Aug 02 2009
Nation’s Unemployment Is Liberals’ Waterloo
It was a giddy time in DC for liberals back in January of this year. They had wiped the GOP off the political map and had control of both ends of Pennsylvania Avenue. 15 years of pent up frustration, built up since the GOP takeover of Congress in 1994, had finally been released. The old guard liberals, who would finally take the gavels and pound their young inexperienced president into line, were going to change America! They were going to remake it to conform with the liberal myths and fantasies these 60’s rejects spent a lifetime naively believing in.
Here we sit 7 months later, with what is clearly a “teachable moment”. The first remake of the world turned out to be the now failed stimulus bill. It was different from most previous successful economic ‘stimulus’ packages in that it relied heavily on government spending to fix the economy – not economic incentives. Prior economic downturns were met with tax cuts and investment incentives to spur growth, innovation and investment.Â
But this time around the liberals wanted to prove once and for all that government was the superior entity, the governing light, the leader – not the tail wagging the dog. And so there were a few tax cuts and incentive based elements to get the left -of-center, fresh faced congress critters on board. But it was window dressing around the core policies.
In fact, these are the same insignificant elements the DC liberals are now trying to trot out as helping keep things from getting worse. These fools now claim the measly tax cuts and block grants to states  stopped things from being worse! But the truth is, if they have loaded the original bill up with sufficient quantities of these incentives, as has been done many times before going back to President Kennedy in the early 1960’s, then the recession would have been MILDER. We would not be in this deep.
The waste, fraud and abuse of the liberals’ risky economic scheme was in relying on massive spending programs, which dwarfed the tax cut element, and still have yet to start spending money. For you see, the Federal Government is a sluggish Leviathan which takes years to plan spending money, award the work and monitor the effort which ALWAYS comes in late, substandard and over budget. The only reason we use the government to perform work is it needs to be done outside the market place – like national defense and the scientific  exploration of space and the oceans. These may be wasteful and cumbersome endeavors, but they pay off in the end.
But this formula doesn’t work with wasted and late stimulus spending. That does not pay off. As I have noted many times, the job spending component of the stimulus bill is stuck in the federal bureaucracy. As of 7/10/09 we are still waiting for 99% of the money to come out of the bowels of the federal bureaucracy (I will publish updated numbers on 8/7/09 when the July unemployment numbers come out).
In the first graph there are 4 sets of columns showing: (from left to right) (1) the amount budgeted for stimulus programs in that organization, (2) the amount allocated to specific programs, (3) the amount actually spent creating jobs (the bottom line) and (4) the amount unspent from the total budget. (click image to enlarge)
The second chart translates the dollar amounts for the last three sets of columns into percentages of the budgeted amounts. (click image to enlarge)
At least now the country has learned a harsh truth – don’t believe politicians promising immediate stimulus by way of government programs. Even the liberals in DC have had to change their tune, and extend the timeline out to years, not weeks. Myth debunked.
A few weeks ago the NY Times – in what must have been a rare fit of professional journalism for them – noted that the unemployment situation was much worse than it seems on the surface. I cannot copy the graphic here, so please visit it and spend some time digesting it. But let me relate some of the startling numbers:
Under a broader definition of joblessness, some states have rates higher than 20 percent. This rate includes part-time workers who want to work full time, as well some people who want to work but have not looked for a job in the last four weeks.
- California: unemployment rate is 11%, the broader underemployment rate is 20%
- Michigan: unemployment rate is 13%, the broader underemployment rate is 22%
- Florida: unemployment rate is 9%, the broader underemployment rate is 17%
For those keeping track this data is over a month old and based on the May unemployment numbers, not the much worse June numbers. Michigan is now at 15.2% unemployment, which could be pushing the broader number up close to 30%. What this means is the situation is still much worse than DC is letting on – whether they are ignorant or hiding this is irrelevant. They still are not facing up to reality.
Today the NY Times had another fit of professional journalism and noted another important fact – people are rapidly running out of unemployment benefits because this recession has been so long and so deep:
Over the coming months, as many as 1.5 million jobless Americans will exhaust their unemployment insurance benefits, ending what for some has been a last bulwark against foreclosures and destitution.
Because of emergency extensions already enacted by Congress, laid-off workers in nearly half the states can collect benefits for up to 79 weeks, the longest period since the unemployment insurance program was created in the 1930s. But unemployment in this recession has proved to be especially tenacious, and a wave of job-seekers is using up even this prolonged aid.
