Mish's Global Economic Trend Analysis

Budget Deal Reached - Ho Hum; Real Battle Can Now Begin
Yield Curve Widens as Long-Term Rates Rise; Bernanke's QE II Scorecard
Teachers' Unions Don't Give a Damn About Kids; Feeling Guilty, But ...
Challenge to the Heritage Foundation; Preposterous Unemployment Estimate Revisited
Chad-Gate Again? No, Just Human Error: Wisconsin Supreme Court Election Upended, Prosser Wins!

Budget Deal Reached - Ho Hum; Real Battle Can Now Begin

Posted: 08 Apr 2011 09:04 PM PDT

Bloomberg reports Obama Says Goverment Will Be Open for Business After Deal

President Barack Obama said he and congressional leaders reached a compromise agreement to fund the government and prevent the first shutdown in 15 years.

Less than an hour before government funds were to run out, Obama announced at the White House that the federal government would remain open.

"Both sides had to make tough decisions," the president said.

The accord would slash $39 billion from federal spending this year while jettisoning Republican provisos that would have defunded Planned Parenthood and blocked environmental rules.

Ho Hum - Are We Supposed to be Happy?

My long-held belief is that we would have been better off had there been no deal at all. Government would have shut down and it would not have mattered.

I am not the only one with that view.

Yesterday, in How I Learned to Love a U.S. Government Shutdown Caroline Baum asked ...

What if the U.S. government shut down and no one noticed?

Even worse (or better, depending on one's point of view), what if all federal workers went on furlough and the public realized there were benefits, not just costs, to smaller government?

Unfortunately, we do not get to find out.

Everyone knew there would be a deal before it mattered even if there was no deal tonight.

Real Battle Can Now Begin

The real battle will soon start. Paul Ryan wants to cut $6 trillion over the next 10 years. If it took several months to agree to a mere $39 billion, (less than 1 % of the budget), how long will it take to get agreement on $6 trillion?

What About Defense Spending?

Can we really be serious about tackling the deficit while doing nothing about defense spending? I think not.

The United States spends more on defense than the rest of the world combined. We have troops in 140 countries. Yet, the simple fact of the matter is the US can no longer afford to be the world's policeman.

If other countries want our troops, perhaps they should pay us. However, it would be better yet if we would simply leave on our own accord.

As long as we are packing our bags, we should pack up and leave Iraq and Afghanistan. It's time to declare the wars are won and leave.

If we do that, and pull some troops home, it should be an easy matter to cut $200 billion a year out of the defense budget. That would save $2 trillion over 10 years. Actually I think we should cut far more, but I am hoping to come up with a number that has a chance.

Sharing the Sacrifice

Where is the proposal to share the pain?
How about lowering wages and benefits of those in Congress?
How about reducing Congressional staff budgets?
How about making Congress immediately accept the same health-care plan it passed for the rest of the country?

The best think we can say about Ryan's proposal is that it is a step in the right direction. However, it would have been better to take a far bigger step, because you never get everything you ask for.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Yield Curve Widens as Long-Term Rates Rise; Bernanke's QE II Scorecard

Posted: 08 Apr 2011 12:31 PM PDT

Curve Watchers Anonymous is once again taking a look at the yield curve.

click on chart for sharper image

You can go back as far in history as you want and you cannot find a chart that resembles what the Greenspan and Bernanke have done.

Greenspan fueled the biggest property bubble in history by holding rates too low, too long. Bernanke undercut those rates to near-zero, and has held them low, for even longer.

Bernanke's stated purpose in QE II was to hold interest rates low. He has also wants to support housing and stimulate lending.

Bernanke's QE II Scorecard

Long-term yields are rising
Banks are not lending
Consumer credit is still dropping
Housing prices hit new all time record lows
Housing starts have hit new all time record lows
Banks are sitting on massive amounts of properties not marked-to market
Commodity prices have soared
Food and energy prices are up substantially
Those on fixed incomes earning nothing on their deposits are getting crushed
The stock market marches higher

Bernanke has taken credit for point number 10. He ignores or denies any role in points 1 through 9.

In case you missed it, please see Hello Ben Bernanke, Meet "Stephanie". It's about point number 9.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Teachers' Unions Don't Give a Damn About Kids; Feeling Guilty, But ...

