Geithner Says U.s. Unemployment May Rise Again Before Declining

[interestrateripoff]

http://www.bloomberg.com/news/2010-08-03/geithner-says-unemployment-may-rise-again-economy-recovering-too-slowly.html

Treasury Secretary Timothy F. Geithner said U.S. unemployment may rise again before it falls and the economy isn’t recovering rapidly enough.

“It’s possible you’re going to have a couple months where it goes up,” he said on ABC’s “Good Morning America” program. “People start to come back into the labor force, and that can cause the measured unemployment rate to go up temporarily.”

The U.S. economy grew at a slower-than-expected 2.4 percent pace in the second quarter as consumer spending slowed, according to Commerce Department data. Companies probably added about 90,000 jobs in July, according to the median estimate in a Bloomberg News survey before the Labor Department’s Aug. 6 employment report. The jobless rate is forecast to rise to 9.6 percent from 9.5 percent.

Geithner said he expects the economy to heal gradually and “we want to do what we can to reinforce that process because it’s not coming back as quickly as we like.”

The Treasury secretary reiterated the Obama administration’s position that tax cuts passed under former President George W. Bush shouldn’t be extended for the wealthiest Americans.

This seems to confirm what Bernanke was saying last year that the US needs growth at around 2.5% to create jobs.

Still the banks are making money so the global economy is fine.

Viva recovery.

Edited August 4, 2010 by interestrateripoff

[interestrateripoff]

http://globaleconomicanalysis.blogspot.com/2010/08/boomer-dynamics-housing-jobs-creation.html

Geithner's Disingenuous Statements

When Geithner says "“People start to come back into the labor force, and that can cause the measured unemployment rate to go up temporarily” he is talking about the Participation Rate (the percentage of the working-age population who are currently employed or are actively seeking work).

The theory Geithner is using is that in a recovery, people who were not in the work force start looking for jobs. Those actively looking for jobs are considered unemployed.

The reality is that were it not for a huge decline in the participation rate (deep into an alleged "recovery"), the unemployment rate would far higher.

Indeed, the unemployment rate dropped in 2010 only because people gave up looking for jobs as unemployment benefits expired.

More of Mish's take at the link.

[interestrateripoff]

http://market-ticker.org/archives/2553-WTF-Is-Gaffner-Doing-Writing-OpEds.html

I mean, you can't possibly be serious...

The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery.

Really? A 2% annualized contraction year/over/year is "extraordinarily severe"? May I ask what you're smoking Turbo Timmy?

Oh, I don't have to. You're smoking the bone labeled "Debt-based Ponzi Leverage." And you're scared to death - because your little game isn't working, and you're also well-aware what's around the corner.

Now for the individual lies:

• Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months.

It has, eh? We need 150,000 jobs a month, more or less, to simply keep even with those who enter the world of work every year in our country. We have yet to print even ONE month of +150,000 permanent job additions - temporary census jobs do not count.

ADP's report is out and showed +42,000, well under the "necessary add rate" for balance in the economy. Challenger, on the other hand, posted the third straight monthly increase - in layoffs.

• Businesses have repaired their balance sheets and are now in a strong financial position to reinvest and grow.

That's a flat lie.

Notice anything? That nice puke-green colored line and the "hook" in it? Yes, that's never happened before. Those are the tangible assets (green) to debt (red). Oh yeah, the blue line has rebounded nicely - driven by the belief (false, I might add) that you can make that green line go back up to where it was and then some.

Oh, and as for stock prices, do they look justified (multiple-wise) compared to corporate assets and debt? Well, no, and in fact based on those numbers I'd argue quite persuasively that the March 2009 levels are roughly "fair value" for equities - that is, about half of where they are now in terms of the Indices!

Of course the problem is that equity rally or no, corporations have lost an honest-to-god 20% of their tangible book value but have taken down only 10% of their debt levels from the peak.

Strong financial position? Baloney.

• American families are saving more, paying down their debt and borrowing more responsibly. This has been a necessary adjustment because the borrow-and-spend path we were on wasn’t sustainable.

So how is it that you intend to hold the $14 trillion GDP up here if the borrow-and-spend path is unsustainable, and the excess spending beyond earnings has to remain gone?

• The auto industry is coming back, and the Big Three — Chrysler, Ford and General Motors — are now leaner, generating profits despite lower annual sales.

Temporary success by throwing tens of billions of dollars at something is easy. Long-term sustainability is another matter. Don't count that chicken before it's hatched. Oh, and while we're on the subject, GM wasn't exactly truthful about paying back the government in those ads it ran, was it?

• Major banks, forced by the stress tests to raise capital and open their books, are stronger and more competitive. Now, as businesses expand again, our banks are better positioned to finance growth.

So tell me, Turbo Timmy, what of the over $1 trillion dollars in off-balance sheet "stuff" at a couple of those large banks. Oh, that's each too, not in aggregate.

Chart and more of Denniger slowly building the pressure up in his head so it explodes at the link.

[interestrateripoff]

http://www.hedgehogs.net/pg/newsfeeds/keny/item/1171000/fed-retains-its-pledge-to-keep-interest-rates-low-for-an-extended-period

“With unemployment hanging around 9 percent, I don’t think there is much reason to raise rates,” Ian Morris , chief U.S. economist at HSBC Securities USA Inc. in New York, said before the decision. “You need about 2.5 to 3 percent GDP growth just to keep the unemployment rate stable around 10 percent.”

