Stocks Soar, Unemployment Rises, Dollar Slumps 20 comments
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Stocks are soaring, yet unemployment surges and the dollar slumps. A contradiction made possible by Washington’s neglect of international challenges to U.S. growth.
During the recent expansion, the trade deficit swelled to more than $700 billion or five percent of GDP. Americans borrowed from abroad, mostly to pay for oil and Chinese consumer goods. They posted as collateral homes at values inflated by slap-dash appraisals and slick Wall Street financial engineering.
Ultimately, homeowners defaulted on mortgages, home prices tanked, banks failed, retail sales collapsed, and layoffs soared.
President Bush and the Federal Reserve rescued the biggest banks with the TARP and nearly $2 trillion in easy loans. Sadly, the scions of Wall Street were not so generous with their debtors, jacking up credit card fees to squeeze new profits.
Enter President Obama, promising stimulus spending on infrastructure to create private sector jobs. Instead, only $100 billion of the $759 billion package is slated for brick and mortar, as the rest is shoring up bloated government agencies and funding temporary tax cuts that mostly pay down consumer debt.
Ten months into Obama’s era of new hope, new unemployment claims still exceed 500 thousand each week, job applicants outnumber positions 6 to 1, and unemployment stands at 10.2 percent.
In Congress, Speaker Pelosi is ramming through “cost cutting” health care reforms that will require $200 billion annually in additional insurance premiums and taxes and push health care spending above 20 percent of GDP. In France and Germany, that figure is only 12 percent, indicating a worsening competitive burden to U.S. jobs creation.
Private businesses, recognizing policies bent on economic stagnation, continue slashing payrolls and inventories to accommodate poorer consumers and anemic growth going forward.
The 3.5 percent GDP advance posted in the third quarter was juiced by cash for clunkers and a slower inventory rundown—in the arcane world of GDP accounting, those boosted growth by 1.9 percentage points.
Lacking exports to pay for oil and Chinese televisions, sustainable growth remains below the three percent necessary to pull down unemployment.
Simply, annual productivity and labor force growth are two and one percent, respectively. GDP growth must exceed the sum of those numbers, or businesses can't meet new demand while unemployment hangs above 10 percent.
China will grow ten percent next year, and Asia will boom. Big U.S. companies like Caterpillar and GE that manufacture and sell there will prosper.
Prospects for stronger Asian growth and even a modest U.S. recovery are enough to power profits for American multinationals. Add the expected bonanza to drug and medical device makers from health care reform, and stock prices are up even as the unemployed languish in despair.
Meanwhile, Washington is driving the dollar down against foreign currencies by hawking $2 trillion in new Treasuries to pay for bank bailouts, reckless stimulus and other fiscal foolishness.
Foreign central banks and investors don’t hold greenbacks—they prefer Treasury securities which pay interest. All those Obama Bonds increase the supply of the dollar-denominated securities in international markets, while inflation worries drive investors away from those securities into gold, euro and yen.
Increase supply, sabotage demand, and the dollar tanks, whether measured in gold, euro, yen, or yak eggs on the plains of Tibet. Add talk of a global currency from disgusted foreign central bankers, and worries abound about a final dollar panic.
With consumers unable to borrow and spend like the good old days, U.S. exports must surge and imports abate to create enough new customers for what Americans produce. Only that will power U.S. growth robust enough to generate the taxes necessary to stem Washington’s borrowing, printing press promiscuity, and the dollar weakness.
Unfortunately, a cheap greenback against the euro and yen is not likely to boost exports enough, because Europe and Japan have only middling growth prospects too.
U.S. imports will rise, because oil is priced in dollars and China continues to fix the yuan against the dollar at an arbitrarily low level to subsidize its exports. Those rising imports could sap demand for U.S. goods and services enough to instigate the dreaded double dip recession in late 2010.
Blind to Chinese mercantilism, President Obama has no credible plan to boost exports or reduce imports. Democrats’ obsession with health care, global warming and social issues only raise business costs and exacerbate the resulting malaise.
U.S. stocks may ride the Chinese miracle, but American workers will suffer lost hope, and the dollar may become cheaper than wallpaper in foreign markets before the follies end.
