Le·gal In·sur·rec·tion analyzes today’s employment report and the results are not good despite the headline decline in unemployment from 9.8% to 9.4%. (Reposted with permission. Original post here.)
Needless to say, administration supporters will be touting that the unemployment rate released by the Bureau of Labor Statistics this morning dropped from 9.8% to 9.4%. Politically, this is good news for Obama, at least in the short run.
Dig just a bit deeper, and you will see that 0.2% of that drop (or half the total drop) was from a decrease in the “participation rate” from 64.5 to 64.3 of the population. So half of the good news reflects that people have dropped out of the work force and have given up looking for work.
To put this in context, I ran a chart from the BLS website historical statistics database, showing the participation rate over the past 20 years, which shows that we are at a 20-year low:
The other disheartening statistic is reflected in the chart combining the unemployment, marginal and discouraged workers (in short, everyone who is not working but currently or at one time wanted to work, or who is employed part time because full time work was unavailable). Combine all those and the total is 16.6% up from 16.3% November not seasonally adjusted (seasonally adjusted it is 16.7% down from 17%). This is the highest number since 1994 (first year data available):
Here are two other charts showing the depth of the problem. The first shows the average length of unemployment (in weeks) and the second the median length of unemployment:
While the drop in the unemployment rate from 9.8% to 9.4% is good political news, it’s hard to see any real improvement below the surface.
This gives further evidence that the American economy is still in decline. All that government stimulus accomplished nothing except for putting us further in debt.
A couple of news stories in the ongoing sovereign debt crisis.
Bad news for Ireland:
The cost of insuring Irish debt against default hit a fresh record Friday with investors fearing that Ireland’s draconian budget cuts will slow economic growth and further weaken public finances.
Spreads on Irish five-year sovereign credit default swaps topped 6.10 percentage points Friday, according to data provider Markit, after having briefly touched 600 basis points Thursday.
This means that investors will have to pay EUR610,000 annually to ensure EUR10 million Irish debt against default. Some market watchers note that CDS trading starts to dry up at these levels as investors worry about being caught on the wrong side of the trade.
CDS are tradable, over-the-counter derivatives that function like an insurance contract for defaulting on debt. If a borrower defaults, the protection buyer is paid compensation by the protection seller.
The Irish 10-year yield spread over German bunds, which show how large a premium investors demand to hold Irish bonds versus more-stable German debt, also hit a record of 5.31 percentage points Friday.
Bad news for Spain:
The Bank of Spain on Friday said it estimates third-quarter gross domestic product in the country was unchanged from the prior quarter. That follows a gain of 0.2% in the second and 0.1% in the first quarter. In a monthly economic bulletin, the Bank of Spain said the economy likely grew 0.2% on an annual basis in the third quarter. Official third-quarter GDP data will be released by the National Statistics Institute on Nov. 11. The Bank of Spain said growth was likely stymied by government austerity measures and the effects of consumers tightening spending as value-added taxes went up from July 1.
Today, the Dollar is up as traders sell Euros. Even with the Dollar up (which usually hurts commodity prices), gold and the other precious metals are rallying to record highs. Traders are looking for safety as the chances of an Irish default increase. Furthermore, we are seeing in Spain that “austerity” is a bitter but necessary medicine.
After years of liberal government spending and big deficits, Ireland and Spain (along with Greece and Portugal) are damned if they do and damned if they don’t. Unfortunately, the United States is not that far behind them.
Posted in big government, Economics, Gold, Government spending, Sovereign debt crisis, Stimulus spending
Tagged 2010 European sovereign debt crisis, Bank of Spain, big government, Credit default swap, Default (finance), Deficit, economics, Government, Government debt, government spending, greece, Gross domestic product, Ireland, Irish people, Markit Group, spain, United States
As mentioned earlier, Britain is finally taking action to stave off a credit crisis and possible bankruptcy. Some are reporting that Britain will be firing 500,000 public sector employees.
For example, The Week reports:
David Cameron is laying off 500,000 government employees.
