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PeakTrader said...

More job openings are needed just to absorb population growth, i.e. 125,000 to 150,000 new jobs per month.

After three years of recession, there are 15 million people out of work and millions more wanting full-time work.

I read somewhere that over the past 12 months the U.S. created 50.8 million jobs, but lost 50.1 million jobs or had a net gain of 700,000 jobs.

If the economic stimulus plan being proposed in Congress doesn't generate a lot more jobs, the economy may become locked-in a depression or "lost decade."

"Mismatch, offshoring, and lag" ignore the elephant in the room, i.e. a lack of liquidity (higher lending standards), household debt, consumers paying for TARP instead of taxpayers, states raising taxes, more regulation, uncertainty, etc.

There are still too few job openings compared to the unemployed and underemployed, although there's higher job growth.

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PeakTrader said...

There may be 4% real growth next year, which will reduce the unemployment rate to around 9%, because of the new stimulus plan, less uncertainty, and lower household debt.

However, it may be necessary to cut government spending and deregulate in 2011 to accelerate the recovery. Otherwise?:

Paul Krugman
December 07, 2010

"...the payroll tax break and the unemployment extension are for the first year only. So, a bigger boost next year (in 2011), fading out in 2012.

Millions of new jobs? Millions? Not by my arithmetic.

...didn’t the administration repeat exactly the same mistake it made on the original stimulus? The stimulus was too small; but it also too short-lived, with the maximum impact on growth coming in the winter of 2009-2010, then turning negative just in time for the midterm election.

Now we have unemployment insurance and payroll tax cuts for 2011, going away in 2012 — just in time to put the administration in big trouble as the election looms.

This only makes sense if you believe we’ll be in a self-sustaining, strong recovery by late 2011. Stranger things have happened, but …

And remember, mistaken forecasts of self-sustaining recovery taking hold were a big part of the original stimulus mistake."

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PeakTrader said...

Even with the Fed's quantitative easing and the huge expansion of fiscal policy, the U.S. couldn't achieve a V-shaped recovery, after the severe recession.

It seems, fiscal policy (or economic policies from the Administration and Congress, including negative "jawboning") offset monetary policy.

If we had this type of massive stimulus in the early 1930s, there wouldn't have been a Great Depression.

This is the first recession, since the Great Depression, where real per capita GDP didn't fully recover a year after the trough, i.e. 2010 real per capita GDP isn't higher than 2007 real per capita GDP.

When the consumption side is included, it's doubtful the U.S. standard of living will be back to the 2007 level for many years.

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PeakTrader said...

The latest round of government stimulus (QEII and fiscal expansion) will have a more powerful effect on economic growth, because of stronger household balance sheets and reduced hostility by government towards business.

However, to accelerate the expansion, and prevent a double-dip in a couple of years, government spending, regulation, and taxes will all need to be reduced.

U.S. Accelerates in 2011 as Demise of Consumer Is Exaggerated
Sep 12, 2010

"Households are reducing their debts and building savings faster than he anticipated, said Richard Berner, co-head of global economics for Morgan Stanley in New York, giving them more room to spend in the future.

“The deleveraging timetable is nearly a year ahead of schedule,” he said.

The Commerce Department reported on July 30 that the savings rate was 5.9 percent in 2009, up from a previous report of 4.2 percent. The rate has averaged 5.8 percent through the first seven months of this year.

“The consumer has already done a lot of the heavy lifting.”

Consumer spending has risen at a 3 percent average annual rate during the last 30 years and accounted for 70.8 percent of gross domestic product in the first quarter.

The bond market won’t fare as well, according to Berner. He sees the yield on the Treasury’s 10-year note rising to 4 percent or more by late 2011 as household spending and the economy strengthen. The yield stood at 2.79 percent on Sept. 10 in New York."

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VangelV said...

"The Commerce Department reported on July 30 that the savings rate was 5.9 percent in 2009, up from a previous report of 4.2 percent. The rate has averaged 5.8 percent through the first seven months of this year."

Any objective look at the debt load and the demographic profile of the country would have to conclude that 5.9% is not good enough. You have people who are nearing retirement owing more on their homes than those homes are worth at a time when employment issues are going to be a headwind for most of the population. The Fed is busy trying to bail them out by destroying the currency but its efforts will be offset by the bond markets as lenders demand much higher interest rates to continue extending credit to people who are drowning in it.

"The consumer has already done a lot of the heavy lifting."

What does this mean? Consumption is not difficult. This type of comment shows that the author is a Keynesian and that any rational individual should ignore him.

