John Galt's  Instablog

Courtney Schlisserman at Bloomberg had an article that broke down unemployment found here.  The job market is weak, and even Helicopter Ben doesn't see it getting much better when the recovery takes hold.

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I've seen this kind of story before.  It almost seems like a joke where you are waiting for the punch line.  The economy is sooooooo bad... that people who can't stand each other are staying together!

Julie Kay at the Miami Herald reports a drop in the divorce rate .  Excerpts from the article in quotations.

As a result, local divorce lawyers say they are facing their slowest period ever, and are discounting rates, offering sliding payment scales and military discounts and accepting credit cards. One said her business is down 35 percent from last year.

The fast cheap answer to marriage is the Vegas Drive through wedding.  I wonder if there is that fast cheap answer to divorce.  Hmmmm, I might be on to a business idea.

With the economy faltering and pink slips flying, couples who were thinking of divorcing may think again. The husband or wife may have been laid off and now left dependent on the other's health insurance, or cannot afford to get his or her own place.

How many people can't even afford the place they are in, never mind trying to split everything in two, buy new stuff, figure out insurance, start a new life, and pay off their hefty lawyer fees?

Additionally, the house may be in foreclosure or underwater, which means it can't be quickly sold and therefore there are no assets to be divided up. ...All this means that divorces appear to be on the decline.... The problem appears to affect the lower and middle classes more than the wealthy.

According to court statistics, 16,868 divorces were granted in 2006 in Miami-Dade, 16,005 in 2007 and 14,631 in 2008. In Broward, 11,179 cases were filed in 2006, 9,876 in 2007 and 8,924 in 2008.

Having money problems, having job problems, which lead often lead to marital problems, can't afford your house, can't sell your house... what to do?

``I have people who find out what the consultation fee is and then they don't make the appointment,'' said Hollywood divorce lawyer Caryn Grainer. ``They're too embarrassed to cancel. I laugh when people say the recession is over.''

Too true Caryn, too true.  I also laugh when people say the recession is over.  In fact, CNBC is pretty freaking funny in case you haven't noticed.  Don't believe what you see on the front lines, just keep the TV turned on.


 

The decision markets at the NY fed caved into their friends on Wall street.  Article Here.  Don't forget that many of the government workers working in finance would like nothing more than to one day work for Wall Street.  Also don't forget the supreme connection between Goldman Sachs and our government.  You would think that in the event of a bailout you'd be happy to get something, but not the people at Goldman... They refused to settle for less than par.  Sections from the article are in quotes, my comments following those quotes. 

The Federal Reserve Bank of New York caved in to demands by American International Group Inc.'s trading partners that they be paid in full for complex securities they had insured with the company, saving some of the world's biggest banks from potentially large losses, according to a government audit.

Basically this means that the good people at Goldman Sachs doing "God's work" pressured their friends... yes literally friends at the NY Fed to pay them in full for their bets on the market.

The audit, which was conducted by the special inspector general for the Troubled Asset Relief Program, faulted the New York Fed for not using its leverage as the regulator of some of these banks to get them to accept lower prices for more than $60 billion in credit-market bets, which were tied to souring mortgage-linked securities that had fallen in value.

The people at the Qusi Government Fed didn't have the will power to say NO to the people at Goldman Sachs.  Don't forget, many of them want jobs there one day their public service days are over.  Why give them 30 cents on the dollar when you could give them 100 cents on the dollar of other people's money?  60 billion dollars is a drop in the bucket right?

The banks that were paid off in full included Goldman Sachs Group Inc., Merrill Lynch and large French banks Société Générale and Calyon, the investment bank unit of Credit Agricole Group, which were represented by the French bank regulator in negotiations with the New York Fed last November, the report said.

Goldman Sachs was on this list?  Oh you don't say.  If we were going to play a guessing game they would be the last firm I'd guess that was paid off in full.  Interesting that the foreign firm Soc Gen was getting paid in full.

The banks were effectively paid par, or 100 cents on the dollar, for those securities, which had declined significantly in value due to rising home-loan defaults.

The audit found that AIG's trading partners refused to agree to any discounted trades with the New York Fed and AIG. The financial firms claimed they contractually were due the full value of the securities and that they had a fiduciary duty to their shareholders.