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This article has 20 comments:
China's standard of living is much, much lower than ours. What that equates to is that they are able to produce as much while making do with much less. I'm not sure if 'adjusting' their currency would lead to a different outcome, although I do find it interesting that this mode of thinking (monetary cure-all) is exactly what our politicians have in mind for our economy.
Jobs will continue to go overseas, and if it's not China, it will be somewhere else. We are just too damned expensive.
Just look at what happened to Japan. I remember a time when it was 360 Japanese Yen to 1 US dollar. It is somewhere around 100 or less to 1 now. In the meantime, we 300 million or so of use raised the standard of living of 100 million or so of Japanese.
In other words, the US dollars develued to 1/3 relative to Japanese yen with a population ratio of 3/1.
Now, the Chinese population is about 1.3 billion or about 4 times ours. A simple math would tell us the US dollars would have to devalue 1/12 againist the Chinese RMB to reach some kind of balance. That would be about 0.6 RMB to a US dollar in the next decades or so.
I know things are not this simple. But, this is the direction where the US dollars are going.
Well, a bullseye in front of the word Walmart would improve the brand identity!
I am not sure that the same is true in the US.....
On Nov 09 05:14 AM Tom Armistead wrote:
> Where are you getting your productivity figures? I went to the BLS
> and the most recent quarterly figure is 9.5%.
So, when you drive past a "stimulus" road construction site at night, and see a dozen parked state police cruisers with their blue lights on permanent flash, and the officers sitting inside listening to music @ $100/hr overtime, this counts towards GDP growth. Extrapolate this to the majority of our stimulus spending, and you get 9.5% growth in "productivity". But is it real ?
On Nov 09 05:14 AM Tom Armistead wrote:
> Where are you getting your productivity figures? I went to the BLS
> and the most recent quarterly figure is 9.5%.
The true disaster with the USD is not its inevitable depreciation against the Yuan or the Reais, which can be viewed as a natural appreciation of the latter, rather than a decline in the USD. It is the continued erosion of USD against other developed economy currencies, such Euro or others. It was not that long ago (twelve years?) that the USD bought 1.2 Euros, so it is now approaching a drop of 50%. I remember in the mid-1980's, one USD bought you 2.1-2.3 SFr, now it is 1.
Appreciation of undervalued currencies of growing economies like China, Brazil, India, etc, is natural, but dollar collapse against the currencies of other developed countries is a sign of deep trouble.
On Nov 09 07:15 AM unfaire wrote:
> Ricard, yes, your are right.
> Just look at what happened to Japan. I remember a time when it was
> 360 Japanese Yen to 1 US dollar. It is somewhere around 100 or less
> to 1 now. In the meantime, we 300 million or so of use raised the
> standard of living of 100 million or so of Japanese.
> In other words, the US dollars develued to 1/3 relative to Japanese
> yen with a population ratio of 3/1.
> Now, the Chinese population is about 1.3 billion or about 4 times
> ours. A simple math would tell us the US dollars would have to devalue
> 1/12 againist the Chinese RMB to reach some kind of balance. That
> would be about 0.6 RMB to a US dollar in the next decades or so.
>
> I know things are not this simple. But, this is the direction where
> the US dollars are going.
By definition, short term does not last long. Then what?
2. China won't grow 10% next year- not even close. Do you really believe the fake numbers? How do they get there, without Americians returning to their foolish ways of buying Chinese junk with abandon. I don't think the US consumer has the cash right now, or next year.
3. You dismiss Global Warming pretty lightly. Do you hand the bills for what you use to your kids? That is what we are doing with the environment on a massive scale- we are handing a damaged world to our children. We are returning to the air in a few hundred years all of the carbon that was removed from the air (sequestered in coal and oil) over tens of millions of years. When the carbon was in the air, the planet was a sauna. Do you understand now? The carbon cycle has been disrupted, massively. Read some books on the subject.
Bush ignored all of these problems. Is that the Morici way? Cheap gasoline that utterly fails to account for health and environmental damage? Pass the bill to the next generation? I understand that we have to have priorities. Healthcare reform (I say rationing) and climate change can't wait. These problems should have been dealt with during the 'great expansion'. Of course they were not dealt with since politicans only think to the next election cycle. Pushing back against politicians are career civil servants, i.e. EPA, FDA, etc, who generally do better, until they bow to political pressure. Woe to our children. This will go down in the books as "the selfish generation".
