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The U S Economy: How Bad Is It Out There?

The Obama administration has regained the lead in the expectations game on unemployment, having admitted that 10% unemployment is the new metric on which voters should be focused. The expectations game (otherwise known as "spinning") has centered on the rate of increase in unemployment over the past several months. Shouts of joy have emanated from political camps when the rate of increase in unemployment has simply dropped. That unemployment continues to mount in a relentless manner is ignored as the spinners rejoice that the velocity of the increase has slowed. For those that have no job, and no job prospects, this drop in the rate of increase in unemployment must feel like sitting in a commercial airliner and listening to the captain celebrate that the plane will impact the nearest mountain at four hundred miles per hour instead of six hundred miles per hour.

Spinning economic data has a long bipartisan history. Sometimes it works and sometimes it doesn't. However, there comes a time when voters begin the process of divorcing themselves from political solidarity (and the forces of spin) and start the process of focusing on their own predicament. That is the point when the water becomes unsafe for a politician of either party. (Wall Street actually has an index that measures this phenomenon as it is manifested in the markets. It's called the Volatility Index (VIX).)

There is a strengthening undercurrent of worry working its way through what was once known as the Silent Majority. (Nixonesque as it is, the descriptive is accurate.) These are voters that, today, are not inclined to read political blogs, protest at public meetings or become active on either side of a hot political debate. They are, essentially, passive voters that are never at the tip of the political spear on any issue. But they vote. And they pay attention. Increasingly, I am seeing their attention drawn to issues that heretofore might have gone unnoticed, such as:

  • The possibility of a failed Treasury auction (what if the U S government can't sell bonds to finance the budget?)
  • The possibility of massive inflation after the crippling deflation that is happening now. (this from the survivors of the late 1970's)
  • The possibility that the public will come to understand that many of the nation's banks are already insolvent. Local homebuilders and businesses are figuring this out in communities across the nation today.
  • The possibility that there will be a double dip recession (assuming that the economy is actually coming out of the present recession).
  • The possibility that housing prices may not recover for decades because mortgage lending policies have changed for a generation (or back to early 1990's standards)
  • The possibility that consumer spending habits (which historically make up 70% of the economy) have changed for a generation. More saving (or paying off debt), less spending

Amid the chaos of the political moment it should be noted that there is a huge confidence game being played out right now. At stake are not only the fortunes of politicians but the economy of the United States and voters everywhere.


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Comments (16)

Hmmm, kind of like trying t... (Below threshold)
epador:

Hmmm, kind of like trying to spin Steven Tyler's appearance.

One of the problems the spi... (Below threshold)
Matt:

One of the problems the spin-miesters, of either party have to face is tha fact that more and more of these passive voters are being directly impacted by the lousy policies of washington and starting to get scared. Many of them are, for the first time, paying attention and doing their own research and thinking about what they are doing. The next couple of elections are not going to be what we are used to. It might be time for a third-party to make a play.

On the economy side, we can't spend what we aren't making and money for extras like consumer spending and investing just isn't there any more. I'd suspect that the raw number of moneys being held in banks is going down. It's not becuase people aren't saving what they can, but becuase they don't trust the banks or government not to seize or "lose" the money they have in the bank.

I got a windfall of money A... (Below threshold)
Mycroft:

I got a windfall of money Aug 1. I used it ALL to pay down the debt. And we are paying down the only car we owe on - due to own it next spring.

Assuming no surprises, we are down to only owing a mortgage by late spring, early summer next year.

The ultimate spin will come... (Below threshold)
Staylor:

The ultimate spin will come in a year or so when our carbon emissions drop due to economic inactivity; it is then that Obama will anounce that his plan to combat Global Waming has been successful and that all those unemployed are just green jobs in disguise.

With more and more people g... (Below threshold)
CDR M:

With more and more people getting involved in the issues (and getting real savvy on them), it will behoove both parties to start cutting their deadwood (you know, the ones that have gone full retard) because nothing is more pathetic than watching a congressman/Senator getting flailed by a constituent who knows more about said congressman/Senator job than they do. You know, journalists used to do the job that everyday people are doing now. Not so much now. Some of these politicians remind me of some senior officers that I worked under as a junior officer and wondered how in the hell they made promotion let alone attain command. At least in the Navy, you only had to suffer through 1 year of it and then they were gone.

