I WON'T PRETEND TO BE A STATISTICAL BRANIAC when it comes to the economy. Well, statistically I'm a braniac but not when it comes to statistics. Oh, never mind. Anyway, maybe someone can explain to me why, with all the hoopla about the US only losing 11,000 jobs last month, there is this other statistic from a private payroll company, called ADP, that provides payroll services to 1 in 6 US workers, 23 million, which says that the economy lost 139,000 jobs in November. I wouldn't want to suggest a government head count was inaccurate or politically motivated, of course. I just want to know how they came up with such different numbers.
Anyway, even by the most optimistic numbers there's still a helluva lot of people out of work in the USA. And many of those have now been unemployed for half a year or more - 38.3 percent of the unemployed, up from 35.6 percent. That's probably why one economist, Allen L. Sinai described the good news this way:
“Things are getting better, but a one-month respite, frankly, means nothing in the context of the worst labor market ever seen since the 1930s.”
And, at this point, I still stand by my argument that the US economy has bought a temporary relief on the basis of postponing a major correction. It may be that the economy stabilizes as a result of the $787 billion stimulus package (not to mention trillions more in bank bailout cash) but one of two things face the US economy in the future. Either the effect of the bailout won't be sustained and into next year the recovery will lose steam. Or the contradictions that led to the present crisis - the financialization of the US economy, the massive growth in both private and public sector debt - will continue to overhang the economy and lead in a few years to a new crisis. I suspect if it's the latter, it will take less time than the gap between the last bubble burst - the dot-com bubble - and the most recent one, about 8 years.
Likewise, the imbalances in the global economy haven't even been touched and, if anything, have gotten worse as China has poured most of its stimulus spending into investment, creating a mass of over-capacity. Trust me on this, I'm a brainiac.
WHY, YOU MAY BE ASKING YOURSELF, DID the whole world freak out that Dubai World - the state owned development company in the United Arab Emirates - was going to ask for a debt payment moratorium? The amount of debt that is unpayable - $59 billion - isn't as high as that of the Royal Bank of Scotland ($77 billion) or the behemoth insurance company AIG ($85 billion). But it's no small fish either and if it is forced into to default on that loan it will ripple through the system in several ways. The first is directly as all those banks, investment funds, etc. that sank money into Dubai are suddenly holding worthless paper. The second is the chilling effect - like the credit crunch of 2007-2008 - which frightens other banks and makes them not want to lend to each other or to their customers. The third effect is the "flight to safety" as money floods "safe havens" like the US dollar, gold, etc. and out of developing markets, the stock market, etc. In fact, the Dubai fiasco is just bringing to light what some commentators have suggested for a while - that we are at risk of a double-dip recession.
For my money, this isn't a question. In the US the infusion of massive amounts of cash - literally trillions of dollars to keep the financial sector afloat and the $787 billion stimulus package - has barely managed to stimulate a heartbeat out of the economic body of the US. In the last quarter, growth was measured at an anemic 2.8 percent, a downgrading from an earlier estimate of 3.5 percent. Meanwhile, the housing market remains a national disaster with 1 in 7 mortgages are either in default or behind by at least one payment. Because of the fall in home values, 23 percent of mortgages are now worth more than the houses they are applied against. The unemployment rate continues to rise in the US - now at 10.2 percent. US bankruptcies rose 33 percent in the third quarter. Meanwhile, even though the Federal government is offering stimulus, state governments are faced with the likelihood of massive cuts as 31 states face shortfalls worth $53 billion with ten - representing 1/3 of the US population - facing imminent bankruptcy. I'll stop before people start jumping off of buildings. But I'll just note that the big bang of the stimulus package ends this year and with Obama talking about deficits as the big danger facing the economy, I wouldn't expect much more on the table.
And, expect China to hit the wall next year - even if there's some growth in the West, which I highly doubt. China's export-oriented economy has been kept running at full tilt by a $500 billion stimulus package and the massive expansion of credit. But all that money has gone into investment - rather than consumption - to increase the number of factories to produce products for export to a world that can't afford to buy them. And as China manipulates its currency to keep it low - so that its exports are attractive - there is growing anger and the possibility of tariffs in response to Chinese export policies. China is about to find itself with a boatload of capacity and nobody willing to buy it externally and not enough people able to afford to buy it internally. The EU is pushing already for China to let the value of the yuan rise against the Euro and other currencies to begin to overcome trade imbalances (China selling more than it's buying).
