The President and his economic team have claimed that the plan is working as intended, that they’re on track to save the original goal of 3.6 million jobs, but somehow, despite practically drowning in success, we’re going to have to live with high unemployment for years to come. Oh, and that everything is still Bush’s fault.
These claims have been debunked by a variety of sources, including the AP (and here), the Chicago Tribune, the Denver Post, USA Today, the Wall Street Journal, and blogs such as Political Math (H/T d3ft punk).
But forget the quantitative treatment for a moment and consider what the Obama team’s graph said on a qualitative level. The graph says that within a couple of quarters, the stimulus package will stop the increase in unemployment and reverse the employment trend. That was the real mission of the stimulus. Stop job loss. Get the private sector hiring again.
So no matter how convoluted and fanciful the “jobs created or saved” numbers get, we just have to remember what the point used to be, and realize how far short we’ve fallen. And whose fault that really is.
The link ain’t right:
[url=http://michaelscomments.wordpress.com/2009/11/06/october-job-losses-accelerate-again-10-2/]Go here[/url]
The blame game is always amusing. Much of the current mess really is the fault of the appalling policies of the Bush era. But Mr. Obama has been in office for almost a year. He was elected on a platform of change. We were repeatedly warned that if we voted for John McCain we would end up with George Bush’s third term. Yet I see no change broadly speaking.
Thus far President Obama’s fiscal policies appear to be essentially the same as his predecessors, which is to say borrow and spend. The only differences being what they are squandering the money on and the scale of deficit spending, which thus far is much greater than Mr. Bush’s record (which was appalling).
Every administration going back to at least the Johnson Administration has tried to cook the books in ways to make the statistics look less grim than they in fact are. If we calculate unemployment accurately, counting those working part time who can not get full time work, and those who have fallen through the cracks or out of the system because they are no longer eligible for benefits, then unemployment is near 18% not the 10.2% quoted by the Department of Labor.
Similarly if you calculate inflation accurately by counting things besides consumer goods (CPI) we do not have a deflation problem now. True inflation is between two and three percent and climbing. The tip of the inflation iceberg can also be seen in the recent movements in the financial markets where you have the bizarre scene of equities, bonds and commodities all rising over a prolonged period of time in tandem with each other. This is due to the ocean of liquidity being created by the FED (and every other central bank in the world) as governments are literally tripping over each other in a mad rush to debase their currencies. All of this money is looking for a place to go. The consumer markets are thus far not much affected because most consumers are either unemployed or paying down debt (one of the few economic bright spots out there). But that ocean of newly printed money is piling up. And the laws of inertia suggest at some point it will start to move.
When that occurs we could see a monetary tsunami with severe inflation.
#2 Well said! A thoughtful and concise look at our current situation with a realistic, non-partisan look at the current and past administration. NW Bob is impressed.
#2 A. O. – Seems right on to me too!
I’m not very knowledgeable about high finance, so maybe you or somebody else can educate me. But this is what I’ve been thinking, however naive.
I’ve suspected that inflation was going to be the favored way out of the debt crisis. From one point of view, as long as the inflation isn’t hyper, there are some benefits to those who have some money. From their perspective, as long as the return on investment is greater than the inflation rate, what does it matter?
Also, it seems that debt service gets easier with inflation (if you are otherwise making money). I’m not sure what the effect is on entitlement programs. Social Security payments would be worth less (assuming modifying COLA), but the effect on Medicare and Medicaid (and then the pharm. and medicine industry)? – not sure.
The people who are really hurt are those on fixed incomes, and workers without genuine home equity, investments, or savings (I mean mostly those who rent apartments, borrow for cars and consumer goods). But, I wonder if younger workers might not be enticed to lower overall expectations in return for government medical care and jobs. Which leads me to finally . . .
ask if the percentage of total public spending isn’t more relevant to the discussion than continuing a worn and polarized conservative vs. liberal fight over income taxes and entitlement programs. In a way, what’s the difference between highways, schools, police departments and social security? It’s all public spending. I’ve read that we’ve (U.S.) gone from 35% to 45% of GDP in five years. This seems to fit comfortably with the White House mood since Europe (obviously more advanced) is over 50% on public spending. Considering the loss of jobs here in the private sector, I wonder if raising public spending and printing more money (to create inflation) isn’t the actual plan? As in, “That’s not a bug, it’s a feature.”