Tens of thousands of workers have already used up their benefits, and the numbers are expected to soar in the months to come, reaching half a million by the end of September and 1.5 million by the end of the year, according to new projections by the National Employment Law Project, a private research group.
Click the image to enlarge, and read the whole article at NY Times – it contains very important information.
These victims of the recession touch us all. They are ourselves, or friends, or family members or colleagues. They are the victims of the failed liberal experiment out of DC. They are middle America.
They would not be suffering as much if the liberals had not been so naive to think government was the creator of jobs and wealth and satisfied lives. It is not. At best it adjudicates disagreements, punishes the criminals, provides for the national defense and provides for a suite of safety net services which are funded by the good will of the general population.
When government oversteps these bounds and starts competing with the private sector, or dictating to the private sector what to do, how much people can be rewarded for their efforts, how much wealth they can accumulate, how they must speak to each other, how they will live their lives, then government has become an oppressor. The views of an arrogant minority become the rules by which we all are forced to live.
That is not America. We do not need DC and NY elites to tell us how to live and to succeed and care for each other. This liberal stimulus experiment was meant to prove once and for all the truth about liberal economic fantasies and policies. It did its job in spades. We can now reject said liberal policies based on their abysmal failure. We can also reject the purveyors of these naive fantasies, and relegate such nonsensical thinking back to the children’s cartoons from where they came, the only venue where reality is suspended enough for these policies to be believable.
On August 7th, 2009 and September 11th reality will slam the liberals again, as these are the days when the nation reports the unemployment statistics for the previous month of failure. We cannot afford not to learn the lesson of this teachable moment in history.
Can the Liberals “Cook the books” in regard to the upcoming unemployment rate. It amazes me how the MSM spun the economic growth numbers were better than predicted. Yeah the economy instead of contracting 1.5 % it was “Only” 1%. Go figure.
Actually, I believe the media is currently setting Obama up for a huge fall by next Spring. Specifically I am talking about their recent mention of “recovery” in the housing market.
While the current numbers might be showing some recovery in home values, there are two things working against any sustained recovery. The first is interest rates. Mortgage rates rose half a point in my area over the past week. That makes homes less affordable even if the price is stable. The second shoe is an increase of option ARM mortgage resets that are scheduled to begin this fall and peak just after the first of the year in 2010.
These would be option ARMs that were taken out just as the bubble was peaking. These loans are for homes when they were priced at their very peak, they are borrowers that have good jobs, haven’t missed payments, but their mortgage terms are now scheduled to reset. The mortgages for the most part are well under water. The values of these homes are now, in many areas, hundreds of thousands of dollars less than they were when the mortgage was first let.
The dominoes are now set for a second wave of mortgage industry woes. This past Spring it was noted that falling interest rates would cushion the impact of these resets but rates have been rising again. You have people who have been paying as low as 1% interest on their option ARM with the difference between that 1% and “actual” interest rates being added to their loan balance. So the loan balances have been increasing while the underlying asset value has been decreasing.
Generally a loan “resets” when one of two things happen … either the term expires (5 years is a popular term) or when the loan balance exceeds some percentage of the original loan. So if unpaid interest is added to the mortgage balance, the mortgage might reset when the balance reaches, say, 125% of the original loan. Now the borrower is in a hard spot. Their monthly payment might now increase by 50%-70% at a time when their home value has plummeted. Houses that were selling for $600K to $700K in one nearby town are now selling for $250K for example. So someone with a $500K mortgage who now owes, say $750K because of accumulated interest on a house worth only $250K is maybe better off simply walking away from the mortgage and taking the credit hit than throwing $500K into the incinerator.
All this recent talk in the media of the “recovery”of home prices could be cranking up people’s expectations and should we get another wave of defaults between now and this time next year that causes another wave of bank closures, the psychological impact could be devastating. And there is no way Obama is going to be able to blame the Bush administration.
Remember, Bush was warning about this very situation back in 2001 shortly after taking office.
This is going to leave a mark …
“Can the Liberals “Cook the books†in regard to the upcoming unemployment rate. ”
Yeah, because the unemployment rate only counts people on the first 26 weeks of benefits, nobody on “extended” benefits are counted and nobody who has exhausted benefits is counted.
So the “unemployment rate” really has no relation to the number of people actually employed and certainly not to the number of “underemployed”.
