Does an unabashed Liberal Economist, Robert Reich, have a plan?

Robert Reich, former Labor Secretary to Bill Clinton, loves to talk. I find him entertaining and intellectualy honest. He has some interesting views on job creation.

I did say Robert likes to talk and I did say he was intellectualy honest.

Robert is also currently an advisor to Barack Obama. Well guess what Robert had to say about government health care back in 2007:

While the Michelle and Barack dazzle the press, 2 million lose jobs and one million lose their home.

"There's some who, despite all evidence to the contrary, still don't believe in the necessity and promise of this recovery act," he said. "Tell that to the Americans who received that unexpected call saying to come back to work."

Now that is compassion with change.

Obama's polling numbers are artificially held up by the world's largest Public Relations firm ever, the consolidated, amalgamated idolatrous US press.

I knew we were in the valley of deep dung when Baracko Boy took his shark skin suit for the first strut through Air Force One. "It's pretty nice," he told House Democrats in an after-dinner speech during the first days uptown. Sures beats shucking the Chrysler 300 in Chi.

"Hey man what's the sco?"

Well not too good, thanks for asking. $787 large spent and no one is counting. BO says, "good news" that it only took $135 billion obligated so far and that has saved or created "at least 150,000 jobs." Maybe.

I been looking at the man's face lately. It aint too good. Up tight and taut. This may be a short performance.

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Tuesday, June 9, 2009
Obama to hurry recovery effort amid rising doubt

Jon Ward Washington Time

President Obama on Monday pushed to reinvigorate his $787 billion economic-stimulus program, promising to accelerate efforts to get money out the door, while dealing with critics who said some of his claims to create or preserve jobs have been exaggerated.

Mr. Obama said he was "not satisfied" with the results of the stimulus program so far, though he highlighted some of the achievements he said were the result of the massive spending bill, which he signed into law in mid-February.

He said it was "good news" that $135 billion obligated so far has saved or created "at least 150,000 jobs."

But with about 2 million jobs disappearing since the bill was enacted, White House officials conceded that their estimates of jobs "saved or created" were at best only blunting the pace of overall losses.

"Less bad is not good enough," said White House press secretary Robert Gibbs.

A national poll released Monday showed that the public was losing confidence in Mr. Obama's handling of the economy. But the White House denied that Mr. Obama's effort to speed up the stimulus spending was a response to either growing anxiety about the program or its lackluster early performance.

Approval of Mr. Obama's handling of the economy has dropped from 59 percent in February to 55 percent, the USA Today-Gallup poll showed. More significantly, disapproval on the issue has gone up 12 percentage points to 42 percent.

The president, however, remains more popular than either of his two immediate predecessors at this point in his presidency, with a 67 percent overall approval rating.

Still, critics accused the White House with playing with numbers to make the stimulus appear more effective than it's been.

"The Obama administration is continuing to fabricate job-creation projections related to the stimulus," said Tony Fratto, a former George W. Bush administration official.

"The Bureau of Labor Statistics - the only government agency counting jobs - cannot tell you how many Americans are working today. They cannot tell you how many Americans were working a month ago. And they cannot even tell you how many Americans, within 50,000, were at work when the stimulus was passed by Congress," Mr. Fratto said. "Without that information, there is no credible estimate for jobs 'created or saved.' "

Keith Hall, commissioner of the Bureau of Labor Statistics, told Congress last week that it is "a very difficult thing for anybody to substantiate" the Obama administration's projections of jobs "saved or created."

Jared Bernstein, an adviser to Vice President Joseph R. Biden Jr., called the Obama's team measurement "an estimate of how many jobs you believe you created."

The president's event at the White House on Monday, as he pivoted back to domestic policy after a trip to the Middle East and Europe, was intended to highlight "10 new major projects that will define the next three months," the White House said.

The projects include work at 107 national parks, 98 airports and 1,500 highway locations, and hiring or retaining 5,000 police officers - work designed to save or create 600,000 jobs. Mr. Obama said that all those jobs will be created or retained "over the next 100 days."

But 125,000 of those jobs - nearly 25 percent - are summer positions for youth, not full-time permanent employment, according to the White House.