They also had another ace to play: Since the government already had shown its hand and made clear it wouldn't allow AIG to go bankrupt, the trading partners "had a reasonable expectation that AIG would not default on any further obligations."

But But But, you bailed out AIG.  It means we couldn't reasonably expect AIG to default on further obligations.  The thing that bothers me the most is that the trading partners... (Goldman Sachs) refused to accept anything less than Par.

Imagine this.  You buy Tech stocks in 99' at the height of the bubble.  The market crashes, your stock in AOL, Cisco, Oracle, Pets.com all crash in value but your friends at the government pay you in full for your worth-less stocks because you refuse to accept less. 

Stimulus Bill 1.0 ( 2008)
George Bush hands 152 billion dollars to Americans in the form of $600 checks, $1,200 checks, and $300 dollar child tax credits.

Stimulus Bill 2.0 ( 2009)
Obama's stimulus intended to create or save 4 million jobs by spending 787 billion dollars.  499 billion dollars spent on federal contracts, grants, loans, entitlements, education, health care and 288 billion on tax cuts.


Stimulus Bill 3.0?
Read this wsj article and tell me they aren't sewing the seeds for another stimulus bill.  Keynesian economics has a long history of failure yet we have no shortage of politicians around the world that keep trying it.

The House of Representatives is pushing a bill aimed at boosting employment, a potentially risky move that underscores Democrats' fears about the economy and jobs -- including their own as they head into an election year.

Elements of such a bill could run the gamut from infrastructure spending to small-business lending to extra aid for states and the unemployed, lawmakers said. Democratic leaders haven't determined any specifics -- including the politically dicey question of how to pay for it.

Rep. Chris Van Hollen of Maryland, who runs the House Democrats' campaign effort, said lawmakers were aiming for a six-year infrastructure bill that also could include energy-related investment.
 

So what happened to our last stimulus plan?  Wasn't that supposed to rebuild our infrastructure?  Small business lending, wasn't the separate bank bailout supposed to give them money to lend to small business?  Bailing out state budgets, that's exactly what the last stimulus plan did.  Aren't we in recovery, don't we have green shoots???

 

House Majority Leader Steny Hoyer (D., Md.) said he hoped to bring the bill to the House floor by mid-December, giving rank-and-file lawmakers a chance to vote just before the start of the 2010 election season, when control of Congress will be up for grabs.

"Clearly, 10.2% unemployment is unacceptable and is causing great pain to literally millions of people around the country," Mr. Hoyer said.

 

Right.  Especially during an election cycle.  So your solution is business as usual, keep spending money, throwing us into debt, and hoping for change.  We've spent over a trillion dollars for stimulus thus far, but now we need more money.  Forget that the implementation has been horrible, waste, corruption, mailing checks to dead people.  Also forget the fact that WE DON'T HAVE THE MONEY, just keep spending money on a failed economic ideal.

America in the 30's had a New Deal, New New Deal, and it didn't work.  The tax raising policies, the trade killing policies, the government paying people to destroy wealth led to over a decade of misery and ended with tens of millions of people killed in the worst war the world has ever seen.

Japan tried Keynesian policy as well and it didn't work out for them either.  All they have to show for it is nearly 200% debt to GDP which puts their system at a competitive disadvantage.

The cure to a debt problem is NOT more debt.
 

The other day in one of Edward Harrison's articles, I wondered how long it would take before we got back to 5% unemployment or (full employment).  Thankfully, one of my favorite economists tried to tackle that question.  Mish Shedlock's article here.  Keep in mind that Mish has been way ahead of the curve on predictions.  He's smart enough to break things down in Austrian econ talk, he tackles issues on investors minds, and has quite a readership ( included our favorite economist Paul Krugman).


This WSJ article aks the same question on employment. Italics mine.

"On average, the economists don't expect unemployment to fall below 6% until 2013"

They expect a peak at 10.2% in February.
(Aren't we already there?, look at how many months we had net job loss after the last recession "ended").

"It could take until 2014-15 before we see a 5% handle on unemployment again," said Diane Swonk at Mesirow Financial. Persistently high unemployment could prove a political hot potato not only for the 2010 midterm elections for Congress but also for the 2012 presidential election.

