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Subject: Excellent analysis from The Political Junkies 


DOOH NIBOR          

                TPJ has adamantly contended that Bushs economic policy of staggering national debt and letting the dollar free fall against other major currencies is going to have significant economic consequences.  Here is ONE example that is starting to develop.

                Crude oil prices closed above $34.00 a barrel today.  What does that have to do with Bushs economic policy?  A lot:

Oil prices climbed well above $34 a barrel on Friday as traders responded to colder weather in the Northeast, tight supplies and the high cost of natural gas.


The weak dollar is also pushing energy prices higher, analysts said. "It gives OPEC countries less buying power and literally no incentive to make any increases in output," of crude, which is denominated in dollars, said Tom Bentz, an analyst at BNP Paribas Commodity Futures in New York.


Crude oil for February delivery was up 60 cents to $34.58 in afternoon trading on the New York Mercantile Exchange.


The front-month oil futures contract has not closed above $34 on Nymex since March 17, just a few days before the invasion of Iraq. ABC News (emphasis added).

                Today, the US Dollar continued to bounce at near record lows.  The dollar has come under intense downward pressure in the past few months due to concerns about the U.S. current account deficit and expectations that U.S. interest rates will remain low for some time, while the euro has risen aided by a hands-off approach by European policymakers. Reuters 

                In the coming months, many citizens are going to pay more for gasoline and heating oil.  Bushs tax cuts for most Americans will not even make up for the increase in petroleum products that is coming.  Recall that:

For the four out of five families and individuals making less than $73,000 this year [the tax cut is] averaging about $350 this year . . . . --  Citizens for Tax Justice (emphasis added).

            Who will profit from the increase in crude oil prices.  If you guess American oil drillers and American energy conglomerates you would be right.




                More warnings are surfacing in the face of Bushs economic recovery.   The new warnings are coming former government officials.

                First, John Atcheson, who has held various policy position in the government, sounds alarm bells.  He makes salient points:

Mr. Bush's recovery is - a giant borrowing binge. . . . In February, the administration buried a report from its own Treasury Department that said our current fiscal policies, the ones Mr. Bush likes to claim are bringing on a "recovery," would create more than $44 trillion in chronic debt.  As the London Financial Times noted, $44 trillion is roughly equivalent to 10 times the publicly held national debt, four years of U.S. economic output or more than 94 percent of all U.S. household assets. No wonder things seem good. We've cashed in everything we own at the Bush Pawn Shop, and now we're flashing a serious wad of walkin' around money.  . . .

Mr. Bush likes to say the jobs will come. They'd better. Because right now, all he's managed to do is spend about $350 billion of "your money" to hire 328,000 checkout clerks and greeters at the local Wal-Mart. Meanwhile, we've shipped some 2.6 million high-paying manufacturing jobs overseas since January 2001.  . . .  

So if we're cutting taxes by $350 billion a year in order to stimulate the economy and the economy is growing, but we're only getting an anemic response in employment, what's up? Kenneth L. Lay's stock portfolio, for one thing. And the portfolio of those Bush pioneers we hear so much about. And, of course, Mr. Bush's campaign contributions. As for the rest of us?

Mr. Bush seems to think people can eat gross domestic product. But a growing economy doesn't mean a whole lot if it's not creating jobs. Unless you happen to be Ken Lay or one of those Bush pioneers who don't need a job to earn money. For them, so long as the rest of us keep mortgaging our future, they can keep getting richer. Sunspot

                Second, former Treasury Secretary Robert Rubin  presented over the weekend at the meeting of the American Economic Association. Mr. Rubin and his co-authors Peter Orszag of the Brookings Institution and Allan Sinai of Decision Economics argue:

The United States, they point out, is currently running very large budget and trade deficits. Official projections that this deficit will decline over time aren't based on "credible assumptions." Realistic projections show a huge buildup of debt over the next decade, which will accelerate once the baby boomers retire in large numbers.

All of this is conventional stuff, if anathema to administration apologists, who insist, in flat defiance of the facts, that they have a "plan" to cut the deficit in half.