Posted: 08 Apr 2011 10:29 AM PDT

As some might expect, I get a fair amount of hate mail from public union workers. However, I actually get more emails from public union workers and government employees who are willing to see the picture the way it is, instead of the way they want it to be.

Please consider this email from Rick, a teacher and a retired US Army Reservist. Rick sent the following email with the title "Feeling Guilty, But..."

I liked his email subject line so I used it as part of the title of this post.

Feeling Guilty, But ...

Rick writes ...

Hi Mish,

I am a teacher and a retired US Army Reservist. I have followed your blog religiously for the past few months and I cannot help but agree with you and support your view of how unions and BIG government are bankrupting we Americans.

When are people going to realize that we cannot kick this debt down the road any more? It's like paying your credit card debt using the 20 year plan. The interest kills you!

The only dilemma that I face is that I feel rather a hypocrite when I condemn my colleagues for believing that they have earned a defined benefit pension by their 30 years of service as a teacher, yet in 8 years I will begin receiving my military retirement pay (plus health care) from the US Government. I feel as though I am feeding at the trough.

I read articles in the news about the Wisconsin teachers "sacrificing" by now agreeing to pay 5-6% toward their pensions and 10-12% for their health care. Whoopee! I currently pay almost 50% of my health care costs out-of-pocket, and and I contribute 10% toward my direct compensation retirement plan. I would gladly contribute toward my pension too if that would help our state (Washington) from red ink.

Thanks for all the broad and informative articles. Keep up the great work.

Rick

Thanks Rick

Your email is deeply appreciated. I do not blame people for taking what comes their way. No one should.

However, I do blame those who feel they are better than everyone else. I also blame people who feel taxpayers owe them enormous benefits that the private sector does not get simply for showing up to work.

Worse yet, many do not even bother showing up for work via various call-in-sick mechanisms that scam taxpayers out of money.
Yesterday I received an email from my friend Tim Wallace. He wrote about the Belvidere New Jersey School District budget.

The issue at had was contract raise of 4.25%. To save teachers jobs, the school district proposed cutting the raise to 2.12%. The union refused, sending a few teachers to unemployment-land. In turn, class sizes will undoubtedly increase or other fees will rise.

Teachers wonder why they are vilified. Unions wonder why they are vilified. The answer is easy. By turning down pay hikes while demanding still more, no one can possibly wonder who is to blame.

Yet public unions pompously ask for property tax hikes "for the kids".

Teachers' Unions Do Not Give a Damn About Kids

Here is the deal, straight up. Teachers unions do not give a damn about the kids.

Please read that carefully. I said "Teachers unions" NOT teachers.

Most teachers do care about the kids. However, teachers are sucked into believing garbage fed by union organizers. That garbage inevitably leads to cannibalization of the lowest on the seniority totem pole, regardless of skills or talent.

Union mentality is also to blame for inability of school districts to get rid of sexual predators and grossly incompetent teachers.

Time For Reflection

This is a time for serious reflection. We all need to think about what government owes us (or doesn't), what taxpayers owe us (or doesn't), and what promises have been made by politicians at taxpayer expense that cannot possibly be met.

We also need to reflect on union rules that make us all slaves. I am going to hammer the slavery point home until it sinks in. If you have not yet done so, please read ....

Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!

Collective Bargaining neither a Privilege nor a Right

Enormous Sense of Entitlement

With very few exceptions, public union members have an enormous sense of entitlement.

Public union members need to put themselves in the the average taxpayer's shoes. Public union members need to figure out how the hell this can possibly be paid for.

I am deeply disturbed by events in this country. We have lost track of what has made this nation great.

Yes, the Fed is part of the mess. So is the "too big to fail" mentality that unjustifiably bailed out the banks. However, at the city and state level, there is no bigger problem than public unions, especially promises regarding wage and pension benefits that cannot possible be met.

Instead of admitting the problem like Rick did, many government workers and public union members attack the messenger and ignore union sponsored slavery because it suits their purpose.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Challenge to the Heritage Foundation; Preposterous Unemployment Estimate Revisited

Posted: 08 Apr 2011 02:28 AM PDT

In No Path to Prosperity: Ryan's Incredulous Budget-Balancing Proposal, Preposterous Unemployment Estimate I blasted the Heritage Foundation's estimate of 4% unemployment rate by 2015.

In the above referenced article, I did unemployment math two different ways to show just how silly a 4% unemployment projection is.