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PeakTrader said...

VangelV, U.S. households have been paying-down or defaulting on debt to increase their monthly incomes. So, they can spend more, which will drive economic growth.

Also, their balance sheets have improved from a rising stock market, and I suspect, housing prices will soon increase.

During the bubble years, demand for houses, autos, imports, etc. were high, because of bargains. It was perfectly rational to spend rather than save. However, slowing demand was inevitable, because of diminished marginal utility.

Also, U.S. households didn't squander their money like the government, and they're saving with little or no real government help.

Moreover, high debt levels will force Americans to work longer, which will add to future economic growth. However, currently, household debt, or the cost to service that debt, is not high, particularly compared to the real value of assets.

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Don Culo said...

I wonder how much money my buddies in government spent in the Iraq war. How many trillions did we waste and are we still wasting in Iraq.

By buddies have yet to answer me !!!

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PeakTrader said...

Don, the U.S. spends a lot of money on the military, whether or not it kills people.

Perhaps, this will answer your question:

Early 2010 Housing Stabilization Fizzles; U.S. Homes Set to Lose $1.7 Trillion This Year
December 9, 2010

"Since the peak of home values in June 2006, more than $9 trillion in values has come out of the housing market. As a comparison, that’s more than the cost of 12 wars in Iraq, according to a study by the Congressional Research Service.

U.S. homes are set to lose $1.7 trillion in values during 2010. That’s 63% more than the $1 trillion lost in 2009."

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VangelV said...

"VangelV, U.S. households have been paying-down or defaulting on debt to increase their monthly incomes. So, they can spend more, which will drive economic growth."

Actually, economic growth requires capital investment, and that comes out of savings. Consuming capital, as is being done now, is never a good idea.

"Also, their balance sheets have improved from a rising stock market, and I suspect, housing prices will soon increase."

House prices are down significantly and most people who purchased a home over the past five years have no equity. Delinquent mortgages stand around 10% and there is a massive shadow inventory that will prevent real prices from increasing. Any improvement will come from the liability side as the Fed does all that it can to devalue the dollar as quickly as it can.

The average American is in big trouble and is far from secure. He should not be spending money on depreciating goods but should pay down debt and invest in productive capital.

"During the bubble years, demand for houses, autos, imports, etc. were high, because of bargains. It was perfectly rational to spend rather than save. However, slowing demand was inevitable, because of diminished marginal utility."

Actually, during the bubble the most rational action would have been to be on the decline on the purchasing power of the USD, not to spend more than you should to buy things that you could not really afford. For many of us Clinton, Bush, Greenspan and Bernanke were our greatest benefactors because they gave us a once in a century opportunity to make massive gains in real wealth without taking huge risks. The last time we had this type of an opportunity was from 1927 to 1940, a period that created huge fortunes for many of today's richest American families.

"Also, U.S. households didn't squander their money like the government, and they're saving with little or no real government help."

Let me see. They bought houses that carry mortgages that are 10-50% higher than the market price and you don't consider that a waste. In what world would that be true?

"Moreover, high debt levels will force Americans to work longer, which will add to future economic growth. However, currently, household debt, or the cost to service that debt, is not high, particularly compared to the real value of assets."

But they just saw their unemployment insurance extended by more than a year and have seen the passage of legislation that allows them to stay in their homes without making payments to the mortgage holders. Why would they have to work when the government is handing them free money and they don't have to pay off their largest debts?

"Furthermore, I may add, too few dollars in the U.S. private sector caused the recession and contributed to the slow recovery."

The US private sector got plenty of dollars. Unfortunately, the dollars went into terrible investments like building new lines at GM and houses in far off suburbs.

"Higher wages or lower taxes would've continued the "Goldilocks" economy, and any "excess" assets and goods would've been consumed instead of destroyed."

But there never was a "Goldilocks" economy. A bubble is a bubble is a bubble.

"The result of too few dollars has been persistent below trend GDP growth that fell from optimal growth rather than from above trend growth."

As I have written before, the problem was created by artificially low interest rates that encouraged malinvestments.

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VangelV said...

"Don, the U.S. spends a lot of money on the military, whether or not it kills people."

Yes it does. You need to cut it down by 75% or so and stop wasting money defending Germany, Korea, Japan, etc., and having a military presence in more than 100 countries.

"Since the peak of home values in June 2006, more than $9 trillion in values has come out of the housing market. As a comparison, that’s more than the cost of 12 wars in Iraq, according to a study by the Congressional Research Service."

The homes are still there and still just as useful as before. What has changed is the market price, which is not surprising given the fact that value is subjective and subject to a number of factors that drive individual preferences.