That is because you need a presription for everything these days. In many other countries basic antibiotics are sold without a prescription.
I see it as a job security for doctors. Nobody wants to go to the doctors more than they need to, but often we re being forced to.
I am still waiting for the author of this article to tell us why it is wrong for this administration to attempt to tackle the problem of global warming, a problem that science has told us poses a grave threat to our children. I thought that economists, as a group, seek to properly account for economic costs. This economist dismisses a lot of costs, climate change, health care. If he said something like, "the real long term costs associated with climate change and global warming must wait until we 'fix' the economy by first bailing out wealthy bankers", I might understand.
On Nov 09 11:45 AM inthemoney wrote:
> > We grossly overuse health services here- soccer moms running kids
> to the doctor at the first sneeze. I don't remember it that way even
> thirty years ago. No matter, something must be done about it. <br/>
>
> That is because you need a presription for everything these days.
> In many other countries basic antibiotics are sold without a prescription.
>
> I see it as a job security for doctors. Nobody wants to go to the
> doctors more than they need to, but often we re being forced to.
On Nov 09 09:18 AM robert.b.ferguson wrote:
> I'm not sure what "Bonanza." the author is referring to. Under the
> bill passed by the house the new taxes and further restrictions imposed
> will lead to dropping revenues for Pharma and device makers. There
> will be less venture capital dedicated to R&D and higher prices
> for virtually every facet of medical care. Add to this spiraling
> legal costs and you get just the opposite of a bonanza. Trial lawyers
> are the only winners here and they will be raking in the cash from
> both sides.
As an aside, by any objective standard, police officers in NY and the Northeast are grossly overpaid, both their regular pay and their overtime rate of pay. Their 1/2 pay pension, not age dependent, is grossly out of proportion with what is paid in the private sector. The market may go down, but public employee pensions never do. The taxpayer picks up the tab. It is an utter disgrace.
On Nov 09 08:09 AM prudentinvestor wrote:
> Tom, Yes, 9.5% annual increase in productivity, but how is it defined.
> Correct me if I am wrong, but I believe it is GDP per hour worked,
> and GDP includes government spending.
>
> So, when you drive past a "stimulus" road construction site at night,
> and see a dozen parked state police cruisers with their blue lights
> on permanent flash, and the officers sitting inside listening to
> music @ $100/hr overtime, this counts towards GDP growth. Extrapolate
> this to the majority of our stimulus spending, and you get 9.5% growth
> in "productivity". But is it real ?
Remember, US healthcare is basically private enterprise and has been for many decades. So why haven't the alleged efficiencies of the so-called magical free market produced lower costs, greater benefits, etc that the so-called free-market private enterprise system is supposed to deliver via competition?
Remember US healthcare costs about 16+% of GDP, produces much worse healthcare outcomes (according to many comparatives studies vs. other developed countries), and results in tens of millions of Americans with zero healthcare at all.
When you compare the US healthcare system to any other developed country such as: Canada, UK, France, Germany, Sweden, Denmark, Holland, or even Taiwan, Japan, or Hong Kong ... it is a proveable fact that US healthcare, including poorer outcomes and lack of coverage, costs anywhere from at least 2-10x more than any other developed country. But that's the wonder of capitalism and free enterprise when it is really nothing more than psuedo crooney oligarchical capitalism pretending to be a free market. That is what happens when you get vested oligarchical interests (insurance companies, drug companies, medical associations, hospitals) able to payoff politicans and lobbyists to write laws that protect the excess revenues going to the oligarchs.
If you doubt that then explain why the Dutch were able in 2006 to convert to a 100% privately run national healthcare system, 100% managed by Dutch private health insurers, 100% coverage for all citizens, and yet it costs less than 1/2 of the cost of US healthcare.
And the citizens are overwhelmingly satisfied with the functioning of the system. That's real private enterprise and real free markets with relatively minimal government oversight ..... not the corrupted pseudo crooney captialist system in the US that benefits a few politicans, lobbyists, and oligarchical private companies and grossly overpaid managements.
