The Recovery that Wasn’t
By Jamal R. Greene
WHERE ARE THE JOBS MR. PRESIDENT
Mr. President, I think it’s time for a tutorial in Business and Economics. During the 2008 Presidential campaign, then Senator Obama, promised to repair the American economy, create millions of new jobs, fix the healthcare system, control spending, and cut the national debt. While sitting down for a serious policy interview, with Oprah (it’s come to this), the President was asked to give himself a grade for his handling of the Presidency; the President gives himself a B. Isn’t a rule of thumb not to grade one’s self? Nevertheless, most Americans, and I’m included in that number, wouldn’t give the President a B; heck he wouldn’t even get a passing grade. The President deserves a “D-“, and I’ll explain why it is not an “F” later.
For a few weeks, the story line in most mainstream media outlets was: The US Economy is in Recovery, a slow Recovery but still a Recovery. Unfortunately my fellow Americans this assumption couldn’t be further from the Truth. Last month’s jobs report, the underlying problems with home values, sky rocketing debt, low consumer and investor confidence, and Washington’s hostile business environment all give me cause to pause on the so called Recovery.
Looking at the real barometer of an economic recovery, Employment, or in this case unemployment, the US department of Labor has reported truly disheartening statistics. For the month of December the US Economy shed 85,000 jobs and the national unemployment rate remained at 10%. One of the odd things about this report is that most economist, and I’m sure the Obama Administration, were not expecting such a dismal analysis; many of them are still under the delusion that the $787 billion so called stimulus bill actually accomplished anything good. As bad as the numbers were reported by the government, they still paint a rosier picture than reality. In reality, the job crisis is far from over and this jobs report shows that on Main Street, where it counts, the recession is far from over. The Obama administration and its media allies continue to report on the unemployment figure of 10%, while ignoring the reality that the true unemployment figure is much higher. According to the report some 661,000 people left the workforce last month; these are not people who retired, these are people who have given up hope in finding a new job. Now that these 600,000 plus people are no longer looking for employment or reporting to the unemployment system, they are no longer counted. Let me say that again. Those 661,000 people who left the workforce due to the lack of opportunities are no longer being counted by the government in the unemployment figures. If these unemployed people were counted the national unemployment rate would have risen last month to 10.4%, instead of remaining at 10. The most alarming of the report was that the real unemployment rate, this is the number of unemployed plus the number of underemployed, which stands at 17.3%, up from 17.2% the previous month. Even so, the 17.3% real unemployment figure still does not take into account the 661,000 who left the workforce last month. When those people are counted the Real Unemployment rate is actually around 22%.
Back in January of 2009, President Obama and his administration claimed that the massive stimulus bill they were preparing to pass would “save or created” over 3 million jobs and that the unemployment rate would not rise above 8%. I regretfully report to the President that his plan has not succeeded. As stated earlier, the Real unemployment rate in this country stands at nearly 22%, while government statistics report the figure at 10%. Either way, both figures are higher than what that President and his team promised it would be. The president promised to create millions of jobs, but since passing his stimulus bill the United States has lost more than 3.5 million jobs. This President and this congress haven’t the slightest idea on how to create jobs in the private economy, most likely because none of them ever had to. Well for the President and his brilliant team of economic advisors, this is how jobs are created. A steady and productive economic climate is fundamental for job creation in America. Businesses and individuals are not going to invest in new business ventures when they have to deal with a federal government that is doing everything in its power to suppress growth. If you want to promote job creation, lower both personal and corporate income taxes so that people have more disposable income to save and invest. When businesses are able to keep more of the revenue they generate, the business can expand, and when business expands it hires more workers. More people working equals more tax revenue to the government.
Unfortunately the political leaders of the day, specifically the liberal ones, still chose to follow the broken economic practices of the past. Our government is lead today by those who believe in the failed economic policies of economists John Maynard Keynes. Keynes believed that the government could stimulate economic growth and job creation through spending massive amounts of money, mostly borrowed, on infrastructure and public works projects and this would somehow “jump start” the economy. This theory has been proven folly time and time again but for the sake of those unfamiliar, I’ll do it again. The problem with this theory, called Keynesianism, is that in order for the government to spend money via a “stimulus”, it first must take it out of the private economy through taxation, borrowing, or inflating the money supply. Remember, the government operates on the money tax payers pay into the treasury every year. Keynesianism is basically robbing Peter to pay Paul. The Obama administration has chosen to borrow and tax to pay for its reckless spending. During his first year, the President shattered all previous spending records for past Presidents spending an astonishing $3.5 trillion dollars with a $1.4 trillion dollar budget deficit that followed. The United States, because of the massive amounts of spending under Obama, is now projected to run Trillion dollar deficits for years to come and this is not an amount of debt any nation can sustain. Because of the massive spending, initiated by the Bush Administration, and kicked into overdrive by the Obama administration, the value of the US dollar has been put in serious jeopardy as the world’s reserve currency. When a country expands its money supply without demand first coming from the free market for those new dollars, we experience inflation. This occurs when we have too many dollars chasing too few goods; this also results in higher consumer prices. At present, the US dollar stands as the sole currency in which oil is traded on world markets and when our dollar is weak, the price of oil rises. For months there have been calls by foreign governments, most notably the Chinese and Russians, for a new world reserve currency; to abandon the US dollar. Our foreign investors and debt holders are becoming ever more alarmed at the levels of US debt and the amount of red ink already on our books. There is even talk about the US losing its AAA credit rating; this would not be a good thing. The Obama administration campaigned on a promise of no new taxes on the middle class but just recently endorsed a plan to tax the healthcare benefits of middle class to pay for his Health plan. The Obama administration also plans to raise taxes on Energy, causing energy prices for consumers to skyrocket. They plan to levy heavy taxes on corporations and small businesses, which of course is a backwards policy since businesses are the job creators in America. The Obama administration plans to increases taxes on capital gains from investments at a time when they should be cutting taxes to encourage investment. After all, businesses need people to invest capital in order for them to grow and then in turn create jobs. The President and his policies will not create the prosperity he has promised; if his policies don’t change soon I’m afraid he’ll be remembered as the President that Triple the nation’s debt and saw national unemployment rise to the levels not seen since the Great Depression.