[interestrateripoff]

http://globaleconomicanalysis.blogspot.com/2009/08/dismal-unemployment-situation-in-chart.html

http://www.reuters.com/article/businessNews/idUSTRE56Q00O20090727?feedType=RSS&feedName=businessNews

"It takes GDP growth of about 2.5 percent to keep the jobless rate constant. But the Fed expects growth of only about 1 percent in the last six months of the year. So that's not enough to bring down the unemployment rate."

Inquiring minds might be asking: Why does it take 2.5% growth to keep the jobless rate constant? The answer is the first 2.5%+- of GDP is based on hedonics and imputations. In plain English, the first 2.5%+- of GDP (if not much more) is fictional. When the economy is growing at 2% it feels like a recession because it probably is, even though no one will admit it.

Now consider the implications of a 2.4% GDP forecast for three decades.

If Bernanke is correct that it takes 2.5% GDP growth just to keep the unemployment rate constant, and McKinsey is also correct in its 2.4% forecast, we will be stuck with 10% unemployment for decades.

Finally found this link again, I got it stuck into my head it was 3.5%, but in fact Bernanke said it was 2.5%, so no wonder I couldn't find it!

[interestrateripoff]

http://www.investopedia.com/articles/06/gdpinflation.asp

The Slippery Slope

The relationship between inflation and economic output (GDP) plays out like a very delicate dance. For stock market investors, annual growth in the GDP is vital. If overall economic output is declining or merely holding steady, most companies will not be able to increase their profits, which is the primary driver of stock performance. However, too much GDP growth is also dangerous, as it will most likely come with an increase in inflation, which erodes stock market gains by making our money (and future corporate profits) less valuable. Most economists today agree that 2.5-3.5% GDP growth per year is the most that our economy can safely maintain without causing negative side effects. But where do these numbers come from? In order to answer that question, we need to bring a new variable, unemployment rate, into play. (For related reading, see Surveying The Employment Report.)

Studies have shown that over the past 20 years, annual GDP growth over 2.5% has caused a 0.5% drop in unemployment for every percentage point over 2.5%. It sounds like the perfect way to kill two birds with one stone - increase overall growth while lowering the unemployment rate, right? Unfortunately, however, this positive relationship starts to break down when employment gets very low, or near full employment. Extremely low unemployment rates have proved to be more costly than valuable, because an economy operating at near full employment will cause two important things to happen:

1. Aggregate demand for goods and services will increase faster than supply, causing prices to rise.

2. Companies will have to raise wages as a result of the tight labor market. This increase usually is passed on to consumers in the form of higher prices as the company looks to maximize profits. (To read more, see Cost-Push Versus Demand-Pull Inflation.)

Over time, the growth in GDP causes inflation, and inflation begets hyperinflation. Once this process is in place, it can quickly become a self-reinforcing feedback loop. This is because in a world where inflation is increasing, people will spend more money because they know that it will be less valuable in the future. This causes further increases in GDP in the short term, bringing about further price increases. Also, the effects of inflation are not linear; 10% inflation is much more than twice as harmful as 5% inflation. These are lessons that most advanced economies have learned through experience; in the U.S., you only need to go back about 30 years to find a prolonged period of high inflation, which was only remedied by going through a painful period of high unemployment and lost production as potential capacity sat idle.

"Say When"

So how much inflation is "too much"? Asking this question uncovers another big debate, one argued not only in the U.S,. but around the world by central bankers and economists alike. There are those who insist that advanced economies should aim to have 0% inflation, or in other words, stable prices. The general consensus, however, is that a little inflation is actually a good thing.

The biggest reason behind this argument in favor of inflation is the case of wages. In a healthy economy, sometimes market forces will require that companies reduce real wages, or wages after inflation. In a theoretical world, a 2% wage increase during a year with 4% inflation has the same net effect to the worker as a 2% wage reduction in periods of zero inflation. But out in the real world, nominal (actual dollar) wage cuts rarely occur because workers tend to refuse to accept wage cuts at any time. This is the primary reason that most economists today (including those in charge of U.S. monetary policy) agree that a small amount of inflation, about 1-2% a year, is more beneficial than detrimental to the economy.

[interestrateripoff]

http://www.freedompolitics.com/news/biden-1412-bankrupt-spending.html

July 17, 2009

Joe Biden never ceases to amaze. His latest claim is that the government's explosive spending is the only thing saving the government from bankruptcy.

From Fox News:

Vice President Biden defended the Obama administration's economic stimulus package Thursday by suggesting that without the federal government spending massive amounts of money to shore up the economy the country would go bankrupt.

"We're going to go bankrupt as a nation," Biden warned at an event in the backyard of the House's No. 2 Republican.

"People, when I say that, look at me and say, 'What are you talking about, Joe? You're telling me we have to go spend money to keep from going bankrupt?" he said. "The answer is yes."

Genius.

[Errol]

Presumably the number will rise be 1 when Geithner the monkey is fired.

[aa3]

This seems to confirm what Bernanke was saying last year that the US needs growth at around 2.5% to create jobs.

Still the banks are making money so the global economy is fine.

Viva recovery.

Probably about right. As automation/offshoring takes over the growth rate will have to get higher and higher to just maintain equilibrium in employment.