[blockquote]From one point of view, as long as the inflation isn’t hyper, there are some benefits to those who have some money. From their perspective, as long as the return on investment is greater than the inflation rate, what does it matter?[/blockquote]
Inflation is never good news for “those who have some money”. It means that that money grows less valuable every day. Usually interest rates are tied to anticipated inflation. So if I were to loan you $1,000 and anticipated a 5% inflation, I would set the basic interest rate at above 5% before I started figuring in risk and what I deem a reasonable profit. The FED is keeping interest rates down to stimulate the economy. But when recovery takes hold (and inflation) they well raise interest rates and tighten the money supply. Or at least they had better do so. That was part of the credit crisis of 2008–the FED was keeping interest rates arbitrarily low when they should have been raising them.
[blockquote]The people who are really hurt are those on fixed incomes, and workers without genuine home equity, investments, or savings (I mean mostly those who rent apartments, borrow for cars and consumer goods). [/blockquote]
This is a mixed bag. Yes, folks whose income is largely in the form of annuities and defined benefit pensions (assuming they are not linked to COLAs) are generally hurt by inflation, because their income buys less each year. And, unlike “younger folks”, they cannot anticipate paying off debt with inflated dollars. But currently those who have bond investments and savings are being hurt because of the low interest rates. Interest earnings on bonds, certificates of deposit, money market funds and passbook savings are being hurt because the dividends are extremely low. (I suspect that pension funds and annuity insurance companys are hurting because of the low return on their investments.)
[blockquote] In a way, what’s the difference between highways, schools, police departments and social security? It’s all public spending. I’ve read that we’ve (U.S.) gone from 35% to 45% of GDP in five years. This seems to fit comfortably with the White House mood since Europe (obviously more advanced) is over 50% on public spending. Considering the loss of jobs here in the private sector, I wonder if raising public spending and printing more money (to create inflation) isn’t the actual plan? As in, “That’s not a bug, it’s a feature.†[/blockquote]
Well, in theory the government should increase the money supply (which is what the FED is doing), increase spending (which Congress is doing) and reduce taxes (which should be the next step) in a recession. When the economy is growing the FED should reduce the money supply (which is what it failed to do in the boom leading up to 2008), Congress should reduce spending (which it failed to do in the same period) and raise taxes (which it failed to do in the same period). That tends to limit inflation, reduce debt, slow unhealthy growth and limit large corporate mergers and buyouts.
AnglicanCasuist,
I thin your suspicions are on the money. Debasing the currency is historically the way nations that find find themselves too heavily in debt default without admitting it. They simply print more money. In the old days when money was still made of gold or silver they debased their coinage.
Debtors (who are fortunate enough to be employed) are the one class of people who will benefit from inflation. I suspect the FED is hoping for a modertae inflation in the mid to high single digits that they think they can control. If history is a guide however this hope is forlorn.
For the foreseeable future I strongly encourage people to be conservative in their investments, keeping one on the danger of inflation. The actual large scale appearance of inflation could be several years away in the consumer sector. But I believe it is coming.
Buy equities (they tend to rise with inflation) especially natural resource stocks which should do well. Buy commodities including copper aggro products, precious metals (gold and silver) and foreign securities (non US Dollar denominated stocks and bonds). Limit your exposure to fixed income securities like bonds or any kind of annuities unless they are short term.
My own IRA is heavily invested in the Permanent Portfolio Fund (PRPFX).
