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Friday, September 09, 2011

Well, well

Obama's speech and his proposal for the American Jobs Act:
I would like to see the bill before commenting too much. The devil in these details is likely to be pretty huge.

Preliminary comments:
  1. It's too darned bad that this serious an approach couldn't have been implemented in the first stimulus bill early in 2009, when it would have made more of a difference and would have been far easier to afford. Much of the money in the first stimulus bill was simply thrown away.This appears to be a much more serious attempt at real stimulus.
  2. Temporary measures and tax credits are not going to be very effective at creating jobs. The measures described on the business side will tend to create more business investment (expensing) and generate a flow of funds to help a business like Mr. Packaging Guy's afford to buy new equipment. Also a lot of business owners will buy new cars. So it is not all bad. But any temporary tax cut won't produce much more employment, because....
  3. The White House doesn't "get" the problem for business owners involved in unemployment taxes. One reason why small business owners (and indeed all business owners) are reluctant to hire is unemployment taxes and experience ratings. Remember, unemployment taxes apply to almost ALL your payroll. I will expand on this point further, but between the kind of wretched failure involved in the health reform bill and the fear of firing involved in the unemployment tax club, many businesses will not respond to temporary funding measures - they have to make things work over the long term. Here is a document produced by DOL that lists the basic provisions for the states. On the extreme right hand column, you will see three rates. The top is the minimum. The second from the top is the maximum. The bottom is the rate that a new business will pay (usually an average rate). Because hiring a worker that the business may not be able to keep can potentially have huge costs over a couple of years (2% of 80% of payroll for three years?), many businesses cannot hire anyone. They can hire temps, but they can't hire permanent workers.
  4. Essentially, the payroll tax cuts involved are so large that they represent an abandonment of the SS program. If this bill passes as scheduled, the tax increase scheduled for 2013 (fixed) would be so huge that it would tip the economy into recession then or increase an existing recession.
I will expand on the unemployment tax problem in a future post, as I have time. I would like to show you some sample calculations, so it's quite a bit of work. I realize we cannot get this administration to get real on the health insurance problem, so it is crucial that we get them to address the unemployment tax problem.

Update: Fact Check on the "paid for" claim:
THE FACTS: Obama did not spell out exactly how he would pay for the measures contained in his nearly $450 billion American Jobs Act but said he would send his proposed specifics in a week to the new congressional supercommittee charged with finding budget savings. White House aides suggested that new deficit spending in the near term to try to promote job creation would be paid for in the future - the "out years," in legislative jargon - but they did not specify what would be cut or what revenues they would use.
Greek 2-year yields are over 57%. Greece is shocked - just SHOCKED over rumors of default. I would say that this is a level of fantasy equivalent to the "paid for" claim. Still, whatever the US does right now is overshadowed by European problems.

Not that European problems are good for the US. They aren't. But they sure are good for US bondholders. So it really doesn't matter that the US is about to up the debt limit to about 15.2 trillion so that Treasury can sell bonds, because frankly, US repayment worries are in the future, and Euro worries are, like man, RIGHT NOW. Right now, our banks are a parking lot for a lot of global money and our Treasuries are liquid as can be.

He seems to think we're not educated enough. Doesn't he understand how many college-educated people are out of work right now? Taking classes at community college is not going to cut it. He seems a lot more concerned about full employment for teachers than anything else. And I'm sure we are all thankful that not a single regulation will be repealed. After all regulations have nothing to do with job creation.
I would have been impressed if he had said, "It is time for America to become the energy superpower. The real stimulus that we’ve been waiting for is robust and responsible domestic energy production. We have the resources. Affordable and secure energy is the key to any thriving economy, and it must be our foundation."

In addition he might have said, "Our air and water are the cleanest in the world. I believe we only need to continue with what we have, not decreee ever more regulations in an attempt to become more pristine."

He might also have mentioned, "New scientific work has cast even more doubt on CO2 as a major cause of climate change. Our policies henceforth will be to adapt to climate change, whatever direction it takes, and forget about the impossible task of mitigating climate change through restrictive energy policies."

Finally, he coud have said, "Our housing markets are burdened with too many foreclosures and a lack of confidence. I ask Congress to encourage the purchase and conversion of foreclosed houses into rental units by giving investors a period of ten years of zero capital gains taxes and enhanced depreciation on such houses. This will help clear this inventory much faster than doing nothing."

Instead it was a laundry list of giving more money to unions (teachers, construction workers, government bureaucrats) and demands that Congress pass it RIGHT NOW. We're screwed!
So once Greece and Europe in general finally accept reality and deal with defaults, cleaning up the mess in a couple/few years, then the US denial of reality will be in the spotlight. In the meantime, the US can pretend there are no consequences in the future denying reality now and for a couple more years. Do I have that right?
I'm not much of a credit trader but when something trades at 57% that is a certainty of default.

Had dinner with a large investor (Democrat) who met with the president last week.

"He just doesn't get it".

2016. See ya'll then.
Charles - that is one possibility.

Obviously, if you are in Treasuries it's a concern that must be watched closely.
CF - you really think Obama is going to win reelection? I don't see how.
MOM, never underestimate the ability of Republicans to choose the worst possible candidate (and fight about it in the process).
I liked Yuval Levin's summary of the speech:

"Spend $450 billion dollars now, it will create jobs, and I’ll tell you how I’m going to pay for it a week from Monday. If you disagree, you want to expose kids to mercury."
Obama's speech was not about jobs but a primer for the coming election with the WH proposing solutions that Republican Party via the House rejects. A nasty campaign is coming!
A interesting point from another blog

" Unfortunately, our societies simply don't have the political structures to make the right choices, or at least those that would serve the people best. Our political structures serve those who hold the power, and they will choose to hold on to that power. The structures allow them to use the people's wealth against the people's best interests. It's perverse, it's insidious, and it's our reality. Voting someone else into power doesn't change these structures one bit."

M_O_M; re 2016. I was referring to my observation that Banking Crises take 10 years to work themselves out.

HOWEVER, Being the Incumbent, the President has a tremendous advantage, so as much as I hate to say it, given the poor job he has done, the odds are only 49/51 against.

I've applied the basic physics model to manufacturing jobs.

No gallows humor this time, just 100% gallows.
CF - well, 10 years on a bubble rebuild is good, but it seems to me that the prez has irked too many people to be reelected.

You wouldn't expect conservatives to vote for him. He has provoked the liberals, the teachers' unions....

He lost the independents a while ago. Incumbency is a big advantage, but I'm not sure he can capitalize on it, having spent his political capital. He's going to find it hard to get a credibility loan under the circs.
MOM: you love to make predication so I will join the fun it will be a Republican or Democrat that much seems assured.
Ron - thanks for the laugh. Did you ever see that crossword puzzle predicting one of the Bush/Gore contest? Depending on how you filled it out, either name appeared. Both answers were correct.
Did you read that post on No Oil for Pacifists about the Dept. Of Agriculture? He linked to one article that claimed there are 210,000 full time farmers and ranchers in the US. Then he linked to a report showing 107,000 employees at the Dept. Of Agriculture! I'm just amazed. Every year we have fewer farmers but more bureacrats devoted to them. It seems to be the only jobs program the government is interested in.
Teri, for years, perhaps decades, there's been a joke floating around:

One USDA employee passes the office of a fellow employee. Hearing the sound of crying, he rushes in to find his colleague at his desk, sobbing bitterly. "What's wrong, Bill? Has something happened to your family?" he stammmers. "Is there anything I can do?"

Bill struggles for composure and chokes out "My farmer died."
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