Here in Canada, things don't look so hot either. As a big exporter to the US, we're very dependent upon what happens down there. We've been relatively shielded because there wasn't the same build-up of a bubble here in the housing market, which precipitated the crisis down south and locked up credit markets, which deepened the damage. But, as Murray Dobbin notes, the Canada Mortgage Housing Corporation has now effectively become a massive sub-prime mortgage lender as the Tories dramatically loosened lending rules to prop up the housing market. That and the rock bottom interest rates have created a stunning boom that has seen house prices rise by as much as 20 percent in Toronto in the past year. That can't last forever - certainly not in the face of a double-dip recession. If unemployment starts to rise and people on the edges start to default, we could be in for a replay in miniature of what happened in the US. The Tories must have been banking on the recession ending before the problems really reached maturity in the housing market - then employment would rise and all would be good (of course, so would interest rates and thus payments for many people...).
It looks increasingly likely that the "pop" of the debt bubble in Dubai is going to reveal that the entire facade of the recovery in the rest of the world was just that - all surface with nothing of substance underneath. And if it bursts this time there's not going to be the will to try and repeat stimulus spending. Governments, already talking about cutbacks, will pull a Herbert Hoover and try to balance the budget, thus deepening the recession. And then there is the danger they will try to respond by externalizing the problem through the erection of tariff barriers that will disrupt the global economy further - exactly what happened during the Great Depression, facilitating the global collapse.
Now, none of this might happen. I could be totally wrong and Marxists are notorious for predicting 6 of the last 4 recessions. But with the apparent failure of the stimulus packages, I don't see any other possibility. Sorry about that... On the brighter side, today's Friday!
And who could blame them? I mean, we all know that governments lie most of the time, that they cover their screw-ups and try to lay the blame on others. But Harper and his band of merry yahoos have set a new gold standard in open clandestinity and subterfuge. As James Travers notes in an editorial in yesterday's Star:
"Bogus economic action plan cheques, skewing stimulus spending to Conservative ridings and stonewalling the inquiry into the treatment of Afghan prisoners are only the most recent additions to a long list. Among its starred items are a manual instructing Tories how to thwart Commons committees, the systemic sabotage of access to information laws that are accountability's cornerstone and the financial gutting of the public budget office Harper is now determined to make irrelevant."
The past week alone we've been exposed to the Tories use of public money to hold pep rallies for the Leader, aka town halls on the economic recovery plan. We have Peter MacKay, either utterly incompetent as a minister of the government or utterly incompetent as a convincing liar telling us that he can't figure out how he missed a full year's worth of reports on Afghan torture. In fact it's like the whole Conservative cabinet are standing around scratching their heads: "did you see those reports?" "Shit, no, I was in my riding greasing the palms of developers and other community leaders with public money." "Don't look at me, I was campaigning against gay marriage and abortion. I had no time to look for any so-called reports."
At first I thought that they took us for idiots. But now I think that they really just don't get how this game is played. You see, Chretien was something of a mobster don. He was corrupt but he understood "the little guy". He was, after all, The Little Guy From Shawinigan. He was a paternal populist. And he listened to the people until they didn't want to listen to him no more. Then he went off to be a lawyer and consultant for some gas companies running pipelines through the south of Afghanistan - a war that he brought us into. This guy knew how to feather his bed. Harper should give Chretien a call, get some tips on taking with one hand and giving with the other.
Meantime, they've got a hole to dig themselves out of. On top of everything else that "detestable murderer and scumbag" former Armed Forces chief, Rick Hillier has come out with a book about war and politics. He details at some length how the Tories specifically and directly tried to hide the coffin of the first female Canadian soldier to die in Afghanistan, Capt. Nichola Goddard.
The Tories are wont to go on about supporting the troops. In fact, I recall the Tories chastising the opposition, in particular Jack Layton, about raising the torture scandal in parliament because it gave aid to the Taliban figthing against Canadian troops. And yet, the truth is the troops have only ever been fodder for the Tories. They serve as a means to try and undermine anti-war sentiment. They serve as a means to defend gas pipeline development and prove to the US that we're on board with whatever crazy military adventure they can dream up. But when they die doing what the government has told them to do, well, then they're no use to Harper any more and they should be hidden from public view.
These guys sure do make it tough to like them.
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