Two news items caught my eye this week:
Greenspan Says Stimulus Isn’t Working
First, former Federal Reserve Chairman Alan Greenspan said that the fiscal stimulus has fallen far short of expectations. He said made his comments Wednesday morning at a gathering held at the Council on Foreign Relations, in New York.
As reported by the Wall Street Journal’s Real Time Economics blog, what he is advocating is less stimulus and more free market activity. “We have to find a way to simmer down the extent of activism that is going on” with government stimulus spending “and allow the economy to heal” itself, Greenspan said.
That’s interesting because there’s coffee klatch chatter about how the housing market just needs to crash and burn, so that (ostensibly) a new housing market can rise from the ashes, Phoenix-style.
But has anyone really thought through what that will mean, particularly for the housing industry? (That’s just what we need – more markets crashing, and wiping out what’s left of Main Street’s fortunes.)
Greenspan says that it’s looking less likely that we’ll have a double-dip recession (really???!!!) but he said that if housing prices decline further, then it’s more likely we’ll have a recession.
Well, guess what? If we let the housing market (as well as the other industry markets) crash and burn, housing prices are going to go down and foreclosures are going to go up. Why? Because we haven’t fixed the core problem – 15 million Americans (at least) are unemployed. The U-6, which is the broadest measure of unemployment, including those laid off, those who no longer qualify for benefits (the so-called 99ers), those who have thrown up their hands and quit their jobs and those who have given up to stay at home with their kids or gone back to school, that number is now at nearly 18 percent.
That’s a whole lot of people who are out of work. And, I don’t believe this number takes into account the millions of self-employed contractors (1099ers) who don’t have benefits are are earning a fraction of what they once earned. (Plus, don’t forget the recent Pew Research Center study that revealed 55 percent of Americans are earning less than they were three years ago.)
I don’t know if economists, who live in a world defined by mathematics formulas, ever step outside to see how the real world functions. They should. It’s pretty rough right now – with nary a green shoot in sight.
And, let me end by pointing out that Greenspan, for all of his talk about irrational exuberance, missed the call on this Great Recession. Is he right now?
How Will Baby Boomer Seniors Pay Their Mortgage?
The other story that caught my eye was a report about how states are slashing pension benefits for not just future retirees, but current retirees. In simple language: The states are broke. They can’t print money (unlike the Federal Government), and they can’t run deficits. So, they are slashing and burning their costs, of which pension costs are huge.
But with seniors only earning about a half percent on their savings at the moment, slashing pensions and increasing health care cost contributions is going to mean more seniors will be unable to afford their mortgages or make any meaningful contribution to the economy.
All this talk about getting our financial houses in order is going to be one long, painful process. I’m wondering if a generation bred on 8-minutes of television content sandwiched between commercials is going to have the focus and vision to get through it.
Please leave your comments on the Blog.
My Dad is 88…a child of the Depression…still living.
When he was 9 years old on an Iowa farm in 1931…he was swimming with friends in the farm “pool”…a pond….my Grandpa came and got him….”son, its time to go to work”….he NEVER played again
Result…my Dad who never made a paycheck over $700.00/week……retired years ago with hundreds of thousands of dollars in the bank.
Frugality…hard work…saving (not spending) and THANKFULNESS….made him my HERO
The Greatest Generation did it…now its the Baby Boomers turn…its late in the game of life…..we must do it for our chidren and grandchildren`s sake
Let it NOT be said in history, that this generation destroyed the “city that was set upon a hill” to bring light to the nations.
We must imbrace frugality! We need to understand real needs v. wants. I may want to stop by the local hamberger joint to grab a burger because it’s easy and instant, but I now decide to just drive home and use what’s at my house that I’ve already paid for. I have clients who are in a short sale process of their home. This weekend they said that they are really enjoying living in their apartment because it is so much less stress on them. It has made their life simple. We need to be simple again.
As far as the housing market ‘needing’ to fall on it’s face – it already has – and if people think it just needs to fail totally, they just don’t understand how the real estate business and lending are connected to how the U.S. economy works. It would give poor a whole new meaning.