A way to get a grip on how things are really doing is to grab the treasury monthly report and look at income tax withholding month to month. Revenues from taxes withheld from paychecks is falling.
You can generally find that report in here somewhere along with past reports for comparison.
Crosspatch,
Ben Bernanke and Larry Sumners must be fully aware of this upcoming housing crisis with the ARM loans. If they are going to try and offset this crisis, complicated by the emptying out of the unemployment benefits, no job creation, continuing fund allocations to other programs, like the 2B to the “Cash for Clunkers”, funds allocated to Hamas, and so on, what can and will Ben and Larry do to offset all of the pending disaster?
The credit markets were freezing, against everything Bush believed in he authorized TARP. My hunch is that what would have happened would have been so devastating, far bigger then the 1930’s depression, that there was no choice.
So the fat cats on Wall Street, with their million dollar incomes that Bush loves, got $700 billion dollars. In comes Obama, a President of the people, he devises a plan to give “the people” $768 billion dollars which includes a big down payment on his Medical Care, education, and energy ideas plus money for every program they can think of.
Today Obama’s guys, Geithner, and Summers say that they inherited a terrible debt, TARP and two wars that were off the books, plus $450 billion on the books and a far worse economy then they imagined. I’m thinking really, Geithner and Summers were in on the TARP program, Obama voted for it, they must have known the severity of the economy. Then they said that until we get small business going and hiring we will not solve the problems of unemployment or rebuilding the economy.
But, they gave nothing to speak of to small businesses, and with Cap and Trade and the proposed taxes to pay for Medical care, plus the billions lost and pulled out of the economy HOW CAN SMALL BUSINESSES COME BACK? Why would anybody want to invest anything until they know what the future holds. Then the Guru’s want people to consume. I guess they forget you need money to consume, you need confidence that your job will be there for longer then tomorrow.
My hunch is we have a long road ahead of us. We will be on this bleak road for years. And this President doesn’t have a clue.
The important part isn’t so much the avoidance of the damage as it is the mitigation of the collateral damage that would be caused. They should not be pretending that things have “turned the corner” just yet and should be warning that there are “other shoes to drop”. Raising expectations at this point would be very counterproductive when it is known that there is a wolf on the way. He isn’t at the door yet, but we know he is getting close.
The other problem is their handling of the unemployment numbers. They need to get those on extended benefits included in the unemployment numbers if they are going to give an accurate picture and there needs to be a number published monthly of people whose benefits ran out without finding a job.
The government just isn’t being frank with the people and that could lead to an incorrect setting of expectations. When expectations are raised and subsequent bad news arrives, it becomes much harder to improve morale later when things actually do improve on a more sustainable basis. They are better off being honest.
Here is another interesting metric.
So the Democrats are hemorrhaging members and the Republicans are picking up about half of those with the other half going “unaffiliated”
Crosspatch, I agree that they should be honest with the numbers. But they won’t be honest. They are telling us that the “corner has turned” with the hopes of convincing the Americans to re-elect them in 2010.
They are also hoping that the economy won’t get worse prior to 2010. They are timing many of their bills to take place after 2010 elections.
The fix for the problem would be pretty straightforward but also pretty radical. It would also cut out a lot of cash for certain cronies in the financial industry.
Have the treasury convert the existing option ARMs to fixed rate mortgages and have those mortgages held by the treasury. As these are mortgages with good payment histories, we would actually make money on the deal and avert financial disaster. But the mortgage companies would rather see some “program” where they are handed billions of dollars and geniuses making millions get bonuses for figuring it out.
With every passing year our exposure would decline as the mortgages are paid off and housing values recover. I would not make it an ongoing program, just convert option ARMs coming due over the next 12 months. Rather than having them “government guaranteed” have them “government originated”.
If someone defaults, we take every single tax refund they are due for the rest of their life until it is paid off.
kathie:
I think you are right. People can blame Bush for TARP {as if Congress had nothing to do with it}, but the truth is things might have been much worse if the government had done nothing.
I think there was panic at the time however, and the money was not controlled as well as it should have been. It might be that it would have been better to buy up toxic assets for resale later…that might have helped recoup the losses, but I honestly do not think that all of those people were just making up a crisis to spend money. Something really happened. I wonder if we will ever know exactly what it was.
Crosspatch, there’s another government caused factor that is going to lead to a significant drop in home sales this winter and next spring. That is the $8,000 tax credit that has been in place for first time buyers.
