Posted on 09/24/2003 5:09:34 PM PDT by Starwind
The Daily Reckoning PRESENTS: The strong, compelling evidence of an economy that is as far away from a recovery as its disastrous job numbers.
EMPLOYMENT DISASTER
By Kurt Richebächer
There has been much talk to the effect that America has just had its slightest recession in the whole postwar period. That is measured in real GDP growth, being bolstered by many statistical tricks. Measured, however, by job losses, which certainly are the far more important gauge, it is already America's worst recession by far.
In June it was declared that the recession had ended in November 2001. Yet in the 20 months since, payroll employment has declined by a total of about 1 million jobs, or about 8%. In not one of the seven or eight postwar recoveries has there been any employment decline. Immediate strong job growth has been the regular characteristic of all business cycle recoveries. On average, payroll jobs increased 3.8% in the 20 months following the end of recession.
What's more, no letup in job losses is in sight. During the second quarter, widely hailed for its better-than-expected GDP growth, the household measure of employment slumped by 260,000. However, this figure concealed an even greater number of workers - 556,000 - who statistically quit the workforce because they have given up looking for nonexisting jobs.
This rapidly growing group of people no longer count as unemployed. What American job statistics really measure are not changes in unemployment, but changes in job seekers. Including the frustrated job seekers, the U.S. unemployment rate is hardly lower than in Europe. Certainly, it is rising much faster.
In addition, the Labor Department is employing month for month the same two practices that camouflage the horrible reality. In July, for example, it reported a decline in payrolls by 44,000, while job losses for June were revised upward from 30,000 to 72,000. For May, the retrospective upward revision was even from 17,000 to 70,000. As such upward revisions of job losses in the prior month have become a regular feature, this practice has the convenient effect of producing correspondingly lower new numbers every month. The same happens, at more moderate scale, with weekly reported claims.
There is still more spinning involved. The government adds every month some 30,000-50,000 imaginary workers to the job total. It is based on the assumption that in an economic recovery a lot of people start their own business. In normal recoveries, they have done so, indeed.
All it needs to activate this statistical job creation is a unilateral decision by the government that the economy is in recovery. Once a year, the statisticians reconcile their assumption with reality by a revision. When they did this in May of this year, 400,000 new jobs that had been reported earlier simply vanished. Such revisions, of course, take place outside the monthly reported job losses. Together, we presume, these statistical casuistries have reduced the reported job losses in the past two years by well over 100,000 per month.
It rather abruptly became the consensus view that in America the great recovery from protracted, sluggish growth is finally on its way. Record-low interest rates, runaway money and credit growth, new big tax cuts, record-high cash-outs by consumers through mortgage refinancing, increasing house and stock prices, and rising profits are cited as the compelling reasons for this optimism.
We are more than skeptical about the true impact of all these influences on the economy primarily for one reason: Most of them, if not all of them, have been at work for some time already, but with grossly disappointing overall effects on the whole economy, and now some of these influences are weakening or even reversing.
Think of the sharp rise in long-term interest rates that is most assuredly stopping the mortgage-refinancing bubble dead in its tracks. That, in our view, will not only abort any recovery but will also mean the economy's relapse into new recession.
As for fiscal policy, it clearly gave its biggest boost to the economy between the fourth quarter of 2000 and the second quarter of 2002. That is a period of six quarters during which the federal budget gyrated from a quarterly surplus of $306.1 billion to a deficit of $526 billion, both at annual rate. This year, the deficit is supposed to hit $455 billion. Most probably, it will come out much higher. But this follows a deficit in the last year of $257.5 billion. The fiscal stimulus is waning, not increasing.
In any case, actual, historical experience in the 1970-80s with large-scale government deficit spending has been anything but encouraging. It created more inflation than economic growth. Over time, rising deficits were rather recognized as impediments to economic growth. Japan's recent experience makes frightening reading. Since 1997, government debt has skyrocketed from 92% to 150% of GDP, rising every year by more than 10% of GDP. Yet nominal GDP keeps shrinking.
