WASHINGTON (MarketWatch) -- The unemployment rate is expected to rise to 8.5% by the end of next year and inch even higher in early 2010, economists for Goldman Sachs wrote Friday. The cumulative trough-to-peak increase of more than 4 percentage points in the jobless rate would be the most since World War II, they said. [Snip]Paul Krugman pointed out Friday:
"We do not see a resumption of anything close to trend growth before 2010."
Gurk! ZIRP!Add to that the new bank failures announced yesterday
That’s Zero Interest Rate Policy — which is now, in the wake of this morning’s terrible employment report, inevitable. Yes, we’re Japan.
Add to this the news of a retail sales collapse, and we’re looking grim, grim, grim.
Monetary policy obviously isn’t enough. It’s time to raise Keynes: we need big fiscal stimulus, now now now. [Snip]
The unemployment rate has now risen more than 2 percentage points from its pre-recession low. In 1990-1992 the unemployment rate rose 2.6 percentage points. Given what’s happening to retail sales, manufacturing, and so on, it’s now a certainty that unemployment has a lot further to rise. So the “worst recession in 25 years” thing is now baked in. The only question is whether we hit “worst slump since the Great Depression” territory.
Add also Freedom Bank, Bradenton, FL which failed October 31 and Alpha Bank & Trust, Alpharetta, GA which was closed by the FDIC October 24th, and the total for 2008 on the FDIC failed bank list is 19 banks.
There will be more as the economy worsens.
One other thing to consider. When the economists imply that the economy will turn around in 2010, they are basing that on historical trends, not on any current indicators. But this is already a Recession for which the only appropriate historical trend is the Great Depression. Economists now know this one will get worse all next year. They are guessing when they mention when the Recession will be over. There are no indicators telling when recovery will start.
So how long will the recession last? No one knows. All the
Addendum 11/9/08 3:25 pm
Robert Reich provides a good explanation of what is happening to the economy.
The real problem is on the demand side of the economy.Lowering the interest rate and expanding the money supply can do no more than it already has. What is needed is stimulus, and the only player that can do that is government. That means the federal government has to spend borrowed money - a lot of it. Only after that is done will the economy begin to turn around.
Consumers won't or can't borrow because they're at the end of their ropes. Their incomes are dropping (one of the most sobering statistics in Friday's jobs report was the continued erosion of real median earnings), they're deeply in debt, and they're afraid of losing their jobs.
Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation's economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.
I is investment. Absent consumer spending, businesses are not going to invest.
Exports won't help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners -- as well as Americans -- put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)
That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won't work if there's inadequate demand.
So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?
The answer to the first question is "a lot." Given the magnitude of the mess and the amount of underutilized capacity in the economy-- people who are or will soon be unemployed, those who are underemployed, factories shuttered, offices empty, trucks and containers idled -- government may have to spend $600 or $700 billion next year to reverse the downward cycle we're in.
The answer to the second question is mostly "infrastructure" -- repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)
Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.
And, yes, that is pure Keynesian economics.
2 comments:
Despite all the recent unemployment stats, I see thousands of high paying jobs posted on employment sites -
www.linkedin.com (networking)
www.indeed.com (aggregated listings)
www.realmatch.com (matches you to high end jobs)
Good look to those looking for work!
The problem is that macro-economically those high end jobs are too few to keep consumption high. They are also posted because the employers have not found qualified employees to fill them.
My concern here with the unemployment statistics is to evaluate macro-economic consumption. As more workers become unemployed, producers sell fewer goods and services and lay off workers. The workers laid off are not (at first) the high paid employees whose jobs you are looking at, but their unemployment will reduce the total gross domestic product because there are fewer consumers to purchase the goods and services produced.
An individual wants to find a better paying job, and even in the worst economic conditions some find those jobs. My dad was never unemployed through the Great Depression. The total economy, however, wants everyone at all levels of pay working and buying goods and services. The failure of the economy in general to provide a job to everyone who wants to work means the economy is not functioning well.
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