Vacation first, Jobs Package Next Month

So, there’s discussion on the magical misery tour bus about a potential jobs package and some swagger, posturing and double dog dare yas to Republican Congress members in this pre-Martha’s Vineyard vacay speechification.  The suggested policy pretty much sounds like the same tax cut crap that usually comes out of Republican mouth pieces.  This leaves Republicans with the actual party affiliation hemming and hawing and reverting to the Nancy Reagan policy prescription of Just Say No.  I’m dubious on any policy prescriptions at the moment because it’s simply way too late.  If you believe the stock market is a fairly good barometer of economic health, and I do, economic recovery Elvis has left the building.  I double dog dare you to find an upward trend in the last 9 months or so in that Real GDP index over in the nifty graph up there, top right. (Wonky aside:  That’s a log linear series over there so it represents a growth rate or percentage change in GDP from month to month and it’s been annualized.)

So what’s on the horizon in terms of potential policy?  Former Biden economic policy Adviser Jared Bernstein inkles that the President is keen to continue his pay roll tax holiday and extend unemployment benefits but all that must wait until at least September. Bernstein admits there would be too much political heavy lifting to get a “Recovery-Style state fiscal aid” package through congress. This undoubtedly means that more teachers, fire fighters, policemen, and state workers will get the boot in most of the 50 states some time after October. Too bad we can’t extend the successful parts of the stimulus like aids to states to cover their shortfalls.

So, what will/should President Obama say in September on jobs?

–Given everything he’s been saying so far, he most likely starts out with a strong call to renew the payroll tax holiday and extend UI benefits.

–These are both essential—EPI estimates that to lose them next year would cost over one million jobs.  But since they’re already in the system, they don’t add anything new, so it’s like keeping your foot where it is now on the accelerator.  If they expire on schedule at years’ end, your foot comes off.  But keeping them going only maintains current speed, such that it is.

–He then pushes an infrastructure plan.

Robert Reich is going so far as to call the President “bold”. Well, it’s a backhanded sort’ve bold label, because he gives it and takes it away in the same blog thread  Yes, giving speeches and saying things that you never see through to reality is bold alright.  Let’s face it, Robert, sounding like a fighter while trying to crawl out of a hell hole of bad polling numbers is not exactly the same as bold action.

The President is sounding like a fighter these days. He even says he’ll be proposing a jobs bill in September – and if Republicans don’t go along he’ll fight for it through Election Day (or beyond).

That’s a start. But read the small print and all he’s talked about so far is extending the payroll tax cut and unemployment benefits (good, but small potatoes), ratifying the Columbia and South Korea free trade agreements (not necessarily a job-creating move), and creating an infrastructure bank.

An infrastructure bank might be helpful, depending on its size.

Which is the real question hovering over the entire putative jobs bill – its size.

Some of the President’s political advisors have been pushing for small-bore initiatives that they believe might have a chance of getting through the Republican just-say-no House. They also figure policy miniatures won’t give aspiring GOP candidates more ammunition to tar Obama as a big-government liberal.

But the President is sounding as if he’s rejected their advice.

Reich does finally give a blue print on what would actually be a bold and Democratic plan for jobs.  Here’s one that’s not a shocker at all but unlikely to pass Presidential–let alone congressional–muster.  After all, it’s so very unlike the legendary Saint Ronnie’s fare. Yeah, I know, never mind about what the real Ronald Reagan did.  Let’s just stay with the myth.

Recreate the WPA and Civilian Conservation Corps to put long-term unemployed directly to work.

Something, however, tells me the President has yet to crack any macroeconomics text books when I read a headline like this:  “Obama: We’re Not In Danger of Another Recession”.  I just never know if its subterfuge or basic ignorance when I read these things.  Of course, he must knows more than your average Wall Street analyst.  Just ask Valerie Jarret, I’m sure she’ll tell you he’s so smart that to actually read anything about fiscal policy is beneath his IQ.  He just magically knows what’s right after reading Ronald Reagan fanzines biographies and talking to lawyers from Chicago.

President Obama countered many Wall Street analysts, saying on Wednesday that the U.S. is not going to have another recession.