Mr. Obama pledged in February that, all told, the stimulus package would save between 3 million and 4 million jobs.

Mr. Bernstein defended the administration's formula for its job numbers.

"This is an absolute, tried-and-true economic methodology," he said during a briefing with reporters at the White House. "There is simply no other way to make this kind of estimate."

But Republicans and conservative groups hammered the president, sensing a political opening.

"Today's announcement is an acknowledgment that the Democrats' trillion-dollar stimulus is not working, and the American people know it," said House Minority Leader John A. Boehner, Ohio Republican.

The White House said its calculations project that every $92,000 of government spending creates one "job-year."

A May 11 report states that about two-thirds of that "job-year" is a direct or indirect benefit, such as a state worker being retained and not fired because of federal dollars being disbursed to state governments.

About one-third of each "job-year" is an "induced effect," the White House said, where tax cuts for consumers can create demand for products and allow businesses to hire or retain employees because of that demand.

Republicans pointed to the White House prediction in January that the unemployment rate would stay about 8 percent if Congress passed the stimulus package. The unemployment rate has risen to 9.4 percent.

Mr. Bernstein said that in January they had not yet learned of a massive 6 percent contraction in gross domestic product during the fourth quarter of 2008.

"At the time, our forecast seemed reasonable. Now, looking back, it was clearly too optimistic," he said.

The White House also faces questions over whether the massive spending program is still needed to stimulate an economy that administration analysts say is already beginning to show signs of recovery. Other analysts, however, warn that the stock market's recent gains may be a "bear rally," signaling another downturn ahead.

Some Republican lawmakers say they want to stop all $787 billion from being spent if the economy is on the mend, using the money instead to reduce federal debt and deficit levels.

The national debt is more than $11 trillion, and the deficit for the current fiscal year is projected by the Congressional Budget Office to be almost $1 trillion. The country's debtors are increasingly anxious about the ability of the U.S. government to pay its debt with interest, and bond buyers have been driving up yields on long-term notes, making it more expensive for the Treasury to raise money.

Meeting with his Cabinet, the president on Monday gave a mixed review of the economy so far, stating that May job losses of 345,000 announced Friday were not as bad as expected but "still far too many." He also said that the United States is "still in the middle of a very deep recession, which is going to take a considerable amount of time to pull out of."

It was a different message from the one Mr. Obama offered at the end of May, when he cited the stock market's stabilization and other indicators as evidence that the economy had "stepped back from the brink."

Mr. Obama hit back at his critics Monday.

"There's some who, despite all evidence to the contrary, still don't believe in the necessity and promise of this recovery act," he said. "Tell that to the Americans who received that unexpected call saying to come back to work."

Why Deflation Must be Stopped

Deflation is sometimes likened to Dante's Inferno. "Abandon all hope" once you step into that Hellfire.


There is an underlying implication from many that the current financial crisis was caused by deadbeats and that they alone should suffer from their transgressions. That may be good politics or sound morality but it is bad and possibly fatal economics.

Intuitively, we all feel that falling prices are a good thing. That may be so for a short season but if it takes hold on a secular basis it can cause a pernicious and corrosive breakdown in unexpected parts of modern society.

Deflation is an avoidable consequence of bad policy, as an epidemic can be a result of bad hygiene. All will suffer needlessly. The Telegraph explains:

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Abandon all hope once you enter deflation

The price of white truffles has fallen 84pc. Fines wines have dropped 65pc. Lobsters are off 52pc. Deflation has reached the City. It has engulfed housing and now threatens to spread through the broader economy, lodging like a virus in the British and global monetary systems.

By Ambrose Evans-Pritchard Telegraph
Last Updated: 7:27AM GMT 13 Nov 2008

We are not there yet but Mervyn King, the Governor of the Bank of England, says it is now "very likely" that the UK retail price index will turn negative next year. This is a drastic reversal of the oil and food spike that played such havoc with monetary policy over the summer. "The world changed in September," said the Governor.
The Bank's fan charts point to zero inflation at current interest rates of 3pc, but the startling new feature is that price falls could gather pace. This is a clear signal that the Monetary Policy Committee will cut rates again in December – perhaps by a full point to the historic low of 2pc, last seen in the Great Depression.
Mr King let slip yesterday that there is "obviously" a risk of deflation, although he remains sure it can be averted by a pre-emptive monetary blitz. Let us hope he is right.

