for failure. The focus should be on freeing productive money to be more productive.

The very first step should be to stabilize home prices, with all emergency haste, but there is almost no discussion of a serious effort to take that most basic step. Our economically ignorant leaders are focused on the health and security of the banks, rather than the real economy. As I have previously stated, the one totally effective solution is to cancel all debt and restart the banking system. But even if they are unwilling to do that, they should be using all available moneys to prop up home prices. Such as buying all foreclosed houses directly. Governments regularly inject billions into currency markets to prop up their money's value, even though currency has zero real value. Our government is currently injecting trillions into the banking sector, even though banks have zero real value.

Rather than investing in "paper assets", which is to say, throwing money away in a deflationary environment, why doesn't the government simply purchase real estate? That is a real object of wealth, whose value would never fall to zero or disappear in some corporate collapse. The direct purchase of abandoned real estate would stem the housing collapse at once, as well as give the government real assets that would be sold at profit later.

Instead we throw money at collapsing banks? Listen, people aren't stupid, but they are followers, and rarely think outside the box. We can end this problem, but our leaders have understand the problem first. Please call your representatives to give them this idea, and demand they stop pouring money into banks!

News highlights:

Unemployment worse than forecast

Skittish employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7 percent, a 15-year high. The unemployment rate would have moved even higher if not for the exodus of 422,000 people from the work force. Economists thought many of those people probably abandoned their job searches out of sheer frustration. The job reductions were the most since a whopping 602,000 positions were slashed in December 1974, when the country was in a severe recession. The loss of 533,000 payroll jobs was much deeper than the 320,000 job cuts economists were forecasting. Job losses in September and October also turned out to be much worse. Employers cut 403,000 jobs in September, versus 284,000 previously estimated. Another 320,000 were chopped in October, compared with an initial estimate of 240,000. Since the start of the recession, the economy has lost 1.9 million jobs, the number of unemployed people increased by 2.7 million. All told, 10.3 million people were left unemployed as of November, while the number of employed was 144.3 million. The government said the number of people continuing to claim unemployment benefits last week reached 4.09 million, the highest level since December 1982, while the proportion of workers receiving benefits matched a level reached 16 years ago, in September 1992. The 1981-82 recession was the worst in terms of unemployment since the Great Depression. The jobless rate rose as high as 10.8 percent in late 1982, just as the recession ended, before inching down.

How long will it last?

At 12 months and counting, the current recession is longer than the 10-month average length of recessions since World War II. The record for the longest recession in the postwar period is 16 months, which was reached in the 1973-75 and 1981-82 downturns. The current recession might end up matching that or setting a record in terms of duration, analysts say. [Ya don't say!!!] Given the current woes, the jobless rate could rise as high as 8.5 percent by the end of next year, some analysts predict. [This analyst is predicting much higher.] Projections, however, have to be taken with a grain of salt because of all the uncertainties plaguing the economy. [I.e., they have no real basis for their optimistic claims at all.]

Clueless experts and policy proposals

"These numbers are shocking," said economist Joel Naroff, president of Naroff Economics Advisors. "Companies are sharply reacting to the economy's problems and slashing costs. They are not trying to ride it out." "The damage to the economy by the financial turmoil is much bigger than the market initially thought," said Tetsu Emori, commodity markets fund manager at ASTMAZ Futures Co. in Tokyo. "The economic data now is much worse than what we expected a few months ago."

Federal Reserve Chairman Ben Bernanke is expected ratchet down a key interest rate — now near a historic low of 1 percent — by as much as a half-percentage point on Dec. 16 [this must be a typo] in a bid to breathe life into the moribund economy. Bernanke is exploring other economic revival options and wants the government to step up efforts to curb home foreclosures. [This is the key.] President-elect Barack Obama, who takes office on Jan. 20, has called for a massive economic recovery bill to generate 2.5 million jobs over his first two years in office. House Speaker Nancy Pelosi, D-Calif., has vowed to have a package ready on Inauguration Day for Obama's signature. The measure, which could total $500 billion, would bankroll big public works projects to create jobs, provide aid to states to help with Medicaid costs, and provide money toward renewable energy development. [A waste, good money chasing bad.]

Other news

Factory orders plunged a bigger-than-expected 5.1 percent in October, caused by big cutbacks in demand for steel, autos, computers and heavy machinery. It was the largest decrease since an 8.5 percent fall in July 2000.

Light, sweet crude for January delivery was down $1.43 at $42.24 a barrel — nearly a 4 year low. In London, January Brent crude slipped by 72 cents to $41.56 on the ICE Futures exchange. Oil prices have fallen about 70 percent since peaking at $147.27 in July. "It could take a while before the economy and oil prices really hit bottom," Emori said. "Oil seems headed below $40."

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