Now that a lot of people a... (Below threshold)
RayG:

Now that a lot of people are out of work, they taking the time to find out what is going on. They don't need the media anymore.

Its bad. But im sure the en... (Below threshold)
914:

Its bad. But im sure the endless tax hikes implemented by the low life's in government will fix everything. Look how well they are doing so far.

Unemployment is the key. As... (Below threshold)
JohnB:

Unemployment is the key. As a small-business owner, I can tell you that many of the lost jobs will never come back. So when someone has been unemployed for a few years and can't even get an interview, no amount of spin will convince him that things are looking up.

Being Friday the White Hous... (Below threshold)
jim m:

Being Friday the White House felt safe in acknowledging today that the 10 year debt will not be $7T as projected but will be at least $9T.

Where's Vic? We need more "the economy is improving" talking points.

Mycroft is an example of wh... (Below threshold)
Rick Caird:

Mycroft is an example of why this economy will be slow to recover. He is paying down debt and reducing his exposures. For several decades, we have been bringing demand in and consuming now by using credit. But, credit is drying up. Personal income continues to fall.

We have a stock market that seems to be running on fantasy. Sure, there were earnings "beats" this quarter, but that was due to cost cutting (i.e reducing people). If you look at the revenue numbers, they were off by as much as 30%.

This economy is a long way from healthy. Many of our banks are only solvent because they are allowed to "mark to fantasy" rather than mark to market. The FDIC is out of money after spending $2.4 billion to seize Colonial last week. All this is before we get the projected high default rate in commercial real estate.

As Mycroft points out, this is a time to be cautious, not reckless. The less debt we carry, the more options we have.

Rick

Great timing Hugh. Recessio... (Below threshold)
Victory is Ours:

Great timing Hugh. Recession ending, housing jumps, stock market rockets and Hugh tells us the sky is falling.

Is there any subject you can write about where it isn't just made up spin? Don't you have any hobbies you can write about?

Vic

vic - Yeah, cause the stock... (Below threshold)
Marc:

vic - Yeah, cause the stock market is a good indicator.... not.

Lets just ignore the cash for clunker BS that did nothing but delay purchases of other goods and services and will poach car sales for the next couple years.

Housing:

A full one third of all sales in July were of foreclosed properties, and as more foreclosures hit the market, you can only expect more downward pressure on prices. I spoke with Spencer Rascoff of Zillow.com today, who claims, "this is not a real recovery." Higher sales on one end of the market do not a full recovery make. Until foreclosures peak and prices bottom, we can't say housing is on its way back up. That's not to say that increased sales aren't good. Just think of where we'd be if sales were still falling on the low end, and nobody was eating up all those distressed properties?
Should we also ignore housing foreclosures that are not only raising but are no longer in the sub-prime market but has moved into the prime mortgage area?

vic:Unemployment i... (Below threshold)
pvd:

vic:

Unemployment is rising, gross revenues are falling, consumer spending is down, business spending is down, residential RE hasn't hit bottom yet and CRE is just starting to implode.

Yep, the recession is over. The One said so and the facts be damned.

PVD - you forgot to mention... (Below threshold)
jim m:

PVD - you forgot to mention that Obama's ten year deficit was just re-forecast to be $2T BIGGER than he's been promising.

I don't understand why that would be since we should be getting all those tax revenues from that booming economy.

VIC-if the economy is improving those numbers should be getting smaller not larger. Simple math. Even you should be able to figure that one out.

On the plus side for Democr... (Below threshold)
John S:

On the plus side for Democrats. Once someone's unemployment benefits run out, they are no longer counted as unemployed. So the "official" percent unemployed will probably drop in coming months. Bad news for Democrats, those 20 million people not counted but without jobs will vote next year.

Job losses are getting wors... (Below threshold)

Job losses are getting worse every month. I am not sure what we can do about it.




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