On Nov 09 09:18 AM robert.b.ferguson wrote:
> I'm not sure what "Bonanza." the author is referring to. Under the
> bill passed by the house the new taxes and further restrictions imposed
> will lead to dropping revenues for Pharma and device makers. There
> will be less venture capital dedicated to R&D and higher prices
> for virtually every facet of medical care. Add to this spiraling
> legal costs and you get just the opposite of a bonanza. Trial lawyers
> are the only winners here and they will be raking in the cash from
> both sides.
On Nov 09 09:16 AM fjd10595 wrote:
> 1. We grossly overuse health services here- soccer moms running kids
> to the doctor at the first sneeze. I don't remember it that way even
> thirty years ago. No matter, something must be done about it. The
> true answer is 'rationing'- yes the dredded R word that both parties
> say is not in the mix. Great. The American way- give us a fix that
> costs nothing. Better yet- give me more at lower cost. In other words,
> pass the bill to children.
> 2. China won't grow 10% next year- not even close. Do you really
> believe the fake numbers? How do they get there, without Americians
> returning to their foolish ways of buying Chinese junk with abandon.
> I don't think the US consumer has the cash right now, or next year.
>
> 3. You dismiss Global Warming pretty lightly. Do you hand the bills
> for what you use to your kids? That is what we are doing with the
> environment on a massive scale- we are handing a damaged world to
> our children. We are returning to the air in a few hundred years
> all of the carbon that was removed from the air (sequestered in coal
> and oil) over tens of millions of years. When the carbon was in the
> air, the planet was a sauna. Do you understand now? The carbon cycle
> has been disrupted, massively. Read some books on the subject. <br/>Bush
> ignored all of these problems. Is that the Morici way? Cheap gasoline
> that utterly fails to account for health and environmental damage?
> Pass the bill to the next generation? I understand that we have to
> have priorities. Healthcare reform (I say rationing) and climate
> change can't wait. These problems should have been dealt with during
> the 'great expansion'. Of course they were not dealt with since politicans
> only think to the next election cycle. Pushing back against politicians
> are career civil servants, i.e. EPA, FDA, etc, who generally do better,
> until they bow to political pressure. Woe to our children. This will
> go down in the books as "the selfish generation".
Do you had the bill for what you use to your daughters? You know, the 'conservative way', tax cut and spend.
On Nov 10 12:00 AM raising4daughters wrote:
> Can't you do any better than copy-and-paste the BHO/DNC talking points?
>
If you doubt that then explain why the Dutch were able in 2006 to convert to a 100% privately run national healthcare system, 100% managed by Dutch private health insurers, 100% coverage for all citizens, and yet it costs less than 1/2 of the cost of US healthcare.
On Nov 09 06:27 PM untrusting investor wrote:
> Ok, so what's your suggestion?
>
> Remember, US healthcare is basically private enterprise and has been
> for many decades. So why haven't the alleged efficiencies of the
> so-called magical free market produced lower costs, greater benefits,
> etc that the so-called free-market private enterprise system is supposed
> to deliver via competition?
>
> Remember US healthcare costs about 16+% of GDP, produces much worse
> healthcare outcomes (according to many comparatives studies vs. other
> developed countries), and results in tens of millions of Americans
> with zero healthcare at all.
>
> When you compare the US healthcare system to any other developed
> country such as: Canada, UK, France, Germany, Sweden, Denmark, Holland,
> or even Taiwan, Japan, or Hong Kong ... it is a proveable fact that
> US healthcare, including poorer outcomes and lack of coverage, costs
> anywhere from at least 2-10x more than any other developed country.
> But that's the wonder of capitalism and free enterprise when it is
> really nothing more than psuedo crooney oligarchical capitalism pretending
> to be a free market. That is what happens when you get vested oligarchical
> interests (insurance companies, drug companies, medical associations,
> hospitals) able to payoff politicans and lobbyists to write laws
> that protect the excess revenues going to the oligarchs.
>
> If you doubt that then explain why the Dutch were able in 2006 to
> convert to a 100% privately run national healthcare system, 100%
> managed by Dutch private health insurers, 100% coverage for all citizens,
> and yet it costs less than 1/2 of the cost of US healthcare.
> And the citizens are overwhelmingly satisfied with the functioning
> of the system. That's real private enterprise and real free markets
> with relatively minimal government oversight ..... not the corrupted
> pseudo crooney captialist system in the US that benefits a few politicans,
> lobbyists, and oligarchical private companies and grossly overpaid
> managements.