In an effort to be as fair to the Heritage Foundation as possible, I will do the math a third time factoring in a few more variables.

Before doing so, please note that Bernanke estimates it takes 125,000 jobs a month to hold the unemployment rate steady. Thus, in a Bernanke scenario we would need 1.5 million workers a year to break even. I find that number reasonable. It is one of the few things I agree with Bernanke about.

Participation Rate Analysis

While pondering Bernanke's estimates, it occurred to me that the demographic projection of 2.5 million working age (16 years old and up) citizens a year from now until 2020 that I used in my previous calculations failed to factor in the participation rate.

The participation rate is a measure of how many of those aged 16 and older are working vs. the entire pool of those 16 and older. In other words we need to account for working-age citizens who are not in the labor force, for example, students and retirees.

Once again, let's start with a look at the April Employment Report (March Data). The unemployment rate is calculated from the Household Survey.

Household Data From Latest BLS Job Report

The current participation rate is 64.2%. It has been 64.2% for three months in a row although it had previously been dropping at an unprecedented rate. This is why the unemployment rate dropped, even though few jobs were added in the last year.

Looking ahead, if we assume 64.2% of those 2.5 million go into the labor pool, then the labor pool would rise by 1.6 million per year, not the 2.5 million I used previously.

Note that 1.6 million workers is very close to Bernanke's 1.5 million estimate.

Additional Forces in Play

Boomer demographics suggests the participation rate will decline as will the number of jobs needed to hold the unemployment rate steady
In a recovery, the participation rate would normally tend to rise
In the last three years, 6.383 million people dropped out of the labor force. That is an unprecedented rate. Many of those workers will start seeking employment if jobs are available.
Part-time employment. There are currently 8.265 million non-agricultural persons working part-time that want a full-time job. Before employers add employees, expect to see that number drop. Alternatively, expect to see much of the job creation to be low-paying part-time jobs.
People working multiple jobs. Some of those who find jobs will be those who already have them. They were employed before and will remain employed so the additional jobs will will not subtract from the unemployment rate. However, some of those working two part-time jobs may get full-time employment possibly giving up one of the part-time jobs. This would open up jobs for others.

Points 1 suggests fewer workers will be needed to hold the unemployment rate steady in the years to come. Points 2 and 3 suggest more workers will be needed to hold the unemployment rate steady in the years to come.

Point 4 suggests employers will be cautious about adding new employees and will instead bump up the hours of existing part-time employees.

In regards to point number 5, I suspect those seeking multiple jobs would add to the difficulty in lowering the unemployment rate. Either way, the effect is probably, but not necessarily small. The safest thing to do is ignore the effect. I mention it for completeness.

Factoring in Point 1 - Demographics

Let's assume Bernanke's estimate that it takes 125,000 jobs a month to hold the unemployment rate steady for the next two years. Then because of demographics, let's assume we only need 100,000 jobs a month to hold the unemployment rate steady.

This is a generous assumption to hand to the Heritage Foundation.

In that scenario, to hold the unemployment rate steady, we would need 1.5 million jobs for two years and 1.2 million jobs for an additional two years.

Factoring in Points 2 and 3 - Recovery Math

The above table shows there are 6.25 million people who want a job. Of them 2.434 million are not counted in the labor force simply because they have not looked for work in the past 4 weeks.

Note that those not in the labor force rose by 2.478 million in the last year, in an alleged recovery. Also remember in the last three years, 6.383 million people dropped out of the labor force. Some of them "retired" but it was forced retirement.

Many of them would gladly look for work if jobs were available.

All things considered, I will stick with my prior estimate that sometime over the next 4 years
an additional 2.330 million workers will come back into the labor force, looking for jobs.

Should there be a strong recovery as the Heritage Foundation suggests, that number is possibly very low (thus generous) to the foundation.

Revised Unemployment Math

Factoring in the above, the labor pool would rise by 5.4 million plus 2.33 million or 6.73 million total.

We can now crank the math one more time.

The existing labor pool is 153.406 million.
Four years from now the labor pool will be larger by 6.73 million.
Adding the numbers together, the labor pool in March 2015 would be 160.136 million.
Assuming the Heritage Foundation figure of 4% unemployment, there would be 6.405 million unemployed.
Subtracting the number of unemployed from the labor pools gives us the number of jobs the economy will need. 160.136 million - 6.405 million = 153.731 million jobs.
There are currently 139.864 million employed.
Subtracting the last two numbers, the economy would need to add 13.867 million jobs.
13.867 million jobs is 3.467 million jobs a year for 4 years straight.
13.867 million jobs is 289,000 jobs a month for 48 consecutive months.

