Friday, August 5, 2011

They say the bites aren't fatal

The Dow blue chip stocks managed to recover from bad numbers in the morning to finish up 60 points but this was one of the few indexes to do so, the S&P and Nasdaq ended down. There was a 400 point swing in the Dow before and after the European Central Bank said it would intervene as necessary in Ireland, Portugal and maybe Spain. Italy has called a meeting of the G-7 countries to resolve the “debt” crisis. Italy’s bond interest rate has gotten really out of hand as Wall Street bond predators circle for the kill.  This mess could kill the Euro for no other reason than the existence of criminal bankers on Wall Street and in London.

Most commodities were up at the close and Treasury interest rates reflected a sigh of relief with interest edging up slightly as people aren’t moving as much cash there. Treasury interest rates are still incredibly low and this puts the lie to right wing claims that there is a debt crisis. Ninety day T-bills only pay 0.0076% and 10 year bonds, that are the basis for mortgage interest rates, are only paying 2.4%.

The unemployment rate ticked down one tenth with the creation of 153,000 private sector jobs in July but minus 36,000 government workers slashed in red states gave a net gain of only 117,000. I actually saw a business article that called this the “conservative recovery” since private sector jobs are increasing as government shrinks. I thought this was the “socialist Obama’s economic disaster“? It’s being said that half of the government layoffs were from the Minnesota hostage taking by Republicans and should show up as new jobs next month as the Democratic governor in Minnesota gave in to the needs of the rich and threw the middleclass under the bus

In fact you can’t call this a recovery at all, since we need a quarter million jobs every month just to keep up with the population growth. To be fair to Obama he has had 18 straight months of job growth, however anemic. Bush managed to have 8 years with no net gain in jobs, when he should have added 24 million. That happens to be how many people that are unemployed or underemployed.

Those really bad job numbers for May and June have been revised showing we gained 54,000 more jobs than we thought. The average length of unemployment has however reached 41 weeks, and this is a number never seen before. Even during the post WWII years when there were millions out of work as the economy transitioned to peace we didn‘t see anything like this and they thought things were so bad they elected Republicans to undo the New Deal. In 1947 with Republicans in veto proof control of Congress they attempted to restart the Depression, and even then the time on unemployment was still only a small fraction of what Republicans have achieved this time.

The deliberate attempt to drive down wages by the major corporations is reflected in the high weekly initial unemployment claims still hovering around 400,000. This is considered the “new normal” break even point even though this is half again what was normal in the pre-Bush Crash economy.

Family income was up slightly in June suggesting that wages maybe improving. Unfortunately increased savings more than ate up the extra income which isn’t good for the economy. This is the curse of recessions, the virtue of saving is actually a bad thing. This is why the most effective tool for economic stimulus is to give more money to the people on the bottom rung who can be counted on to spend it. The worst thing you can do is give it to people at the top who not only won’t spend it, they don’t even invest it, but will pay a bank just to keep it for them in cash. Major banks are now charging multi million dollar depositors to hold cash for them. Small depositors still get a token interest payment, it’s like getting a mint on the pillow at the hotel with the bed bugs.