Where Things Stand & A Catch 22

Back in January of this year, I sort of took a look at where the country was, economically speaking. Now we're at the midpoint for 2010, so it's time to take another look. The Obama Administration likes to tout the fact that, during their first year in office, the economy "didn't fall off the cliff." Okay, I'll give them that, and I'll remind regular readers that I said prior to the 2008 election, that whoever won the presidency would probably end up being the loser, as the economic plunge and its aftermath would make life difficult for them, politically (not to count millions of Americans suffering the direct consequences).

So where's the economy now, going into the July Fourth weekend? The economy has gained more than a half million jobs so far this year, but that has to be put into the perspective that the "plunge" caused the loss of about 8 MILLION jobs! Now the unemployment rate sits at 9.5%, although counting people who are underemployed, it is in the upper teens.* The recent U.S. Census brought about "temporary" hiring, but many of those jobs are now over. The bad news is, private business hiring is slow, with only 83,000 hirings in June. The good news is, the "under employement" rate did take a good drop. The reason this "could" be good news is, employers will increase hours for current workers first, before they hire new workers. Let's hope! In fairness to the Obama Administration, the President and others in the administration have been saying from the first, that unemployment would be slow to fall. Some private economists have said it will take four or five YEARS to recover from the mess, and that estimate probably does not assume a major slowdown or even another period of negative growth in that time period. Now, my crystal ball is a bit cloudy today, but all is not well, and none of us should need a crystal ball to tell us that. The "oil spill" in the Gulf of Mexico has got to have an impact on employment in that area of the country, although I suppose some people have been hired in the clean-up effort. Even "if" they stop the leak this evening, the consequences will linger for some time, possibly years.

In other parts of the world, all is not "moonlight and roses," either. Europe has been in a separate (at least at this point) financial crisis of its own lately. Overspending by governments, presently most prominently by Greece, including "locked in" payments for a variety of benefits, have caused major financial problems, which in turn, have brought about attempts to rein in spending, which in turn has brought about civil unrest. All of this has been complicated by the economic down turn in the last couple of years, and from what I understand, from the purchase by some countries of securities marketed by American bankers. Yep! As Ronald Reagan would say, "There they go again!" This isn't gospel, but from what I understand at this time, that magnificent edifice of wealth, Goldman-Sachs, sold Greece (and other European countries) securities, often backed by ah.....American mortgages, including ....ah....subprime mortgages. "Supposedly," Goldman-Sachs told these governments what a great deal these securities were, but at the same time they were telling wealthy American clients to get out of these securities before they imploded. "Supposedly," Goldman-Sachs owned a large number of these securities, and its leaders were in the process of "dumping" as many of these securities as possible before the collapse came. C'mon now! American bankers do such a thing? Ah....all I can say is...."There they go again!"*** How much any of this will affect America's economy is unknown, although Fed Chairman Bernanke just recently said it wouldn't hurt us. Forget not, a few years ago it was said that the mortgage crisis wouldn't hurt the economy. Yeah, right!

Basic finance isn't rocket science. Look at it this way: You're employed and making decent money. You develop a lifestyle. You buy a house, so you have a mortgage. You buy a new car, and this adds another payment. You take a vacation, and you put all or a portion of the cost on your credit card, or cards; more payments. Then the economy gives away. Even if you keep your job, maybe you have your pay cut significantly.** You have these fixed payments. They haven't gone away. Something has to give. Even if you "save for a rainy day," if you actually lose your job, in an economy like now, that amount may not be enough.

Now, back to our economy. State and local government budgets, including for education, are in deep trouble. When the stimulus bill was passed about a year and a half ago, there was a certain amount of money that went to help state and local governments in an attempt to prevent layoffs from these entities. I guess, at least to some extent, it did help on that front, but now the "medicine" has been cut or stopped, and whether the patients can now get by on their own is very doubtful in my mind. California's budget has been a mess for years, and now they are really under the gun. Governor Schwarzenegger just issued an order reducing California employees' pay to minimum wage, because they are in a budget crisis. All over the country state and local governments are trying to bring revenues and expenditures into balance, but at great cost to many people, and to the overall economy. This whole situation could prove to be more than just a thorn in the side of the economy, but it may even cause a "double dip" recession. For the "free marketers," they'll say, "It will weed out unnecessary and inefficient programs," and there is a certain amount of truth to that.**** Of course, some also have argued that Uncle Sam should have just stood by and let nature take its course with the overall economy. Remember folks, those at the top don't worry about their next meal, or their child's next pair of shoes, or their kids' schooling. It is easy for them to make these "do nothing" arguments, and I understand that. What troubles me is that some middle class/working class folks seem to be on that same page.

If nothing had been done by Uncle Sam, and it certainly was NOT perfect, including the Federal Reserve, my guess is, many of these same folks would be wondering about those hardships I just mentioned above, because they would now either be unemployed or underemployed. I know many Americans, including this one, are concerned about the terrible budget deficit, and with good reason. That's one of the reasons the "winner" in 2008, may end up being the "loser." The Bush Era left the country in terrible debt,^ unable to properly finance an "anti depression/recession" package. So, the private credit bubble that so helped ravage the economy is now being combated by a trade off to public debt.^^ Not good, but something had to be done. The current administration is between a rock and a hard place, with trillions of dollars having been lost by the economy during the downturn.^^^ "Public" money has been borrowed to try to help make up for some of that lost money, but whether America is on the precipice of another downturn remains to be seen. The other day I heard on television that it is estimated 40% of our current budget deficit is due to the recession. So that means, if we don't get the economy growing more, that deficit can't be easily cut. On the other hand, the money needed to stimulate the economy is borrowed. What a "Catch 22!" (A Word History is below the notes)

* Underemployment essentially means that some workers still have jobs, so they aren't counted as unemployed, but they have had hours cut, or even gone to part time status.

** This might include no overtime, or you might not get bonuses, or you might even be put on part time.

*** In fairness, to my knowledge, all the facts have yet to be determined.

**** My guess is, most Americans don't want police and firefighters cut (and probably teachers), but in some cases it may be necessary.

^ The budget surpluses inherited by George W. Bush evaporated, and replaced by trillions in debt over his eight years in office. Neither the Iraq War nor the Afghan War was paid for, nor was the prescription drug benefit added to Medicare (thus further weakening that program, financially), on top of those things, tax cuts were given, with the bulk of those cuts going to upper income people, including many of those who got us into the current mess. As I've noted before, Bush was terribly worried about the "plight of billionaires and multi-millionaires."

^^ What I mean is, for instance, banks' bad (private) debts were taken over by the government in many cases, but the money given to the banks was not in the U.S. Treasury, but rather had to be borrowed (public debt). To be fair, some of those government loans have been paid back, with interest. Things aren't just limited to banks or car companies, but to all the other measures taken to try to stop the "plunge" that occurred. All of that money was borrowed by Uncle Sam.

WORD HISTORY: 

Three-This goes back to Indo European "trejes," which gave Old Germanic "thrijiz." This then was passed down to its Germanic descendants as: Old English "thri/thrie/threo," prior to our modern spelling, standard German has "drei," Low German dialect has "dree" and "drie," Dutch also has "drie," Swedish, Norwegian and Danish all have "tre," and Icelandic has "þrír," which is essentially the equivalent of "thrir."