“I don’t think we’re in danger of another recession,” Obama told CBS News. Obama did note that the recovery has not been fast enough, blaming the Arab spring, high gas prices, and March’s earthquake and tsunami in Japan.

Obama said the volatility in the markets recently has been due to a lack of economic growth.

“The markets were reacting to the economy not growing as quick as it used to,” he said.

He also lamented the politics that surrounded the debt ceiling deal.

“We should not have had any brinksmanship around the debt ceiling,” he said.

Instead, let’s look at David Rosenberg’s 12 Bullet points that suggest we probably are already in a recession and remembering that recessions aren’t actually dated until they’re well usually under way or nearly over.  Oh, Dr. David Rosenberg, btw, is the chief economist at Gluskin Sheff so he actually cracked more than a few Newsweek articles on the subject. Here’s a few of those bullet points.

 Challenger layoffs have surged 80% in the past three months. That will lead to higher jobless claims in the near-term.

Consumer buying intentions for big-ticket items has sagged to recession levels. Watch the savings rate in the next six months — this will be key to the macro outlook.

Productivity has declined for two straight quarters and actually, unless companies willfully want their margins to implode, will soon respond by shedding labour input.

This already goes down as the weakest recovery on record despite unprecedented policy stimulus. Every dollar of balance sheet expansion at the Fed and the Treasury since the beginning of 2009 has generated 80 cents of incremental GDP gains. Not only is that a pitiful multiplier but now that there is no more stimulus, it is a legitimate question as to how an economy that only operated on policy steroids for the past two-and-change years is going to perform.

There is no doubt that the economy is not yet contracting, but the debate is whether it will start to by year-end. The withdrawal of stimulus is feeling like a policy tightening. And after coming off a mere 0.8% annual rate of gain in GDP so far this year, the question is how the financial shock since mid-year in the form of higher debt levels and equity cost of capital is going to impact an already near-stagnant economy.

The data on a three-month basis are following a classic pre-recession pattern and so is the stock market.

Indeed, today’s markets seem to be indicating there is a looming recession or even the suspicion of an onset.  It’s not just the equity and gold markets, however.  The job market remains extremely weak as Jobless Claims today shows.  Lay offs are on the increase.

More Americans than forecast filed applications for unemployment benefits last week, signaling the labor market is struggling two years into the economic recovery.

Jobless claims climbed by 9,000 to 408,000 in the week ended Aug. 13, the highest in a month, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a rise in claims to 400,000, according to the median forecast. The number of people on unemployment benefit rolls rose, while those receiving extended payments fell.

Lousy real estate numbers were also released today. We have record numbers of empty housing stock and no demand. We also have no plan for dealing with the problem.

What is obvious is the flight to safety.  Investors worried about both the US economy and the Eurozone are headed for the US bond markets.  This makes it a perfect time to borrow for a real bold job creating initiative.  The problem is that things like creative energy policies, tax credits for new workers, and infrastructure banks are policies that should’ve been put into place two years ago.  They take time to work through the bureaucracy and through the economy. Fiscal policy has very long lags between passing laws and actually get things into the economy.   If we are slipping into a recession–and many signs say that we are–there is actually little to be done at this point other than hang on.  That’s why traditional Republican Wall Streeters are horrified by rhetoric coming from the likes of Ron Paul, Michelle Bachmann, and Rick Perry.  Get this quote from David Rosenberg and think about Perry who just said such an act was “treasonous”.

So the markets are saying we’re in a depression?
That’s why you have gold at $1700 an ounce. That’s why 10-year Treasury bond yields are lower now. The bond market is saying we are in for weak growth. Gold is saying the government is going to try to reinflate their way out of it.

What can we expect to further happen while riding out the recession/depression?
Growth rates are going to be much weaker globally. There is going to be a prolonged period of very weak activity. Consumer confidence is lower today than after the 1987 crash and after 9/11.

How do we get back to a sustainable bull market and expansion?
In the end, you print money.

Is there any wonder why traditional Republican interests are scrambling for a traditional Republican candidate at the moment? They’re looking all over the place for one that knows economics and speaks rationally.  Now, if traditional Democratic interests would only scramble for a traditional Democratic candidate.  You know, one that knows economics and actually speaks about things they intend to do rather than aspire to.