Archive for September 16th, 2010
Most Americans don’t really care about the economic minutiae that many of us who study the U.S. economy love to pour over. When it comes to the economy, the typical American citizen just wants to be able to get a good job, make a decent living and put bread on the table for the family. For generations, this arrangement has worked out quite well. The U.S. economy has provided large numbers of middle class jobs and the American people have worked hard and have helped this nation prosper like no other. But now people are starting to notice that something has shifted. Millions of people are looking around and are realizing that the jobs that are supposed to be there are not there anymore. The American people are still working hard (and in many cases harder than ever) but all of that hard work is producing fewer and fewer rewards. Often politicians will placate voters by telling them that they are working harder and harder for less and less. That tends to ring true with voters because that is a very accurate description of what so many of them are actually experiencing, but what the politicians don’t tell us is that they are the ones to blame for the situation that we are in. As millions of jobs become obsolete because of technology and millions of other jobs are shipped overseas, our politicians tell us over and over that we can “compete” with anyone and that if we will just go out and get some more education we can make it happen. But those of us who are extremely over-educated know what a fraud that line is. The truth is that there are not nearly enough jobs for all of us no matter how ”educated” we are. This is creating a lot of anger and frustration, and now even the IMF is warning that we could see “an explosion of social unrest” if high unemployment persists.
But what can be done? You can’t force large corporations to hire people. The reality is that there are a couple of huge factors that have brought us to this point. First of all, advanced technology means that big corporations need fewer people to do the same amount of work now. Secondly, the globalization of our economy means that U.S. workers have now been merged into a global labor pool where they are in direct competition with workers who are more than happy to make less than a dollar an hour on the other side of the world.
This all means that the labor of American workers is less valuable to global corporations than it ever has been before. Advanced technology and computers have enabled corporations to operate leaner and meaner. If they do need some old-fashioned muscle for certain tasks they can always run out and set up a facility in some third world nation where they can pay people close to slave labor wages and where they don’t have to worry much about taxes, regulations, unions, health benefits or pension plans.
What did you think was going to happen when the United States entered into all of these “free trade” agreements with nations around the world that did not have minimum wage laws?
U.S. corporations are not in existence to provide the American people with jobs. They are in existence to make money. If they can make more money by shipping jobs overseas, then that is exactly what they are going to do.
According to Tax Notes, between 1999 and 2008 employment at the foreign affiliates of U.S. parent companies skyrocketed 30 percent to 10.1 million. During that same time period, U.S. employment at American multinational corporations declined 8 percent to 21.1 million.
Are you starting to see the picture?
Global corporations based in the U.S. have been creating lots of jobs – just not in the United States.
In fact, things only seem to be accelerating.
In 2008 alone, U.S. employment at American multinational corporations fell by 445,500.
In the old days, you could give tax breaks to U.S. firms and that would spur them to do more business and to hire more workers. But today, if U.S. multinationals decide they wish to expand they will just go hire more third world workers and pocket the rest of the profits for themselves.
The reality is that we are facing a very disturbing long-term trend in the United States. Today, over half of all unemployed workers in the United States have been out of work for over six months. In fact, the duration of unemployment in the United States has spiked up to the highest level it has been at since World War II….
This has created a growing subclass of people in the United States who feel that the system has failed them. The anger and the frustration in the country is rising every day. You can almost feel it.
In fact, the IMF is warning that we are at risk of “an explosion of social unrest” due to this unemployment crisis.
The head of the IMF, Dominique Strauss-Kahn, recently made the following statement at an Oslo jobs summit with the International Labour Federation….
“The labour market is in dire straits. The Great Recession has left behind a waste land of unemployment.”
So exactly what is going to turn that around?
Are millions of jobs going to suddenly hop up and return home from overseas?
Is the U.S. government going to suddenly eliminate a whole raft of taxes and regulations and are U.S. workers going to suddenly become much cheaper?
Is the U.S. trade deficit crisis suddenly going to reverse and turn into huge trade surpluses for the United States?
Of course none of those things is going to happen.
America is going to continue to bleed jobs, wages inside the United States are going to continue to be forced down and the standard of living for most Americans is going to continue to deteriorate.
Plus, if the American people don’t have good jobs, they can’t buy homes. In fact, a growing number of Americans are finding out that they can’t even afford the homes they are in right now. CNBC is reporting that the nation’s banks repossessed a record number of homes in August.
But for many Americans, a foreclosure is just the beginning of their problems. People are falling out of the middle class at an alarming rate. Approximately 45 million Americans were living in poverty during 2009. That is an absolutely astounding figure.
The American people are getting mad and faith in the economy is plummeting. According to Gallup, confidence in the economy is way down compared to to the same period last year.
So what is going to happen when (not if) things get even worse?
Well, some investors are already anticipating rough times ahead and are flocking to commodities. The price of gold soared to a record intra-day high of $1,276.50 an ounce on Tuesday, and the price of gold and other commodities will probably continue to climb as economies around the world continue to destabilize.
These are very, very difficult times that we are moving into. There are not going to be nearly enough jobs for everyone. People you know are going to be unemployed. People you know are going to lose their homes. People you know might even end up living on the streets.
Just hope that you don’t end up being one of them.
In the week ending Sept. 11, the advance figure for seasonally adjusted initial claims was 450,000, a decrease of 3,000 from the previous week’s revised figure of 453,000. The 4-week moving average was 464,750, a decrease of 13,500 from the previous week’s revised average of 478,250.