The curse of deflation is that it increases the burden of debts. Incomes fall: debts stay the same. This way lies suffocation. It was bad enough in the early 1930s when US farmers faced a Sisyphean Task trying to meet mortgage payments on their land as crop prices kept sliding. They suffered mass foreclosure and fled West, as recounted in John Steinbeck's Grapes of Wrath.

We forget, however, that overall borrowing was modest in the 1930s. The great credit bubble of the last 20 years has pushed debt levels in Britain, the US and other Western societies to unprecedented highs. UK household debt reached a record 165pc of personal income last year. This is almost 50pc higher than the burden at the onset of the recession in the early 1990s. Our sensitivity to debt deflation is therefore greater.

"It is going to be absolute murder in Britain if inflation turns negative," said Professor Peter Spencer from York University. "The big difference with past episodes is that we are now much more heavily indebted. Few people owned their own houses in 1930s. Debts were miniscule."

Deflation has other insidious traits. It causes shoppers to hold back. They wait for lower prices. Once this psychology gains a grip, it can gradually set off a self-feeding spiral that is hard to stop.

It also redistributes wealth – the wrong way. Savings appreciate, which is nice for the "rentiers" with capital. The effect is a large transfer of income from working people with mortgages to bondholders. (These may be pension funds, of course).
The modern warning to us all is the "Lost Decade" in Japan, a loose term for the on-again, off-again slump that ultimately led to zero interest rates and – when that failed – to the printing of money. After 18 years, the Nikkei stock index is now trading at 8,700 – down from a peak of nearly 40,000. House prices have fallen by half. Yet after all the stimulus, the country is once again tipping back into deflation.
Governor King said Britain was likely to avoid this fate. "We've taken action much earlier than was the case in Japan," he said.

Not everybody agrees, even after the shock and awe cut of 1.5 percentage points by the MPC. Albert Edwards, global strategist at Société Générale, has long warned that central banks in the Anglo-Saxon countries have stored up trouble by stoking credit booms, and may find it harder than they think to engineer a soft-landing.

"This could easily go the way of Japan. It is true that Bank of England has moved faster, but Japan was a local bubble. This time it is the 'great unwind' on a global scale with leverage spaghetti everywhere," he said.

"The monetary authorities don't have foggiest idea themselves whether this is going to work. They're crossing their fingers and hoping," he said.

Nor is it clear whether rate cuts are gaining much traction. The average rate of tracker mortgages has risen 72 basis points since last month, and credit card rates have been rocketing. The Bank's transmission mechanism is not working properly. This a variant of the 1930s struggle when the central banks found themselves "pushing on a string", in the words of John Maynard Keynes. He called for public works to lift the economy out of its liquidity trap. This is more or less what the US, Japan, China, and parts of Europe are now doing – with more in store after the G20 this weekend. Britain has pitifully limited scope on this front. We had a budget deficit of 3pc of GDP at the top of the cycle – when we should have been in surplus – and we are heading for over 8pc. This is already nearing the danger level. If the Government now lets rip on fiscal policy, we could face a 'gilts strike' as foreign investors retreat from UK debt.
The Bank of England has not run out of ammo yet. It can cut rates to zero if necessary and then escalate to direct infusions of money by purchasing bonds – or indeed by buying a vast range of securities, assets and even houses if necessary. Ultimately it can print money to cover the budget deficit.

As the late Milton Friedman put it, governments can drop bundles of banknotes from helicopters. If they really want to defeat to deflation, they can. Mr Friedman may have overlooked the fact that gunmen can shoot down the helicopter – the Bank of France in October 1931, when it ditched the dollar; perhaps Asian bond investors today? – but that is to quibble.

Professor Spencer says the Bank of England has learned the hard lessons. Without the constraints of the ERM, Gold Standard, or any other fixed exchange system, it retains great freedom of action.

"They are very aware of the deflation risk. They are cutting rates very fast, and if necessary they too will turn to helicopters. But in the end they will keep the wolf from the door," he said.