289,000 jobs a month is certainly easier to achieve than my prior estimate of 401,000 jobs.

However, that number still does not factor in part-time employment.

Table A-8 Part Time Status

There are currently 8.265 million non-agricultural persons working part-time who want a full-time job.

Before employers add employees, the employers would likely increase the number of hours of existing part-time workers. If so, the unemployment rate will be more stubborn than expected.

On that score we are in uncharted territory and the starting point is not pretty. For the sake of argument, however, and again giving the benefit of the doubt to the Heritage Foundation, let's ignore any effect from part-time workers.

Now let's revisit a chart from my prior post.

Monthly Job Growth 1999-2009

The above table shows monthly job growth from 1999 through 2009. I put that table together in November of 2009.

Notice that in the height of the housing boom in 2005-2006, the highest average monthly job total was 212,000 jobs a month. At the height of the internet boom in 1999 with Greenspan stepping on the gas over absurd Y2K fears, the economy added 264,000 jobs a month.

At the peak of the commercial real estate boom in 2006-2007, the economy added somewhere between 96,000 jobs a month and 178,000 jobs a month.

Let's be realistic. The housing boom is not going to come roaring back. Nor is the commercial real estate boom, nor is another internet boom.

Recap and Conclusion

The numbers I originally posted were on the high side. I redid the numbers and lowered the assumptions on how many jobs it would take to hold the unemployment rate steady.

289,000 jobs a month for 48 consecutive months is simply not going to happen.

Thus, the revised number is still preposterous even though I tilted several factors to the Heritage Foundation to get that lower number.

Challenge to the Heritage Foundation

I challenge the Heritage Foundation wants to show their numbers as to how they arrive at 4% unemployment by 2015. I say it cannot be done.

While I am a big fan of cutting expenses to balance the budget, I want to see realistic estimates from the Heritage Foundation, from Republicans, and from the CBO as to what Ryan's plan will really do.

I do not accept it on faith that giving Medicare credits instead of Medicare will substantially reduce unemployment by 2015. Nor do I believe equalizing corporate income taxes at 25% will do so either.

I would actually prefer to see lower corporate taxes in the US than abroad, say 10% in the US and 20% abroad. That would provide real incentive to bring jobs and capital back to the US.

The citizens of the United States deserve the truth about the economy, not a bunch of cream-puff economic projections that cannot possibly happen.

Alternative Mish Proposal

I am all in favor of reducing the deficit. Indeed Ryan's plan falls way short of what is needed. However, if the goal is to create jobs, the way to do that is fix structural problems. Rand Paul has the right idea with right-to-work laws. We also need to scrap Davis-Bacon and all prevailing wage laws.

Those proposals would allow cash-strapped cities and states to rebuild infrastructure at less cost or (and this is key), hire more workers for the same cost and get more work done.

My four proposals for creating jobs are

National right-to-work laws
Scrap Davis Bacon and all prevailing wage laws
Set corporate tax rates substantially lower in the US than overseas
Eliminate entire bureaucracies such as the department of education and the department of energy

My proposal is far better than Ryan's proposal in terms of creating incentives for bringing jobs back to the US and for helping cash-strapped states rebuild infrastructure.

However, there is no chance what I suggest would come close to lowering the unemployment rate to 4% in 4 years either.

Let's see what if anything the Heritage Foundation has to say about those ideas.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Chad-Gate Again? No, Just Human Error: Wisconsin Supreme Court Election Upended, Prosser Wins!

Posted: 08 Apr 2011 12:38 AM PDT

A few days ago I received an email from someone in Wisconsin telling me that the vote for Wisconsin supreme court justice would be close and to get out the vote for David Prosser who was widely believed to be supportive of Governor Scott Walker and his anti public-union stance.

Unfortunately, I did not see that email until the election was over.

Prosser lost by a mere 204 votes to Assistant Attorney General Joanne Kloppenburg whose policies as best as I can tell are unknown.

I do not know how many Wisconsin readers I have or what their political affiliations are, but I suspect a simple post from me reminding people to vote may have brought in 200-300 votes minimum.