This tax credit expires in October, and common advice is that anyone wanting to take advantage of this program needs to sign a contract by the end of August, to be sure that the closing can be done in time for this program to apply.
This program has caused all potential first time buyers who were in the market this year or next to push up their purchases to May – August of this year. The problem is that the program has spiked current sales by borrowing from future sales, and when the program ends in October the starter market (houses which first time buyers favor) should go relatively dead for 3 or 4 months.
And that’s going to happen no matter what happens with interest rates or the economy. It’s a built in side effect of any artificial stimulus which is completely predictable and yet which no one seems to see coming until it is upon them.
WWS, the catch is that this first time buyer credit may be extended by a few more months.
I watched Chris Wallace show this afternoon. The question of the unemployment benefits came up. The question is whether this unemployment benefits should be extended by 13 more weeks. Pence is right that this isn’t going to help in the long run because of zero job creation but Pence says that yeah, they will support the extension.
I feel that DeMint, Pence, and the Republicans are caught between Barack and a hard place. They know that they cannot be seen as insensitive sots to the American public. They need to change their message to the American public in a way that the limited government is more beneficial to us commoners. But they are not getting the right message across.
Rangel lied between his teeth the whole time.
I believe that the government is going every thing in their power to NOT create jobs. Why else would they introduce the Health Care and Cap and Trade bills now? They are both job killers for small businesses, and take more money out of the pockets of consumers. A friend buys whole sale flowers once a week for a little home business. They are still charging $5.00 an order, they put it on when gas was nearing $4.50 a gallon. Think what they will charge when cooling is doubled? That is just one little whole sale business. Why would a little business hire someone knowing that they would also have to calculate a job proposal to include health insurance, even if it is a part time position.
I think that the so called stimulus will create some jobs, but on a temporary basis, surly the car market will be better for a quarter. Juan Williams thinks that a good quarter will boost confidence and people will start spending, as if confidence is the only problem with people not spending. Do these people not realize that the spenders borrowed on credit cards and equity from their homes. Now homes are under water and they are busy paying off credit cards, or they are collecting unemployment. What we experienced was a crash of any wealth we thought we had acquired. The only thing that will bring back confidence is the one thing that the government is not doing and states are having a hard time doing, cutting back on spending. Instead we are giving billions to buy new cars, new cars, are you kidding. Who can afford to spend $20,000 on a new car, but someone who could have bought a new car in the first place.
I say please Mr. Obama STOP SPENDING. I can’t imagine how he is going to calculate his next budget. He has tripled the White House budget, just for starters. You have to wonder why his esteemed economists let him keep going, surely they have a reputation to up hold.
Good thought, Lurker, but there’s still two problems:
1) since no one has been expecting it to be extended, the pool of potential buyers has pushed their activity artificially forward. Even if the deadline is extended, it won’t have an impact on sales because the sales that *would* have happened have already happened. And the first time buyer market is being exhausted by the high levels of unemployment.
2) No one in this Congress is smart enough to see this problem coming until it’s already happened. It will take a bad 4th quarter before they realize, sometime in January, that they’e made a mistake.
AJ, have you read the article about Goldman Sachs at the link below which says its from Rolling Stone magazine, July 9-23, titled “The Great American Bubble Machine”By MATT TAIBBI? http://sites.google.com/site/disclosuredelta/
It.is.unbelievable. It states that “Goldman Sachs has engineered every major market manipulation since the Great Depression- and they are about to do it again”
How? Cap and trade.
Much of the article includes what Glenn Beck has connected about Goldman. It is a must read, imho.
I think there are a lot of “Waterloos” for this Administration. A big one I see coming up on the horizon is taxes. The tea parties are already grass roots and exploding everywhere in large numbers. What happens when the Bush tax cuts expire….and new additional taxes are added on top of that around the same time???? The “tea parties” may turn toxic.
[…] Nation’s Unemployment Is Liberals’ Waterloo […]
What happens when the rate for top earners goes to 39.6% and it’s not enough to bring down the deficit, and we have raised the top tax rate even higher to pay for Medical Care?
Rut Roh (as Astro would say) …
Timmy “Turbo” Geithner says The U.S. unemployment rate may not peak until the second half of 2010, even as the broader economy shows signs of improvement.
Hear that? Not expected to PEAK until the second half of NEXT YEAR? Ok folks, get the grease, we have a rail to prepare for Congress.