I think this generation will get through it. We’re humans, we adapt. This generation is watching Mom and Dad loose houses, down-size, and tell them sorry you can’t go to that expensive school.
We’re not giving the youngsters much credit. It’s our job to prepare them…I just hope we’re being honest with them. Sure we can’t strip them of their childhood, but they need to know if you can’t afford it you don’t get it.
Well at least we have 8 minutes of focus. It is more than the texting generations have 😉
Greenspan’s statement is based on the classical theory of economics that comments on a capitalistic market is usually driven to efficiency and low unemployment unless hindered by the government.
The current administration may have good intentions but could be doing more harm by trying to create employment and growth through various stimulus plans. This increases our deficits, which eventually have to be repaid back, and threatens our recovery and ironically, our overall growth and stability.
As far as unemployment, which sectors of the economy were affected the most? Low-skilled jobs within the Construction, Manufacturing, and other warehouse/assembly line jobs. America will not be able to compete with the cheap labor being offered abroad…this keeps costs low here at home.
The loss of these low-skilled jobs (which arent coming back to America), are the main cause for high unemployment. This is the reason people are or will be goign back to college between now and 2020 to resemble a higher skilled workforce for the new economy. (Talk about a bubble brewing in education and student loan industry!) But will the government create another mess like that of Fannie/Freddie Mae?
Retirement/Pension plans here in America have gone awry due to their linkage to the stock market (which is subject to go up and down). While saving and being debt free is good…this is not a sound way of retiring anymore. We need to have multiple streams of income from tangible assets such as gold, silver, real estate, patents, etc.
Adam Smith (often dubbed as the Father of Economics) 1723-1790, in his interpretation of the Wealth of Nations, discovered that “wealth was an annual flow of goods and services, not an accumulated fund of precious metals.”
In summary, we need to get better educated and prepare for higher skilled jobs that are or will become available, invest in multiple streams of income for our retirement, and get back to the fundamentals!
“As usual, you are right-on, Ilyce, with your assessment of Greenspan’s screwed-up assessment of this economy! He was wrong before and he is wrong now. “…allow the economy to heal itself.” – I don’t see that just happening! Something has to be done about unemployment and underemployment. I don’t like government intervention but a completely free market crash and burn will destroy our economy.”
Opposing more stimulus, which amounts to allowing the private sector to spend it’s money, should allow more job recovery that if the federa government spends the money inefficiently. And you agree that job recovery will help housing.
Greenspan was made into a god by the popular and the financial press. Greenspan was never a very good economist, he was a fantastic speaker of ambiguity, an ability to be vague and imprecise and yet seem wise.
Gary Shilling says our malaise could be prolonged for a decade. Here is his take:
Obama’s “big mistake was over-promising in a situation where it was very difficult for anyone to deliver,” says Gary Shillling, president of A. Gary Shilling & Co.
“They obviously didn’t understand the depth of the problem,” he said, referring to the administration’s promise in 2009 that unemployment would peak at 8% if the $787 billion stimulus package was passed.
The real problem, Shilling says, is the deleveraging process. Given the decades it took for the leverage to build up, it’s folly to think the deleveraging process can be quick and painless, he says. “It isn’t just that 2008 was a bad dream from which we’ve awoken and it’s back to business as usual.”
Indeed, Shilling says Americans are right to believe the economy hasn’t bottomed yet; in fact, he says we’re just at the beginning of a prolonged period of economic malaise.
Shilling’s forecast is that U.S. GDP growth will average just 2% for the next 10 years. That isn’t terrible but is a long way from the 3.3% growth he says is necessary to keep the unemployment rate steady.
My take is if you run the numbers of how long it would take to achieve full employment using the current hiring rate you will see that any real recovery is years away. Other data that can be extrapolated out on a timeline are factors like weekly bank failures versus banks on the “watch list” , be aware of the rising poverty rates in America this is a harbinger of increasingly bad economic times. Food stamps are the modern bread line. Easier to hide for the government but still there if you take the time to read the numbers.
All told we may still be discussing this depression in 2020.