Voter turnout was something on the order of 20%.

Thus I have been kicking myself for several days for not seeing that email and in general for not paying attention to how close that election might be.

Tonight that changed.

Corrected tally in Waukesha County gives Prosser 7,500-vote edge

Instead of losing by 204 votes, it seems Prosser actually won. Please consider Corrected tally in Waukesha County gives Prosser 7,500-vote edge

In one explosive stroke Thursday, the clerk in a Republican stronghold tilted the tight Supreme Court race in favor of Justice David Prosser by recovering thousands of untallied votes for the incumbent.

Waukesha County Clerk Kathy Nickolaus said Thursday that she failed to save on her computer and then report 14,315 votes in the city of Brookfield, omitting them entirely in an unofficial total she released after Tuesday's election. With other smaller errors in Waukesha County, Prosser gained 7,582 votes over his challenger, JoAnne Kloppenburg, leaving the sitting justice significantly ahead for now amid ongoing official counting.

"I'm thankful that this error was caught early in the process. This is not a case of extra ballots being found. This is human error which I apologize for," Nickolaus said, her voice wavering as she spoke to reporters.

The figures are still far from final in a race that had previously seemed almost certain to see a statewide recount. Around the state, elections officials Thursday were tweaking unofficial results from the day before that had put Kloppenburg, an assistant attorney general, ahead of Prosser by a razor-thin 204 votes.

But nothing compared to Brookfield, where the new totals give 10,859 more votes to Prosser and 3,456 more to Kloppenburg.

"I'm encouraged by the various reports from the county canvasses," Prosser said in a statement. "We've always maintained faith in the voters and trust the election officials involved in the canvassing will reaffirm the lead we've taken."

Assembly Minority Leader Peter Barca (D-Kenosha) raised the possibility of an independent investigation over the recovery of the votes.

But at the news conference with Nickolaus, Ramona Kitzinger, the Democrat on the Waukesha County Board of Canvassers, said: "We went over everything and made sure all the numbers jibed up and they did. Those numbers jibed up, and we're satisfied they're correct."

As a Democrat, she said, "I'm not going to stand here and tell you something that's not true."

Waukesha County Executive Dan Vrakas, who sat in on Nickolaus' news conference, said voters can be confident in the results because "all the votes are in that office. If anyone wants to look at them and verify, they can."

Schmidt, the Brookfield clerk, said she watched the news conference. Does she buy Nickolaus' explanation?

"Yeah, I do. I understand those kinds of things can happen," she said, adding, "I was disappointed I was not informed. I should not have been informed through the news agencies, kind as you people all are."

Democrats Certify Process

This is not "Chad-Gate" revisited.

Reading the above article, especially with Democrats verifying the results, I do not think there was vote fraud or a stolen election.

For the record, I think Bush may have stolen Florida. At best, we do not know because there was no recount.

I always want an honest vote. I think we have one, and Prosser won.

Galling Email

Shortly after the election I received a galling email from "Bold Progressives"

I have no freaking idea how I got on their email list, but it is always worthwhile to see what progressive clowns think. Here is that email.

Mike,

BREAKING NEWS: We did it!! Together, progressives defeated Wisconsin Governor Scott Walker's choice for state Supreme Court -- and won back the "swing" vote that could soon decide whether Walker's anti-worker bill is illegal.

The margin was 204 votes! And in the last week, members of the Progressive Change Campaign Committee and Democracy for America made 96,945 phone calls to targeted voters through our "Call Out The Vote" program.

Now we have to finish the job. When we win the upcoming recall elections against Republicans in Wisconsin it will have ripple effects across the nation -- showing that working families will hold Republicans accountable for their war on the middle class.

We're increasing our pro-recall TV ad buy in Wisconsin today to keep up the pressure, and we will keep going as long as folks keep chipping in $3. You can see our ad and donate here.

Or, click here to listen to the special briefing we just held with "Wisconsin 14" senators Mark Miller and Chris Larson -- where they talk about yesterday's election and the recall fight ahead.

Today, we achieved a huge victory. Thanks for being part of it –- and for being a bold progressive.

Mish a "Bold Progressive" - Now that's pretty funny.

If Prosser wins, which now seems likely, I can stop kicking myself, sort-of. I still blame myself for not following the election more closely, and the above email shows exactly why.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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