Some of Mish's assumptions

• The retail sector has massive overcapacity. We do not need more Home Depots, WalMarts, Lowes, Sears, Pizza Huts, Targets, Safeways, etc etc.
• Commercial real estate is flooded with vacant offices and plagued by falling rents.
• Housing inventory is enormous.
• Boomers will be looking to downsize their lifestyles.
• There is not going to be another internet boom.

Some perspective on our past few recessions

• The internet boom peaked at 264,000 jobs per month in 1999.
• The housing bubble boom peaked at 212,000 jobs per month in 2005.
• The commercial real estate boom peaked at 178,000 jobs per month.
• The next peak will be lower yet.
   

Numbers vs Reality

The official unemployment rate is 10.2% and rising. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.
 

Initial prediction

Yet, in spite of all those generous assumptions, no double dip recession, no second recession, high rates of job growth and falling participation rates all the way through 2020, and unemployment peaking at 11.6% not 13%, the best I can do is suggest the unemployment rate will be over 10% all the way through 2015 and never dip below 8% all the way out through the end of 2020.

How to get to 5%< by 2020 (optimistic scenario) Analysis here.

That would it take to get back to 5% unemployment? I played with the spreadsheet and came up with the following numbers, which get us below 5% by 2020. I assume no recessions for the next ten years, and 2 million new jobs a year after 2011, which I start off with almost 1.5 million jobs. Of course, we have never done that, but let’s be optimistic.
 

Mildly pessimistic scenario, part of a follow up article Mish posted.

Let's see what happens on a mildly pessimistic scenario. I will assume a mild-double dip, followed by reasonably strong growth, no additional recessions through 2020, but with a slightly less optimistic forecast on how many jobs are needed to keep up with birthrate and immigration.

For this scenario I assumed a mild double dip where 100,000 jobs a month would be lost, followed by job gains of 120,000, then 170,000, then 150,000 for three years before tapering off. I also decreased the participation rate (indirectly), by assuming the number of jobs needed to keep employment steady would drop a bit slower from 110,000 in 2013 to 70,000 in 2020.

I think not, yet look at the result: Unemployment does not dip below 10% until 2020.
 

These are really scary predictions.
Economists: Unemployment not below 6% until 2013? 
Mish's prediction: 11.6% U3 peak, Unemployment > 10% through at least 2015.
Mildly pessimistic scenerio: Unemployment not below 10% until 2020.
Happy scenario: No double dip/recession for 10 years, 2 mil job gains in 2011, then we'd get to below 5% by 2020.

Another story in from a Mish article.  Words that should anger many. Goldman Sachs CEO Blankfein say's his company is doing "God's work".

While acknowledging the role of banks in the financial meltdown, the CEO of Goldman Sachs said recently he believes his company is doing "God's work."

Yes, another reason to like Goldman Sachs.  We shouldn't just like them for skimming some off the top "helping us all out", we should like them for doing God's work.  Maybe we should just stop playing around and worship them?

"We're very important. We help companies to grow by helping them to raise capital. Companies that grow create wealth," CEO Lloyd Blankfein said in a recent interview. "This, in turn, allows people to have jobs that create more growth and more wealth. We have a social purpose."
 

Yes, you are very important.  So important that your ex employees in Washington deemed you too big to fail and gave you billions of dollars out in the open, and billions of dollars covertly through transfer schemes ( 13 billion through AIG bailout).

You allocate capital.  When it works out you reap the rewards and give your employees a big fat bonus at the end of the year.  When it doesn't work out, you get your ex employees in Washington to give you bailouts/handouts and then give your employees a big fat bonus check at the end of the year.  When the MBS securities you invested in turn out worth pennies on the dollar, you get your buddies in Washington to buy them dollar for dollar.
 

Blankfein said he knows people are upset with banks and their part in the financial meltdown, but went on to say people should celebrate when banks do well, because it means the economy is recovering.

Upset?  Nooooo, we love you.  We should be happy when you make money?  So we should be happy when you make big bucks because we make little bucks and won't have to bail you out for big bucks.  I get it.  We should hope that your proprietary trading computer that your company argued could "manipulate the market" makes lots of money in the stock market.  Because after all, what's good for Goldman is good for America right?

Some of our best and brightest go to Ivy league schools to do what?  They graduate and want to be Lawyers, Politicans, and Bankers.  Are they creating wealth and "helping people" or are they fighting for it?  Are they making the economic pie bigger or are they trying to take a nice big slice for themselves?