Recession Is Over. Or It Isn't.

Fed Chairman Ben Bernarke et al are hailing the end of the longest recession since the Great Depression. The Great Recession began in December 2007. Now, according to them, it's over. Many companies have reported better than expected earnings 2 Q '09. To be exact, 73% of the 427 companies in the S&P 500 that have reported earnings have beaten expectations.

Economists love history and statistics. In past recessions, when productivity reached a certain level, prosperity was just around the corner. But what if a recession is ahistorical, like this one? What if it has no precedent?

Don't accept statistics on faith. In the face of rising unemployment and foreclosure rates, what accounts for these profits?

If you weren't sure of the utter falsehood that what's good for Wall Street is good for Main Street, all you need to do is look at the worker productivity numbers for 2 Q '09. Productivity is the measure of what the economy produces per worker hour. And productivity at the end of June was the highest it's been since 3 Q '03, an annualized pace of 5.5%.

The profits didn't come from producing more stuff that more people wanted to buy. It came from merciless cost-cutting. Instead of 3 people doing the work of 3, 1 person does the work of 3. Easy math. Productivity zooms upward by 300%.

As reported in the WSJ:

The net result: rising unemployment, stagnant wages, sagging consumer confidence--and better than expected corporate profits.

Higher earnings and stock prices are supposed to induce companies to invest their capital and hire more. At least that's how it worked in the past.

But this Recession is the Mother of Them All. Achieving profits on the backs of their workers in a country where consumer spending accounts for 70% of GDP won't help Main Street and the economy beyond Wall Street at all. Certainly it won't increase consumer demand. The question is, will business invest? Will the private sector make up for lower consumer demand and a smaller-than-necessary government stimulus?

The jury is out on those questions:

In a classic economic recovery...rising profits and stock prices help make the recovery self-sustaining by encouraging companies to hire more workers.

What is still in doubt, though, is whether this is a classic recovery.

Timmy Gets Mad

In today's WSJ, someone inside the room leaked. Before a group that included Fed Chairman Ben Bernarke, SEC commission chairman Mary Schapiro and FDIC Chairman Sheila Bair, Treasury Secretary Timothy Geithner cursed like a sailor as he yelled at the assembled financial regulators for not getting on board with the plan to have the Federal Reserve grab total oversight power over all financial entities.

What the hell does "jobless recovery" mean?

What exactly does a jobless recovery mean? Isn’t that an oxymoron like “military intelligence”?

The article by Louis Uchitelle in the Sunday NYT 7/19/09 Week in Review section with the exclamation capital letter headline, “When, Oh When, Will HELP Be WANTED”, asserts that we are entering a time of economic expansion; the worst is over; but where are the jobs? No expert economists this time are weighing in. Some mumble, no sooner than next summer, “a guess, verging on wishful thinking.” Seems that because jobs are shed monthly at ½ million of so (or as numbers crunchers would say, less bad than before) and people are in debt, the GDP which depends on 70% consumer consumption, will not revive very soon. Until it does, the manufacturing and construction sector will continue to lose employees. What’s supposed to happen and what has happened in the past is that after a recession ends pent-up demand is unleashed and the engines start roaring again.

However, history is no guide in this recession. It is the Mother of them all, at least since 1929.

The pent-up demand is not present—not with 6.46 million jobs gone in just 18 months and hundreds of billions of dollars in wages extinguished.
Credit is harder than ever to get for those who might want to spend again and there are fewer and fewer spenders.

Of course, since the last 10 years represented a fake expansion based on leverage (especially leverage enhanced by creative structure financial vehicles) and fee-based bullshit (credit rating agencies, bond issuers, mortgage originators all profited handsomely during the housing bubble), there is no pent-up demand. The only signs on the dim horizon are adding hours to the employees who’ve had their hours cut.

The estimates of job creation for the stimulus package (Mark Zandi, chief economist at Moody’s Economy.com) is 2.5 million jobs, not much considering we’ve already lost nearly 2 million jobs since the package was announced in February . Don’t forget that new people try to enter the workforce on a continuous basis (recent college graduates, new citizens, etc.), so the need for new jobs is greater than just making up the losses.

So what the hell are we going to do? Don’t depend on the politicians. Both Democrats and Republicans look upon a new stimulus as though it were radioactive, even if that may be the only thing to put ordinary people back on the rolls:

Such numbers suggest that if the goal is a job surge coming out of the current recession, then another stimulus package is needed, and a big one, perhaps as much as $1 trillion packed into a single year of spending, some economists say. Consumer spending and business investment provided such a kick coming out of steep recessions in the past.