No movement of materiality in the futures on this one. Blipped up, blipped down, settled back pretty much where it was. (But, the ~4 handle drop before leads one to wonder if certain “favored people” got it early…. cough-Goldman-cough)
The market’s knee-jerk “if it’s not a disaster rally 10 handle” reaction seems to have faded off. Perhaps some people have started to think about what I’ve talked about for months – you need a number around 350,000 before we see anything that represents actual job growth in the economy. 450k on a weekly basis won’t do it.
Neither will people rolling off the government cheese, as continues to happen – 400,000+ of them during the last week of August. That’s 400,000 newly-impoverished who thought Obama would save their ass, now waking up to the reality that even 99 weeks of unemployment eventually runs out.
CNBS had the usual parade of people on this morning saying “the recovery is proceeding.” Oh really? Where are the jobs? 400,000 new potential rioters seems to be going the wrong way, don’t you think?
Everyone seems to understand (even if they don’t talk about it) that it’s the “government cheese” that has kept the “rabble” (that is all the Americans that have been consciously and intentionally screwed by all the offshoring, all the financial fraud and the scams) from rising up and saying “ok, jackass, this time you lose!” That’s one of those “let them eat cake!” moments that nobody wants to see but everyone realizes in the back of their mind can happen – a man who has lost everything has nothing left to lose. That, a gallon of gasoline and a pack of matches are a bad combination.
Today we also got the PPI report which showed an 0.4% increase in August, with most of it in energy – or so they say. If you believe the government there was a decrease in food prices – something that I find amusing, seeing as I can’t find it in the grocery store (quite to the contrary; all I see there are gains!) More ominously we have a 12-month run rate that is now well over The Fed’s claimed inflation target of 1-2% for every month since November of last year, with a lot of that being in the energy complex – the part that, of course, they all want to ignore but which every person in America has to consume if they want to keep warm in the winter and make it to work!
Larry Summers is flapping his gums on CNBS as I write this, with a claim that a “massive failure of regulation” led to the crisis. Oh really Mr. Jackass? Shall we talk about your record in that regard with Haaaarrrrrvvvvaaarrrrdddd? Funny how that question is never asked by the so-called “mainstream media” – how Mr. “it was all someone else’s fault” doesn’t want to talk about his personal experience with derivatives abuse.
If we’re going to create an economic environment in which there is “confidence” the first step in doing it is to punish the people who did, and still are, intentionally lying about asset valuations and running various scams on the American people!
Now there’s something you won’t hear on the Tee Vee.
Under guise of being handed an important role, Elizabeth Warren was shoved aside and tossed a bone by President Obama. One might not know it from the New York Times headline Warren to Unofficially Lead Consumer Agency
Elizabeth Warren, who conceived of the Consumer Financial Protection Bureau, will oversee its establishment as an assistant to President Obama, an official briefed on the decision said Wednesday evening.
The decision, which Mr. Obama is to announce this week, would allow Ms. Warren, a Harvard law professor, to effectively run the new agency without having to go through a potentially contentious confirmation battle in the Senate. The creation of the bureau is a centerpiece of the Wall Street financial overhaul that Mr. Obama signed in July.
Calculated Risk offered a one line comment on his blog “I think Ms. Warren is an excellent choice.”
I certainly agree. Unfortunately, no matter how much Obama tries to spin it, this has nothing to do with a “potentially contentious confirmation” but rather everything to do with Geithner winning the battle to marginalize her.
Marginalization of Elizabeth Warren
Yves Smith at Naked Capitalism hits the nail on the head in her appraisal Elizabeth Warren on Way to Being Sidelined as Head of Consumer Protection Agency, Relegated to “Advisor” Role
The body language of the Administration has been clear from the outset on the question of whether Elizabeth Warren would get its nomination to head of the new financial services consumer protection agency. Despite the occasional public remark regarding her undeniable competence, which really amounted to damning her with faint praise, Team Obama has never been on board with the idea.
The Warren marginalization isn’t about personalities, although the powers that be love to pigeonhole thorns in their side that way. The clashes reflect fundamental differences in philosophy. Geithner, the Administration that stands behind him, and Dodd all are staunch defenders of our rapacious financial services industry, even though they make occasional moves to disguise that fact. Warren, by contrast, is clearly a skeptic, and a dangerous one to boot, because she understands the abuses well and is able to communicate effectively with the public.
Expect Warren to be pushed further to the sidelines, just as Paul Volcker has been (oh, and pulled out of mothballs when the Administration desperately needed to create the appearance it really might be tough on banks. Perhaps they hope her tenuous standing as acting head can be used to keep her in line.
Yves points out an MSNBC headline revised from “Wall Street critic won’t get top consumer job” to the anodyne “Wall Street critic to help set up consumer agency”.
Both versions exist in cyberspace if you check.
However, all you really need to know can be found in a single sentence in the New York Times article. “She will also be a special adviser to the Treasury secretary, Timothy F. Geithner, and report jointly to Mr. Obama and Mr. Geithner.”
An adviser to Geithner?! Good Grief. This is the tune I hear: With a knick-knack paddywack give a dog a bone, Obama just sent Warren home.
I am sure she will do the best she can, but on Geithner’s leash, I rather doubt she will be able to accomplish much of anything.
I hope I am wrong.
Mike “Mish” Shedlock