"I wonder how much money my buddies in government spent in the Iraq war. How many trillions did we waste and are we still wasting in Iraq."

Members of Congress overwhelmingly voted to give Bush the authority to invade and occupy Iraq even though they knew that there were no WMDs and that Iraq had nothing to do with 9/11. Obama is doing the same thing as Bush did and continues to waste lives and money on a lost cause that will weaken the economy and destroy the country. He seems to be even stupider than Bush was and has shown that his promise of change was an empty one.

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PeakTrader said...

VangelV, if everyone buried or hid their money, or everyone bought too many socks and you're selling socks, good luck trying to sell your goods.

Of course, a new invention or new market may bring demand.

Idle resources is a true waste. The country is better off building "too many" houses.

However, it would've been even better if the excess capital was directed towards higher wages or lower taxes rather than channeled into the housing market.

I don't believe too much capital, causing interest rates to fall, is a bad thing, even if it "encouraged malinvestments."

The U.S. economy became much more efficient after the Creative-Destruction process, in the early 2000s. So, U.S. corporations were able to produce more output with fewer inputs, achieve a record 20 consecutive quarters of double-digit earnings growth, and the country had huge capital account surpluses (which offset huge current account deficits) from international trade.

The "excess" capital had to go somewhere. The best place for it to go is optimal growth to raise living standards at the fastest sustainable rate.

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VangelV said...

"VangelV, if everyone buried or hid their money, or everyone bought too many socks and you're selling socks, good luck trying to sell your goods."

Hid their money? They are drowning in debt and have no money to hide. That is why they need to stop buying crap they don't need on credit and start to save more.

"Of course, a new invention or new market may bring demand."

That will always happen when the time is right. But top down planning or money printing can never create a new market that is sustainable.

"Idle resources is a true waste. The country is better off building "too many" houses."

What resources are idle? And how is malinvestment and a waste of resources on stuff that nobody wants not a 'true waste?'

"However, it would've been even better if the excess capital was directed towards higher wages or lower taxes rather than channeled into the housing market."

Why would anyone waste capital by directing it towards higher wages if high wages are not justified? I agree about the need for much lower taxes but those are not in the cards given the sentiment among the political elite, the media, and unsophisticated voters who actually see government bureaucrats as anything other than a group of thugs using extortion to rob the productive class.

"I don't believe too much capital, causing interest rates to fall, is a bad thing, even if it "encouraged malinvestments.""

You need to educate yourself. Money coming out of a printing press or credit being created out of thin air is not capital.

"The U.S. economy became much more efficient after the Creative-Destruction process, in the early 2000s."

It did not. Growth was very low and debt was growing much faster than GDP.

"So, U.S. corporations were able to produce more output with fewer inputs, achieve a record 20 consecutive quarters of double-digit earnings growth, and had huge capital account surpluses (which offset huge current account deficits) from international trade."

US corporations did not do all that well. The illusory 'growth' came from accounting tricks and mortgage fraud. That is why

"The "excess" capital had to go somewhere. The best place for it to go is optimal growth to raise living standards at the fastest sustainable rate."

There was no 'excess capital.' There was too much money printing and too much easy credit. The effect was a diversion of scarce resources into speculative sectors and the creation of bubbles that had to burst.

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PeakTrader said...

VangelV, there is no way to put your comments into any credible economic model I know about.

Here are some assumptions and facts:

Workers are less likely to spend more when there's greater uncertainty. When people can afford their monthly payments, they're not "drowning in debt." Consumers don't buy "crap." A 10% unemployment rate is an example of idle resources. Bargains are not a "true waste." A "malinvestment" may not only be a buyer who bought too high, but also a seller who sold too high. Investing in the labor market may not be a waste, like investing in capital markets may not be a waste. Printing too much money causes inflation. Efficiencies in production, including earning more profit, causes deflation. Assets grew much faster than debt. The production and prices of goods and services is not the same as rising or falling asset prices.

The U.S. created 17.6 million jobs between 1993-98, and created only 3.7 million jobs between 2001-06. However, U.S. real GDP growth was only slightly higher from 1993-98 than from 2001-06. So, the U.S. became much more productive in the 2000s, i.e. using fewer inputs to produce more output.

In the U.S. over a five-year period during the 2000s two million houses a year were built, 16 million autos per year were sold, U.S. real GDP expanded 3% annually, in spite of 6% annual current account deficits (which subtract from GDP).

The U.S. was the main engine of economic growth pulling the rest of the world's economies.

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