The Jobs Joke


This depression is starting to get me down, should I say depressed? Washington continues to disgorge lies and bogus statistics. 4th quarter economic growth up 5.7%, unemployment hitting a 5 month low of 9.7%, more green shoots everywhere. Mark Twain talked about lies, damned lies, and statistics! Obama talked about creating jobs and he has a jobs bill which is another in a long line of bad bills and bad policy going back to ronnie and the trickledowners with the usual structure of tax breaks and government guarantees. This is no way to create jobs. Last year the federal government extended and extended unemployment benefits to the tune of $140 Billion. All you have to do to get an unemployment check is to ask for it and prove you don’t have a job. You get unemployment for doing nothing. FDR gave money to the long term unemployed but he made them work for it with projects like the CCC. The banks and corporations allied with their Keynesian economists in government and academia have destroyed good jobs in this country . We have been told for decades that free trade and globalization was good for America, that America would be an information and service economy. This was a fraudulent, cruel hoax. In the 1950s, manufacturing contributed 28% to our GDP. Today it is a minuscule 12%. There are far more people employed by Federal, state and local governments whacking away at keyboards and pushing paper than employed in actually making something! Public sector jobs contribute nothing to the wealth of a nation. Banking ,finance, insurance and real estate represented about 14% of our 50’s economy and that is now more than doubled. We once had an economy that would extract raw materials from our mines and forests , deliver them to a factory and build things for ourselves and for export. We made things that the world needed and sold them to a world that paid us in cash and gold. In the 1920’s the US had amassed a giant trade surplus equal to 5-6% of World GDP. This manufacturing and trade economy provided real jobs for a growing nation. And now what do we have? Only 12% of our economic activity involves making stuff. These same corporations moved their factories to the lowest cost producers overseas encouraged by supportive government laws and tax policy which made fortunes for our corporations at the expense of their US workers. The banks and corporations thorough their shills in government deregulated laws protecting workers and a domestic manufacturing economy. The past decade of the Bush administration’s bank and business friendly encouragement finally killed off the goose that laid the golden egg. The banks and corporations now control the government. And with no one looking, these banks looted the world with leveraged bets on bogus innovative instruments and in the process destroyed the world economy. And when their bets finally went sour, they looted the public treasury to cover their losses.
So what can we do to fix this mess? We can remove the influence of these banks and corporations. We can change the laws and tax policy that allowed this debacle to happen. In short, we can remove all the bad guys and replace them with good guys, remove all the bad laws and replace them with good laws. How hard is that? We can then pay off our debts and start anew. Again,how hard is that?
The serious answer is that it would be very hard. In fact in my view, it will be impossible. I am working my way through a wonderful new book entitled “this Time is Different” by Carmen Reinhart and Kenneth Rogoff, a history of world economic crises of the past 800 years. One of the little tidbits I discovered in their analysis of financial crises was that once a country has a debt to GDP ratio exceeding about 90%, recovery became prolonged and difficult and in many cases impossible without collapse. Our current official debt as of yesterday was $12.27 Trillion, and our estimated 2009 GDP is $14.4 Trillion. That is a debt/GDP ratio of 85%. But that figure is wrong. You see in the US we have these things called GSE’s whose sole purpose is to provide backing for mortgages, and they are in almost all respects government entities, every bit as much as the FAA and Homeland Security. You know them as Fannie Mae and Freddy Mac and the other debt laden entities like Ginny Mae and the FHA. These organizations have presided over the 100% federalization of home ownership in the US and the problem is, they are broke and have had to have their debt covered by the taxpayer.The total debt of these GSE’s is now $6.3 Trillion. They have sold this debt to the world. It is owed to the Chinese and Japanese, pension funds, sovereign wealth funds, and others . It’s called agency debt and trades like treasuries. It is real debt and yet is not counted as Federal debt, even though Barak Obama and his Budget Office had promised to include this as federal debt in any of their calculations. To date they have not. So if you include this $6.3 Trillion you have $18.5 Trillion of Federal debt. This is a debt/GDP of 128%, not 85 %, and is far above the 90% danger point of Rogoff and Reinhart. This is fixed debt, not budget deficit. Obama’s proposed budget deficit for the next fiscal year is an additional $1.6 Trillion which of course will be added to the Federal debt if he can persuade someone to buy more of our debt. IF he is successful, that will be $20.1 Trillion in debt or 139% of GDP. And trillion dollar deficits loom in the future. No one in their right mind believes that this debt will ever be repaid but in order to not default on this debt the US has to continue to pay interest on this debt which of course represents loans from the Chinese and others. At some point they may stop extending us loans either because they fear US default or because they become mad at us if we say, sell arms to Taiwan, or if their economic bubble pops. If the largest government in the world can’t borrow, that American dream could really unravel. These folks in the bond markets might demand much higher interest rates for their perceived risk incurred in lending to a profligate United States. In fact I am betting that this will happen and I have been investing in ETF’s which short treasuries. Tim and Benny and Larry know this and someone has leaked plans of their proposal to compel Americans to own some percentage of government debt in their retirement accounts!!!
Nassim Taleb wrote a recent financial best seller called the Black Swan which dealt with the risk of unlikely but catastrophic events. When I look up now I don’t see one black swan but a veritable flock of black swans. That we are entering a depression is in my view a virtual certainty, and the economic, political and employment structure of the US is such that the difficult decisions necessary to deal with this predicament are not being made. Time is running out.

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About cal48koho

I was born in Montana and raised in a dozen Air Force SAC bases. I attended Holy Cross,West Point and UNC in Chapel Hill(MD"71). Army doc in the last years of the Viet Nam fiasco. My wife and I live in a log cabin I built in Jackson Hole in 1975 when we aren't on our Cal 48 yawl. I've done a dozen different jobs and retired from ER and Anesthesia in 2004. I've written magazine articles and am writing a Kunstleresque novel about life in a past Peak Oil world. We are living in a beautiful alpine setting where we hike and ski when we're not thinking about economics and spreading the implications of PO to anyone who will listen.
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