However, that will not be the case. As the Mail reports:
500,000 public sector jobs to go
1 in 10 public sector jobs to go as government gambles on private recovery
According to the story, this 10% reduction will take 4 or 5 years:
But they make clear that the Government has adopted the Office for Budget Responsibility’s forecast that 490,000 jobs in the public sector will go by 2014/15.
If the average public sector employee works for 40 years, 10 percent of them would retire within 4 years. In other words, the government will likely lay off very few people. Instead, the British government simply will not fill vacant positions.
This is great news, on the one hand, because the British are working to solve their financial problems and this job reduction it is quite easily achievable because it does not actually require firing many people. However, let us not be under the misapprehension that the British government is making a tough choice here. Do not believe the talk that half a million will be laid off. That is simply untrue.
Posted in big government, Government spending, Jobs, Stimulus spending
Tagged British government, Danny Alexander, David Cameron, Employment, George Osborne, Government of the United Kingdom, Office for Budget Responsibility, Public sector
Britain will stick to its timetable for making the largest cuts in government spending in decades, the chancellor of the exchequer said Wednesday, vowing that the sweeping measures would bring the country “back from the brink” of bankruptcy.
Critics charge that the plan to cut spending by 83 billion pounds ($130.4 billion) between 2011 and 2015 threatens to send the economy back into recession, just as a recovery is losing steam.
Delivering the long-awaited, comprehensive spending review to parliament, Osborne said the austerity plan “is a hard road, but it leads to a better future.”
The plan will reduce spending across government departments by an average of 19% over four years and is expected to result in 490,000 public-sector job losses over that period.
There is no doubt about it; these cuts will be painful, but not nearly as painful as doing nothing and going bankrupt. Too many governments, political leaders, and populations have their heads in the sand. Action needs to be taken to stave off a credit crisis. Those countries that do so may feel some short-term pain, but they will be at a competitive advantage five or ten years from now.
Meanwhile, the US has not cut a dime from its budget. Instead, all the talk in the current Congress and the White House has been about more stimulus. Hopefully, this will change on November 2.
Posted in big government, Economics, politics, Redistribution, Stimulus spending, Taxes
Tagged Austerity, Chancellor of the Exchequer, George Osborne, government spending, Public sector, spending review, United States, White House
The Treasury announced that the total cost of TARP would be just $50 billion. In their perverse logic, the Administration and media played this up as a government success story. But we really should look at TARP as an investment. Congress approved spending $700 billion for TARP, of which only $296 billion was spent. Looking at TARP as an investment, the government lost 16.9% over a two year period. And they call that a success!
What else could the government have done with the $296 billion? Since TARP was signed into law on October 3, 2008, the following instruments have produced these returns:
||Troubled Asset Relief Program
||iShares Barclays 20+ Year Treas Bond
||iShares Barclays 7-10 Year Treasury
||iShares Barclays Short Treasury Bond
||SPDR Gold Shares
||Financial Select Sector SPDR
All major markets (stocks, long-term bonds, intermediate-term bonds, short-term bonds, and gold) posted positive returns. In some cases, very good returns. As you can see, I added the Financial sector into that table, which declined slightly more than TARP. Most of TARP’s investment were in the financial sector. The small difference is largely a rounding error because I am looking at XLF’s return up to today whereas the Treasury is using expected returns as of some future date. And that is assuming you trust their accounting…
But this raises the question of why they invested in the worst performing market sector? Those of us who argued that they were throwing good money after bad were correct. Maybe Treasury lost less money than we expected, but we were still correct in predicting negative returns on this investment.
Of course, the government claims that TARP saved the financial system from utter destruction. Oh, to live in a world where you can make outrageous claims without any proof. Next thing you know, the government will claim that the American Recovery and Reinvestment Act of 2009, also known as the stimulus bill, “created or saved” millions of jobs, even though the unemployment rate has remained steady near the 10% level.
Posted in Economics, Gold, Government spending, politics, Redistribution, Stimulus spending, Unemployment
Tagged American International Group, big government, Business, Deficit, economics, Finance, Financial services, Government, Government debt, government spending, Investing, Stocks and Bonds, TARP, Troubled Asset Relief Program, unemployment, United States, United States Department of the Treasury