Wednesday, June 03, 2009

Massive job losses continue

ADP reports 532,000 job losses in May. So that's over 2.5 million jobs lost this year alone, or roughly 4% of the U.S. workforce.

No amount of money printed could ever turn these people back into consumers unless that money went directly to them instead of via intermediaries such as banks. They need jobs. All that cranking up the printing presses even more than they're already cranked will do is make mattresses plumper and the Fed's electronic vaults creak under the weight of all those zeros, because in a time of deflationary expectations where people believe their money will be worth more in the future than it is now (because they expect their income to be lower in the future), they save, they don't spend. And that applies to banks too -- no matter how much money you pump into the banks today, they won't lend, they'll just stash it into the Federal Reserve's vaults, both because people aren't borrowing due to deflationary expectations, and because they see interest rates as being higher in the future than they are today so will wait until interest rates go up again before they start lending again.

In other words, printing money is a NECESSARY but not SUFFICIENT condition for economic recovery, just as a working financial system is necessary, but not sufficient. Capital is necessary in order to lubricate commerce, but capital is not enough. You have to pay people to produce things in the economy, things that require consumption, things that require the money to actually move in the economy rather than just plump up a mattress, because money that is plumping up a mattress is just mattress stuffing and worthless as a medium of exchange in the economy. Now, according to Auto Nation, 45% of the people who would have gotten auto loans last year can't get them this year. Which, it turns out, corresponds roughly to the drop in auto sales. How about a BigThreeMae like Fannie Mae except providing cheap guaranteed auto loans to qualifying buyers of Big Three autos? That would create jobs that rippled through the economy, as auto makers ramped up their production lines, suppliers hired and did the same, their upstream resource providers did the same, etc. How about printing massive amounts of money via selling Treasuries directly to the Federal Reserve, and using that for vast infrastructure projects to employ these millions of unemployed Americans either directly or indirectly via the supply chain for these infrastructure projects? Just handing money to banks has failed, they just stuff it under mattresses. Just handing money to ordinary Americans via tax cuts failed, they just stuffed it under mattresses. But if we get these funds flowing towards something that *creates jobs*, we might -- just might -- keep the entire world from sliding into a new Great Depression that would make the old one look like child's play.

-- Badtux the Economics Penguin


  1. Job? did someone say Job? OOH, I need one of them!

    try telling that to a Bank, though. "I'm sorry I can't make this payment, I'm out of work and ran out of money six months ago. No, my UIC is not enough to pay rent and car and insurance... and YOU, YOU come *after* food, and heaven forbid the RUssian Blue or I need to see a doctor, what with no medical insurance."

    "Do you have an IRA you could cash in?"

    Do they listen? Do they understand?


  2. Excerpted from How America Can Escape the New Great Depression:

    Fannie Mae should be authorized to securitize
    auto loans as well as home loans. This is not 1938. The average
    American who does not live in a major metropolitan city needs a
    car. Newly issued asset-backed securities guaranteed by Fannie Mae
    would carry the same U.S. government backing that Fannie Mae
    mortgage-backed securities carry. This would make loans to purchase
    new cars much more widely available at lower interest rates, thereby
    stimulating the auto sector. Stabilizing the housing market is the key
    to stabilizing the credit market. But stabilizing the auto market is
    also a key part of stabilizing the industrial part of the economy.
    In 2007 around 16 million new cars were sold in the U.S. This figure
    includes cars and light trucks sold by both domestic and foreign
    manufacturers. Around 6 million of these cars were sold to people
    with credit scores of less than 700. Because of the credit crunch, it
    is now very difficult for borrowers with credit scores under 700 to
    finance a new car. Remember, over half of the country now has a
    credit score under 700. Unless we open up the credit markets, we
    will finance only enough new cars to stay at a ten million annual
    auto sales run rate. If we stay at a ten million annual auto sales run
    rate, we will see unemployment increase even more. Almost one in
    ten jobs in America is directly or indirectly tied to the auto sector.
    At a time of rising unemployment, we need the U.S. government to
    do whatever it can to support certain industries. The key support the
    auto makers need is wide availability of consumer auto credit.
    The banks are currently making new car loans to credit worthy borrowers.
    But currently banks can’t sell those loans to an investment
    bank to be included in a pool of auto loans that are then issued
    as an auto-backed security. This is the result of the failure of the
    credit rating agencies to properly evaluate subprime mortgages
    and other asset-backed securities. The market for new asset-backed
    securities is virtually non-existent unless they are guaranteed by the
    U.S. government. This means the banks are restricted to lending
    only the amount of money they have available from depositors,
    bond holders, and shareholders. When the banks could sell the
    auto loans they originated, they could turn around and make new
    loans. This enhanced creation of credit further stimulated the econ-
    omy and increased the supply of money available for new car purchases.
    The easy solution is to allow Fannie Mae to enter the auto
    securitization market.
    Fannie Mae is already in the business of buying and securitizing
    consumer loans backed by collateral. Fannie Mae provides banks
    and mortgage brokers with the underwriting standards it accepts for
    a new mortgage to be included in one of its loan pools for securitization.
    Fannie Mae has guidelines in place for the level of income
    required to support a home loan. Fannie Mae also has guidelines in
    place for the verification of assets and income necessary to support
    a home loan. It would be easy for Fannie Mae to transition into the
    auto market. Decisions on auto loans are often made much more
    quickly than on home loans. For auto loans, Fannie Mae would need
    only to require verification of income, a down payment, and a credit
    report for an auto loan. Verification of income could include a recent
    paycheck, social security check, pension check, or bank account
    Fannie Mae also provides the banks with guidelines for the quality
    of appraisals it will accept for mortgage loans. A home is fixed in
    the location in which it was built. An auto, however, is mobile and
    can be moved around the country.

    Michael A. Kamperman

  3. I need one of the stimulus jobs also . Basically every dime I ever had went to the bank . As deposits from the things I need : Food , Gas , Utilities , etc. I have terrible credit at this point because I had good credit in the past . They could give X billion $ to the bank and it will never help me directly . They , have got to get the money to ME (consumer) , and I will be happy to give it back to the bank thru my chosen businesses . Till the powers that be figure that one out , we be all very poor folk .
    a getting hungry about now , w3ski

  4. My employer is hiring like crazy! They keep expanding hours, and we're chronically understaffed.

    Oh, did I mention that I work for a nonprofit that provides debt and credit counseling for people filing bankruptcy?

    No, I'm not kidding. The worse the economy gets, the more business we have. Until absolutely everyone has gone bankrupt, and then...well, I guess we go bankrupt too.

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  6. Actually, I disagree with Mr. Kamperman. Except in more rural areas of the country, we DON'T all need a car. We need extraordinary public transportation. We don't need a zillion cars clogging up the roads and the air, but safe, local, frequent, all night buslines, light rail, and heavier rail for longer commutes would make a great difference. A few cities that do this well are Chicago, New York (although aside from the rail the bus system on Long Island is woefully inadequate), and, back when, Milwaukee (not sure how they stack up now, but I used to be able to get anywhere pretty much anytime in in the area safely and efficiently).


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