Yea! The recession may be over! The economy may be turning around (especially if you work for Goldman Sachs). Just one thing. Don’t count on getting a good job back anytime soon if you recently lost yours, because what’s good for Goldman Sachs ain’t necessarily good for the peons under- or unemployed like you.
Despite signs that the recession gripping the nation’s economy may be easing, the unemployment rate is projected to continue rising for another year before topping out in double digits, a prospect that threatens to slow growth, increase poverty and further complicate the Obama administration’s message of optimism about the economic outlook. […]
Analysts say the high levels of joblessness would be accompanied by increases in child poverty, strained government budgets, and black and Latino unemployment rates approaching 20 percent.
“I find it unfathomable that people are not horrified about what is going to happen,” said Lawrence Mishel, president of the Economic Policy Institute. “I regard all this talk about how the recession is maybe going to end, all the talk about deficits and inflation, to be the equivalent of telling Americans, ‘You are just going to have to tough it out.’ But we’re looking at persistent unemployment that is going to be extraordinarily damaging to many communities. There is a ton of pain in the pipeline.”
Maybe we need more tax cuts? More de-regulation and privatization? Cut more wasteful government spending? Yeah. That’s the ticket! How did that work out in California, by the way? Oh. Never mind.
LOS ANGELES — There are not a multitude of ways to close a $24 billion state budget gap, but in California, the answer is probably going to come down to who gets hurt the most. […]
In response, Gov. Arnold Schwarzenegger threatened to allow the government to come to a “grinding halt,” rather than authorize more borrowing to cover shortfalls, and proposed $16 billion in cuts. Those cuts would largely be carried out through the state’s programs for the poor: the Healthy Family Program, the health insurance program that covers more than 900,000 children; the main welfare program, known as CalWorks, which provides temporary financial assistance to poor families; and Cal Grants, a college financial aid program.
Mr. Schwarzenegger also seeks $750 million in cuts to prisons, the slashing of the budgets for state parks and other agencies and a 5 percent pay cut for state workers. And he has proposed a plan to borrow $2 billion from local governments, which has enraged local leaders.
Speaking of California, if you hold any of their debt you may soon become the equivalent of a junk bond investor which isn’t a good thing:
California, tied with Louisiana for the lowest credit rating among the states, now is in more danger of claiming rock-bottom all for itself.
Moody’s Investors Service today warned that it might downgrade California’s general obligation bond rating, currently A1, because of the state’s “significant budgetary shortfall, impending liquidity crisis, and lack of legislative solutions.” […]
As I noted in this earlier post on the muni market, the issue with California isn’t that the state won’t make good on its debts. It’s required to do so by the state Constitution.
But if the rating is cut, and investors demand higher yields on new bonds the state issues, older bonds issued at lower yields could fall in value, giving investors a paper loss.
Thank God I don’t own any Californicated Debt issues. And I don’t have a job, being disabled, so I don’t have to worry about finding one. Still, if anyone knows a rich person looking to adopt an heir to inherit his or her fortune, please drop me a line. I’d make a great prodigal son.
To be serious for a moment, however, the problem we face can’t be solved by tax cuts for billionaires or spending cuts that cut out the heart of what government does and does well. First off, the Bush economic program and California are Exhibits 1 and 1A on the non-beneficial effects of supply side economics. Two, when it comes to spending cuts at the Federal level you have to look at the Defense budget or Medicare, Medicaid and Social Security benefits if you really want to get serious. And that just isn’t going to happen, as you and I well know. No, the problem so far has been the political will by Democrats to pass a stimulus package large enough to really stimulate job creation.
Governments should stick to spending programmes worth hundreds of billions of dollars to reignite growth because their economies are still weak in spite of signs that the worst of the crisis may be past, a World Bank official said.
World Bank Chief Economist Justin Lin said in an interview he was concerned about rising borrowing costs due to growing sovereign debt offerings and a weak external financing conditions for the emerging economies of Europe and Central Asia.
Democrats are still intimidated by the outcries in the media and by Republicans about the national debt (concerns never heard when Bush was running massive budget busting deficits). You want an example? I give you the very same Washington Post story I quoted above.
[W]ith polls showing increasing public opposition to government spending and with no significant constituency mobilized to push for more government investment in jobs, the political prospects for any further stimulus legislation seem slim. Meanwhile, the continued rise in unemployment is creating an opening for Republican critics, who have criticized the level of spending Obama has pursued to try to fix the economy.
The media gives more airtime to whiny Republicans complaining about too much spending and not enough tax cuts, than it ever gave to Democrats during the Bush years. It’s like the media is in a time warp. Democrats won the 2008 election resoundinly, but all I see on my TV are the same GOP pundits, neoliberal free marketeers and Republican politicians that ran this country off a cliff when they held the reins of power. And far too many Democratic politicians are weak in the knees, afraid of the mythical power of the conservative movement to sway popular opinion.
We need bold action from the people we elected to deal with this continuing economic collapse (and yes, with unemployment still rising it’s still a collapse, folks.) We need leaders who recognize that half-hearted Keynesian measures are insufficient to end the ongoing economic crisis which is spreading so much misery around the globe. Countries that recognize this fact will recover. Those that do not? Their economies will continue to languish and their people suffer.
The current responses of the governments across the globe on the global recession fully recognizes the Keynesian view that markets do not have any automatic mechanism to self correct and that government intervention is necessary to revive the economy. We hope the famous New Keynesian economists such as Paul Krugman, Joseph Stieglitz and Greg Mankiw are behind Obama’s stimulus package and advocate for more stimulus than less. The biggest fear at present is not that the stimulus is too big but that is it too little and hence many not be effective. If the multiplier effect fails to raise the current level of spending beyond the $2 trillion gap in the US consumer demand at present, the Obama stimulus plan may not rescue the US economy from the current recession soon.
Among the emerging economies, China has already begun a massive government spending programmes to compensate for the sharp decline in aggregate demand due to the contraction in global demand for the country’s export. Keynesian aggregate demand management has once again become a critical policy instrument for both developed and developing economies.
I’s say that writer was prescient, wouldn’t you?