THE HOUSING MARKET MUST BE ALLOW TO BOTTOM OUT
The root of the financial crisis that erupted in the fall of 2007 was the bursting of the housing market bubble; after the bubble burst it bleed over into the financial markets causing the US Economy to seriously hemorrhage. But how did we get here? In short, it wasn’t the “policies of George W Bush”, as democrats and certain media outlets would have the American people believe. The creation of the bubble and the resulting burst were both planned and orchestrated by the Federal Reserve Bank. For those who don’t know what the FED is, in short it is America’s central bank. It is not a government owed entity as many think; the Federal Reserve is a private bank that controls the nation’s money supply through its monetary policies. The Federal Reserve regulates and controls the money supply, and therefore large sectors of the Economy, by controlling interest rates. The two key rates the FED regulates are the Federal Funds Rate and the Discount rate; these are the rates that banks charge one another to borrow money. When the Federal Reserve raises interest rates banks borrow less because it is more expensive. When banks borrow less and save more it decreases the nation’s money supply. When the Fed lowers interest rates banks borrow more and when banks borrow more they lend more to consumers. In order to attract consumers, banks lower their rates and qualifications for credit and as consumers borrow more the nation’s money supply expands. The Federal Reserve, back in 2001, begins to lower interest rates at a dramatic pace to curve that year’s recession and the economic aftershocks of 9/11. In what they claimed was an effort to strengthen the economy, the Fed kept interest rates at historic lows for years causing banks to have a massive amount of credit to lend. The banks, with the full knowledge of the Federal Reserve, devised a way to pull the US out of its recession; they decided to create a housing boom. Banks begin to encourage non-prime or sub-prime level borrowers to apply for risky sup-prime and adjustable rate mortgages with the added carrots of low to no down payments. This caused home sales to soar resulting in the intended boom and other sectors of the economy soon begin to benefit from the nations new source of wealth. The crises in the housing market begin when the Federal Reserve, seeing signs that the economy was starting to overcook, begin to raise interest rates. During this time those individuals in sub-prime and Adjustable Rate Mortgages saw the interest rates on their mortgages balloon; leaving many with mortgages they could no longer afford. Many of these sub-prime mortgages securities were sold, sliced and dice, repackaged, and then re-sold. Let’s just say that this created many situations where many investors own a single mortgage. When borrowers begin to default on their loans and home foreclosures rose, the mortgage securities banks and investors were holding became worthless and trillions of dollars were eventually lost.
In order for the Housing market to heal, the government must allow the market to correct itself by allowing housing prices to continue to fall and then bottom out. The Current, and Previous, Administration has sought to do the exact opposite. They have appropriated billions of dollars to help homeowners in default stay in their homes. History has shown us over and over again that government intervention helps exacerbate a problem, not fix it. After the so called “Housing market bailouts”, more than half of delinquent homeowners whose mortgages were modified ended up re-defaulting within six months. Home prices are still artificially to high and as a result existing home sales are down; people are not buying because prices are too high for them to risk an investment in this still shaky market. Mr. President and Fed Chairman, reflating the housing bubble is not the answer; it’s how we got in this mess in the first place.
Finally Mr. President, the nation’s debt, for years, has been spiraling out of control, and since you’ve enter office a year ago you’ve added upwards of $1.7 Trillion to the debt with economic forecasters predicting you will more than double the national debt to more than $20 Trillion. When accounting for the outstanding promised benefits from Social Security, Medicare, and Medicaid, the US is on the hook for an astounding $56 Trillion, $56 Trillion that we don’t have. Mr. President you shouldn’t be trying to create another entitlement program when the 3 largest currently operating are in serious crisis and due to go bankrupt in the coming years. There are simple and free solutions, market solutions, to address the high cost of healthcare. Allowing individuals to buy health insurance across state lines would dramatically increase competition among the 1300 insurance companies across American and drive down cost. Medical malpractice reform, or Tort reform, would bring down the cost doctors charge patients since they would no longer need to carry expensive malpractice insurance to protect themselves from frivolous lawsuits. The President could also move to reform our 3rd party payer medical system and encourage individuals to purchase insurance directly from insurance companies instead of going through the employer, which would be cheaper since employers add fees to healthcare cost. Health services can be delivered to low income individuals at a fraction of what Obamacare would cost through the expansion of free clinics to treat everyday illnesses, and providing tax credits to help low income individuals purchase policies. So why not give the President an “F” on his job performance? Because he hasn’t sunken the country into complete depression, and I suspect he won’t be able too. However, Americans should not be overly optimistic about America’s economic recovery in the near future. It’s possible that the Trillions of dollars the government and the Fed are pouring into the economy will cause a slight bounce in our fortunes, but if it occurs, it’ll be short lived, and we will be headed for a “double dip recession”.
for more of Jamal visit facebook.com/JamalGreene
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