As to monetary policy, we have very much the same doubts about its efficacy in generating economic growth under current economic and financial conditions. It is the traditional American consensus view that monetary policy is omnipotent if properly handled. In this view, any recession, or worse, always has its decisive cause in the failure of the central bank to ease its reins fast enough. In this view whatever happened in the economy during the prior boom is irrelevant.
This time, both monetary and fiscal policies in America have acted with unprecedented speed and vigor. To people's general surprise, the economy's rate of growth abruptly slumped during 2000 from 3.7% in the first half to 0.8% in the second.
Starting on Jan. 3, 2001, the Fed slashed its short-term rate in unusually quick succession. Within just 12 months, its federal funds rate was down from 5.98 to 1.82.
Assessing the development, the first thing that struck us as most unusual was that this sudden, sharp economic downturn occurred against the backdrop of most rampant money and credit growth. Total nonfederal, nonfinancial credit grew by $1,144.3 billion in 2000, after $1,102.6 billion in the year before. This compared with nominal GDP growth during the year by $437.2 billion. The first important conclusion to draw therefore was that this sudden economic downturn had obviously nothing to do with money or credit tightness.
Ever since, nonfinancial credit growth has sharply accelerated. In the fourth quarter of 2002, it hit a record of $1,612.8 billion, at annual rate, followed in the first quarter of 2003 by $1,338.3 billion. This coincided with simultaneous nominal growth of $388.4 billion and real GDP growth of $224.4 billion, both also at annual rate. For each dollar added to real GDP, there were thus six dollars added to the indebtedness of the nonfinancial sector.
Regards,
Kurt Richebächer, for The Daily Reckoning
P.S. During the 1960-70s, by the way, there was on average about 1.5 dollars of debt added for each dollar of additional GDP. Just extrapolate this escalating relationship between the use of debt and economic activity. And think of it: the GDP growth of today is tomorrow a thing of the past, while the debts incurred remain. Plainly, Greenspan's policy has collapsed into uncontrolled money and debt creation that has rapidly diminishing returns on economic activity.
As we noted in these pages last week, the late economist Hyman P. Mynsky would call this a Ponzi economy where debt payments on outstanding and soaring indebtedness are no longer met out of current income but through new borrowing. Soaring unpaid interests become capitalized.
Yes, based on my experience it is my opinion that many of the "free" trade fanatics are not bushbot concervatives but are instead liberal imposters. There are likely a variety of explanations for their deceptive practices:
Whatever the reason, the modus operendi is always the same: presentation of false and convoluted economic theory accompanied by bashing and smearing others as "marxist".
Since you seem able to get an excel file from teh WTO trranslated to a gif file at the WTO in less than 24 hours one must question do you work for teh WTO as a representative of the PRC?
I guess teh evidence suggests that.
I invite everyone to go to the WRO web site and look up the treatment of developing nations to see if I am right or wrong. Don't take my word for it or Jas3's word for it go to http://www.wto.org/ abd see for yourself look at the Doha agenda it is linked to from the start. I note they no longer maintain the original text of the ministers statement/communiqueconsluding the 1993 meeting that resulted in the charter of the WTO but look up article 19 of the WTO charter it is there on-line. It is referred to in teh Doha ministers statement. I simply say go to the source anbd see who is lying.
I further state that china maintains an average 70% duty on American exports to that nation and this includes some items which are duty free. Their tariffs on non-capital goods and other than raw material goods are so high there are almost no imports of consumer goods from the USA. checj their actual duties in place. See who is the liar I am confident you will find it is Jas3
HA HA HA HA HA HA HA HA HA HA HA HAHA H AH AHHAHHAAHA HAAH
Actually, I was able to convert the Excel file in under 10 seconds all by my lonesome. The link I gave you isn't at the WTO, genius. Try a reverse IP lookup to see the hostname for yourself.