But that’s not in the cards. No way. America worships money and ideology in whatever order. The politicians want to get re-elected and the powerful lobbyists in the FIRE (Finance/Insurance/Real Estate) sector want to write the laws for them, so we the common man/woman can only expect a trickle of jobs and a whole lot of belt-tightening, death by health insurance and untold misery. But do not fear: economists have found faith, not unlike my childhood faith in Tinkerbell’s resurrection:

There might even be a surprise, adds Robert Barbera, chief economist for the Investment Technology Group. “Some new and exciting area of job growth may emerge,” he said, “although I can’t guess where that may be.”

Derivatives: The Devil's Handiwork

Floyd Norris' article, "Derivatives Tug of War Takes Shape" is a discouraging look at how hard the derivatives industry is fighting any kind of regulation, particularly having to be traded on an exchange where prices are transparent and companies will actually have to put up some collateral for the risks they take then fob off on some unsuspecting mark. It's all gambling on a massive scale.

“Simply put,” said Richard Bookstaber, one of the pioneers of financial engineering on Wall Street, “derivatives are the weapon of choice for gaming the system."

Mr. Bookstaber wrote one of the best books about the causes of the financial crisis, “A Demon of Our Own Design,” and did so before the crisis erupted. This month, his testimony to a Senate subcommittee provided a stark lesson in the uses to which derivatives have been put.

“Derivatives,” he testified, “provide a means for obtaining a leveraged position without explicit financing or capital outlay and for taking risk off-balance sheet, where it is not as readily observed and monitored.” They let institutions dodge taxes and accounting rules.

“Viewed in an uncharitable light,” he added, “derivatives and swaps can be thought of as vehicles for gambling; they are, after all, side bets on the market.”

And they were side bets that could destabilize the markets. Had American International Group been gambling in regulated markets, it would have been required to put up collateral when prices began to go against it. Instead, it was able to ignore the problem until its own collapse — and perhaps that of the financial system — was imminent.

As he put it, and as I saw in CNBC's show "House of Cards", the pirates use derivatives to transfer their risk to those who don't understand it. I was appalled listening to Alan Greenspan talking to the CNBC guy. He was basically saying there was nothing the Fed could do to stop the madness. You can't put the brakes on a bubble because that would destroy the economy and profitmaking. He's saying all this, that damned Ayn Rand suckup, while sitting in the midst of the wreckage. The profits were all phantom, except for those piled up by financial wizards who got paid upfront and left before everything crashed.

But the destruction spread far beyond the Wall Street borders and subprime mortgages. Right now we're looking at at least 11% unemployment by the end of 2009 (and it's gotta be more than that; I think it's already gone up 1.5% since April). And this is the official unemployment rate, which doesn't include the underemployed or those who have given up looking.

The sadness is that it will all be blamed on Obama and we'll get some horrible Republican in the White House in 2012.

Such a transfer of wealth from the not-rich to the rich.

The Experts Don't Know What's Going to Happen...

...but they kind of agree about what did happen. A panel put together by the New York Review of Books was held on April 30, 2009 @ The Metropolitan Museum of Art. The discussion was transcribed in its latest issue (6/11/09), How To Deal With the Crisis. The panel included such luminaries as Bill Bradley (U.S. Senator-NJ (D) 1979-1997; managing director at merchant bank Allen & Co.), Niall Ferguson (Professor of History @ Harvard, Senior Fellow @ Hoover Institute), Paul Krugman (but of course, just awarded the Nobel last year), Nouriel ("Dr. Doom") Roubini, doomsayer extraordinaire (Distinguished Professor of Economics @ NYU Stern School of Biznez and Chairman of RGE Monitor, George Soros (Chairman of Soros Fund Management LLC, well-known macroeconomic trend cruncher and legacy builder, who is distinctly unhappy with the "free market paradigm"--I think if he met John Galt, he'd spit in his eye) and Robin Wells (who co-authored the book Economics with Paul Krugman and made some very astute comments herself.

Ferguson joisted with Krugman, especially about the potential hyperinflationary effects of the government's printing money, not specifically regarding backing up all the bad debt in the financial system but decrying the fiscal stimulus. On the other hand, Paul (who believes that all this talk about hyperinflation is a way to wage war against further stimulus) despaired for the near future of ordinary Americans, which is 99.9% of all of us who are being laid off to the tune of 600,000+ per month.

I thrilled to Paul's thundering words:

The other thing not to miss is the importance of a strong social safety net. By most accounts, most projections say that the European Union is going to have a somewhat deeper recession this year than the United States. So in terms of macromanagement, they're actually doing a poor job, and there are various reasons for that: the European Central Bank is too conservative, Europeans have been too slow to do fiscal stimulus. But the human suffering is going to be much greater on this side of the Atlantic because Europeans don't lose their health care when they lose their jobs. They don't find themselves with essentially no support once their trivial unemployment check has fallen off. We have nothing underneath. When Americans lose their jobs, they fall into the abyss. That does not happen in other advanced countries, it does not happen, I want to say, in civilized countries.