In ICXC
John
Incidentally, economists (and not just those on the left) are talking about another stimulus bill perhaps more targeted to job creation. One interesting idea is the temporary suspension of payroll taxes, which would make jobs more affordable to businesses.
Of course, Social Security and Medicare would take a big hit.
And one might wonder the psychology. If because of the [b]temporary[/b] reduction in payroll taxes a business is able to employ 5 employees instead of 4, will they actually keep/hire the 5th employee in the expectation that when the temporary savings ended they would see a big jump in payroll costs?
What on earth are any of you talking about? Obviously the correct thing to do is to do more stimulus, more bailouts, and institute cap and trade and our New Glorious Healthcare Package!
It’s obvious that the government simply Hasn’t Done Enough. They need to do more of what they have done in the past year — more stimulus packages and maybe bail out the newspapers that are failing, [which failures are due entirely to the ghastly economy inflicted on us by past regimes.]
#8 Sarah,
In #2 I was really trying to find out if my suspicions are right that the administration intends to encourage the permanent increase of public spending and some degree of inflation. Septuagenarian seems to think these are temporary measures until the economy improves. We have lost manufacturing as a source of jobs, so jobs funded by public spending seems a likely alternative. Maybe you could turn the sarcasm off just long enough to say
1. Whether this is actually the plan and
2. What the outcome will be if it is pursued.
I have no desire to turn our country into something like a European economy, I’m really just trying to understand what’s going on.
6. Ad Orientem wrote:
[blockquote]Buy equities (they tend to rise with inflation) especially natural resource stocks which should do well. Buy commodities including copper aggro products, precious metals (gold and silver) and foreign securities (non US Dollar denominated stocks and bonds). Limit your exposure to fixed income securities like bonds or any kind of annuities unless they are short term.
My own IRA is heavily invested in the Permanent Portfolio Fund (PRPFX).[/blockquote]
Commodities, like equities (i.e., stock) are pretty volatile. Gold has swung pretty much the same as the Dow. If you recall, oil was nearly $150 a few months back, fell to $30 in short order and now is around $70 the last time I looked.
Permanent Portfolio Fund (PRPFX) has a pretty high expense ratio and turnover and consequent exposure to capital gains taxes. Morningstar says it is ” a decent choice for keeping up with inflation, but better options exist.” Among those suggested are TIPS.
What one’s IRA portfolio should look like depends on a lot of factors such as how long to retirement, when you expect to draw from it and how much, and the other retirement income you anticipate and its nature. My own is pretty aggressive for someone my age; but then 25% of my retirement income is “fixed” (no COLA), only 16% has a built-in COLA. Half is “fixed” although sometimes the legislature or the Church Pension Fund sees fit do make a COLA. (The last time the legislature did so was in 2001.) So the IRA has to grow to keep up with inflation. The “conservative” part simply reflects the RMD for the next few years–that is when equities tank, I simply am taking less money out of the money market fund, which is replenished from a less volatile bond fund, which in turn are replenished from a more volatile balanced funds using averaging (i.e., exchanges are done on the 15th of each month regardless of the markets, so sometimes I’m selling high and other times low and buying low or high).
And yes, AnglicanCasuist, most economists assume some inflation and some unemployment. Zero percent of either is unlikely. And probably more folks would suffer with deflation than suffer with inflation.
Re # 10
Septuagenarian,
Gold has been rising steadily for the last eight years. All forms of investment are of course subject to some short term volatility. I am not a trader however and I invest with a long term horizon. Equities are definitely volatile. That’s why I follow the advice of Harry Browne and limit my exposure to them. I also favor index funds or mutual funds like PRPFX as opposed to owning individual stocks .
With respect the PRPFX, I think I would have to disagree about its expenses. These were at one time rather steep. But have come down quite a bit in the last couple of years. They are now a little over .8% which is pretty reasonable for a 5 star mutual fund. I personally don’t buy funds with expenses over 1%.
If the expenses are an issue its relatively easy to create your own Permanent Portfolio. Harry’s rules are designed for simplicity.