I used the "PRINT SCREEN" button on my keyboard. For someone who claims to have been using a computer for 5 years, you certainly haven't learned very much.
You claim an average tariff of 70%. But you have yet to provide a citation for your bogus statistics, other than the spot on your body where the sun don't shine.
...I note they no longer maintain the original text of the ministers statement/communiqueconsluding the 1993 meeting...
Translation: I was either wrong about this document ever existing, or I cited the wrong document; either way I apologize for my mistake - You were right jas3. My bad.
I further state that china maintains an average 70% duty on American exports to that nation and this includes some items which are duty free.
You can state whatever you want. My grandson states that the tooth fairy brought him a quarter last night. If you can't cite official statistics, than who cares what you state? You are so careless with your statements that they are meaningless.
How's that furniture manufacturer's website coming along, btw, speaking of ludicrous statement you've made, make, and will continute to make?
Their tariffs on non-capital goods and other than raw material goods are so high there are almost no imports of consumer goods from the USA. checj their actual duties in place.
MarxSeal, since you are incapable of either telling the truth or using Excel. I have placed 3 more image files (that I once again made with the uber-complex PRINT SCREEN technique that has you so mystified) on a site for your review. You'll note that all three disprove your crazy assertions.
Here's the link for the source from the WTO:
http://www.wto.org/english/news_e/pres03_e/pr348_e.htm
Here's the link on that page for the Excel file from which the images came:
http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr03_append_IIB1_7_e.xls
No doubt that as before you'll be unable to open the XLS, Marxseal, since you can't distinguish between a spreadsheet and a virus.
And here are the links from the Excel converted to GIFs for the technically disabled like you Harpo.
This one demonstrates your lies about the average tariff. It shows tariffs by sector:
http://66.227.96.189/HarpsealTakeYourMeds/MarxsealLiarBySector.gif
The next two show consolidated data:
http://66.227.96.189/HarpsealTakeYourMeds/MarxsealLiar1.gif
http://66.227.96.189/HarpsealTakeYourMeds/MarxsealLiar2.gif
See who is the liar I am confident you will find it is Jas3
Review the numbers, Marxseal: You've either been intentionally lying in this and your other posts on other threads, or you've been repeating statements you didn't understand, didn't check out for their veracity, and were too naive to think might be false. I think it's the later.
Since you've publicly humiliated yourself by demonstrating your inability to even open an Excel spreadsheet from the WTO's site, there's no possible way you've been able to conduct any analysis of trade statistics on your own. For God's sake man, you don't even know how to do a print screen!
The lesson that I pray you will learn here is that instead of repeating statements that you read somewhere which may or may not be true, you will in the future actually spend about 15 minutes looking up the source of that data.
That's why I repeatedly challenge you to post citations for your more outrageous claims; (I let the less outrageous one's slide).
And that's why you respond to demands for source citations by replying with:
a). I'm not telling; do you own research.
b). You are a communist unamerican liar.
c). It's already been posted here somewhere (but I won't say).
d). Ask someone else, he might know.
Unfortunatley, pray as I might, my guess is that your fear of foreign competition has as much to do with your fear of foreigners and your inability to compete as it does with anything else.
I have some good news for you though, Marxseal. Through 2008 per China's agreement with the WTO, duties on imports to China and trade restrictions will continue their precipitous decline. So you can expect US-China trade to expand by a multiple of at least 3 over the next five years.
That's good news for both America and China.
That must be why houses are flying up around here, and the tower cranes are hard at work downtown.
One thing you may be overlooking, how many "employed" people are actually former engineers now working at radio shack? When someone who was making 60K is now making 25K he's not counted as unemployed but the economy still feels his loss. IMO a better guage of the health of the job market is tax revenues. Numbers don't lie, if the states aren't collecting as much sales taxes and income taxes then personal spending and income are down.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.