In all the millions of words (along with the trillions of dollars) printed about this re/de/pression started December 2007, the pundits often overlook human suffering.

Niall became sarcastic, invoking the "lessons" of the 1970s:

The lesson of economic history is very clear. Economic growth does not come from state-led infrastructure investment. It comes from technological innovation, and gains in productivity, and these things come from the private sector, not from the state.

What could be more technologically innovative than synthetic CDOs (collateralized debt obligations) built according to mathematical models based on highly fallible projections? Or credit default swaps? Or securitization? And everyone agrees they are at the heart of this horrible economic disintegration.

As far as productivity goes, well, when you fire 4 out of 5 people in a company, that one person has to pick up the slack and eureka! productivity soars. So don't worry, Niall. Unemployment will continue to grow.

The Only Value: Credibility

In an age where everyone is a sell-out, the only value becomes credibility. It's so rare.

Teach Me To Communicate to the Internet Generation

I am totally out of touch. After becoming a casualty of the Re/Depression (my consultancy was lopped off the FY 2010 budget), I decided to utilize my lengthy career placement background and academic prowess (I graduated with top honors in English from college with a 1390 SAT dating back decades). I'd help people get jobs and tutor high school students in the SATs and edit college or graduate school papers with grammar and coherence in mind. So far my clients have gotten As. I didn't go whole hog and sign up with an online broker to write the term papers myself for a hefty fee.

However, I'm having difficulty communicating by email with prospective clients. This is a standard email exchange from a youngster in response to my ad:

hey my name is [young person] and ii saw your ad for career advisement and was just interested in knowing what you can do for me??
thank you for your time and ii will be waiting for your reply.

So I respond:

I can help you write your resume, cover letter, and thank you note. We can practice job interviewing (very important). I can teach you how to search
for jobs and network. I have a lot of experience in this area.

You let me know what you need. My name is [Cassandra].

He writes back:

ii juss need a job.. basically.. I have a resume and everything
--nyzghettoromeo

So I put the pedal to the metal [that probably ages me, too]:

I can look over your resume and see if it'll lead you to a job. Does it
display your qualifications well? Do you tell potential employers what you
can do for them? What kind of job are you looking for? You have to sell
yourself in a different way for a different kind of job. If you want an
office job, what kind of computer skills do you have? If you want a sales
job, how are you in person or on the phone? If you want a retail job, are
you good in customer service? Are you a team player? Do you have any
professional experience?

After you figure out the answers to these questions, then you can go to
internet job search engines, upload your resume and check it out.

And he comes back with:

okay well maybe you can help me, I'm 19 years old attending CUNY York
College in jamaica. I have experience in hospitality, considering the fact
that ii worked in a restaurant in manhattan as a Banquet busser/waiter. I
attended Queens Vocational Technical High School and gained experience in
electrical installation, therefore I have basic knowledge in the
electrical field. I received my Regents diploma and completed internship
in electrical installation, in college my major is Physicians Assistant,
I'm trying to pursue a career in the medical field. I have my license for
Phlebotomy and EKG tech. I am certified by NHA and am currently doing
Internship at a medical office in elmhurst queens.
If any of these qualities are helpful to obtain a job, please contact
me and I seriously need help finding a job especially during these tought
times. I will be awaiting a reply. thank you.

I reply:

You have a lot of education and experience that can be presented well to a potential employer. I have some ideas for you. This is the way I work: I
meet with you and go over your employment materials, focusing on how you can
put your best foot forward to make the most of the chances you get. Most
resumes and cover letters are not very good or effective. Most people have
no idea how to act in a job interview. One mistake can change an employer's
mind.

I've been doing this for a long time. Consider it an investment in your
future. My fee is $20 per hour for students.

And the coup de grace (his response):

lol no thank you..

I am a dinosaur reared on reading books, absorbed in their meaning, soaking in language. I've placed all sorts and sizes of people in jobs, including executives and those with disabilities (known as "barriers to employment"]. I come with a pedigree. But I am out of touch with the prevailing winds.

I'm not saying I have to dumb down. But I have been doing this work for a few months now and I constantly say to myself (aside from "Stop talking to yourself!"), will this person be put off by proper grammar? Or words like "available"? Or punctuation without emoticons ):?

How can I learn to write blog? Or email? Or IM? Should I forget everything I've learned? Should the Constitution be rewritten according to Twitter, to make it comprehensible to the majority?

I'm not saying I'm impervious to the degradation of anonymous immediacy provided by the internet. I'm much more impatient, nay, impulsive, telling the computer "c'mon!" as it boots up too slowly for me, tossing off a retort with a click of the SEND button rife with spelling errors and tortured meaning. I haven't written anything in a haze of drunken vengeance. But the shame!