25% in equities (He recommended a broad based index fund. VTWSX is about as broad based as you can get.)
25% in ultra conservative bonds. You can either buy and hold your own or go in through a conservative bond fund. I like HSTRX.
25% in cash or a near equivalent
25% in precious metals. He favored owning actual bullion or gold coins over mining stocks or what he called “paper gold.” That said for those who are not comfortable with the owning physical gold there are some good ETFs (GLD or its silver counterpart SLV) .
Just review quarterly and rebalance anytime there is a 10% deviation in any asset class. The concept of permanent portfolio has been back tested to 1973 and held up quite well. PRPFX also has a good track record with only four down years in 27. 2008 was down a little over 8% in the worst year for the financial markets since the early years of the Great Depression. Even after last year’s collapse the fnd still held up an annualized return of around 7% for the last ten years where as the S&P lost all of its gains from 1996.
All of the above of course is not universal advice. One needs to consider one’s risk tolerance and objectives. Harry himself did not intend the Permanent Portfolio to be what everyone should use. Rather it was an investment strategy for that part of your funds that you have a low risk tolerance for.
If your sole concern is inflation than I would agree that there are better choices. PRPFX is not designed as an anti-inflation fund. It is designed as an all weather fund. By its very nature it will under-perform any sector or asset class experiencing a strong and prolonged bull market. It is designed first and foremost to limit downside in any economic weather and secondly to provide a decent return over the long term. Its record has shown that it does this very well. But this is a fund for people who understand that predicting the future is a high risk game and who want at least some of their money in a safe place. Those who are prepared to make big bets on what they see coming down the road would definitely be better off looking elsewhere.
With respect to TIPS; I am not a fan. I would label them the best house in a bad neighborhood. My main beef with TIPS is that their return is based on CPI. And the same people who measure CPI are the ones telling us we have a 10.2% unemployment rate when in fact it is about 17.5%. The government is notorious when it comes to cooking the books to their advantage. I will pass on TIPS although I will say that anyone who feels drawn to US bonds will find them the best choice. Those seeking some bond protection from inflation might do better to consider spicing up their portfolio with diverse selection of foreign bonds, or a foreign bond fund.
11. Ad Orientem wrote:
[blockquote]Gold has been rising steadily for the last eight years.[/blockquote]
Wrong. Gold price fluctuation looks pretty much like a Dow chart. [url=http://www.goldprice.org/gold-price-history.html#10_year_gold_price]Gold Price History[/url]
Last year when stocks fell, gold fell around 30%. The drop early this year in stocks was paralleled by a drop in gold prices. Yes, gold has steadily risen long term; so have stocks. [url=http://stockcharts.com/charts/historical/djia1900.html]Dow History[/url]
[blockquote]With respect the PRPFX, I think I would have to disagree about its expenses. These were at one time rather steep. But have come down quite a bit in the last couple of years. They are now a little over .8% which is pretty reasonable for a 5 star mutual fund. I personally don’t buy funds with expenses over 1%. [/blockquote]
I regard “a little over 0.8%” as expensive. So does Morningstar. For example, my IRA portfolio has Vanguard Balanced Index Admiral (VBIAX)–0.11%, Vanguard Total Stock Index (VTSMX)–0.16%, Vanguard Total Bond Index (VBINX)–0.20% and Vanguard Total International Stock Index (VGTSX)–0.03%. Of course, index funds always have a lower expense ratio than managed funds because (a) you aren’t paying for a fancy manager and (b) the manager isn’t always churning in order to produce a higher return. And, over the long term, indexed funds perform as well as, if not better than, managed funds.
My general thought is that this is not a good time to be buying stocks or gold, although as part of an employed persons 401(k) or IRA regular investment plan which “averages” buying price it makes sense. Both are overpriced at the moment. The time to have been buying was back in February-March when there were bargains.
I definitely am not enchanted with gold. It is as volatile as stock and doesn’t pay dividends like stocks and bonds.