What's new is what Mr. Rubin and his co-authors say about the consequences. Rather than focusing on the gradual harm inflicted by deficits, they highlight the potential for catastrophe.  "Substantial ongoing deficits," they warn, "may severely and adversely affect expectations and confidence, which in turn can generate a self-reinforcing negative cycle among the underlying fiscal deficit, financial markets, and the real economy. . . . The potential costs and fallout from such fiscal and financial disarray provide perhaps the strongest motivation for avoiding substantial, ongoing budget deficits." In other words, do cry for us, Argentina: we may be heading down the same road. New York Times

The daily headlines continue to tout that the economic recovery is gathering steam. Two stories that did not make national headlines appeared this week belie Bushs touted recovery:

The weak U.S. job market helped nudge credit card delinquencies to a record high in the third quarter of 2003, a banking trade association said in a report released on Tuesday.

Credit card delinquencies rose to a seasonally adjusted 4.09 percent of all accounts in the period from 4.04 percent in the second quarter, the American Bankers Association said. ``The job market has been flying against strong headwinds, lengthening the time between jobs and intensifying financial stress,'' ABA Chief Economist James Chessen said.  . . .

Delinquency rates for direct auto loans and home equity loans also rose, the ABA said. MSN Money   

                While consumer credit delinquencies are generally up, Americans are going ever deeper into debt:

Consumer debt has more than doubled in the past 10 years to record levels, making it hard for many families to cope.

Consumer debt hit a record $1.98 trillion in October 2003, according to the most recent figures from the Federal Reserve. That debt which includes credit cards and car loans, but not mortgages translates to some $18,700 per U.S. household.

                Daily headlines simply do not paint the entire picture.  Bushs administration is financing the recovery by racking up historic levels of federal debt.  Corporate profits are rebounding.  Yet, the recovery has yet to generate jobs for working class Americans.  Working Americans are going deeply into debt, which they cannot pay with increasing frequency. 

                It is Republican trickle down economics with a cruel twist.  Ordinary citizens are drowning in a sea of debt waiting for the Bushs promised trickle. 


                                                TRICKLE DOWN IS THE LAST DROP!

                A number of TPJs readers have written wonderful comments about Thursdays TPJ Junkie Up(date), Compassionate Conservatives New Year, which appears immediately below. One thoughtful reader has asked TPJ how the unemployment rate can fall if Bushs recovery is not producing sufficient jobs.  Great question!

                The unemployment rate published is not quite what most people think it is.  One would logically think the unemployment rate (stated as a percentage) is simply comprised of working age Americans who are out of work and cannot find jobs.  Wrong!  The unemployment rate is the number of people who are out of work and are searching for employment.  Consider these surprising examples:

If an unemployed worker stops looking for employment, they are not counted in the unemployment rate.


If an unemployed worker cannot find work and returns to school, they are not searching for work and are not counted in the unemployment rate.


If an unemployed worker cannot find full time work, but takes a part time job at a greatly reduced salary, they are not counted as unemployed because they have some job.

                Here is a quick example.  The current unemployment rate is 5.9% representing some 8.7 million unemployed workers.  If another 4.9 million workers were unemployed but found part time work, but want full time work, they are not counted in the unemployment rate even though they continue to look for full time work. 

                The example above is part of what has actually happened.  In addition to the 8.7 million unemployed workers, there are another 4.9 million workers who are employed part time but who want full time work. The 4.9 million part time workers looking for full time employment is the highest number in the past decade. LA Times 

                In addition to the 8.7 million unemployed workers and the 4.9 million part time workers who are looking for full time work there are an additional 1.5 million unemployed workers who have become so discouraged that they have simply given up searching for workLA Times  The total is some 15 million workers.  So, when Bush brags about creating 67,000 jobs in any month, it is better than losing jobs, but job creation at these rates will do little to alleviate unemployment and underemployment

                The bad news does not stop there.  A lot of workers who are employable in good times but who have physical or mental impairments are some of the first to lose their jobs in a recession.  What becomes of them?

                A substantial number of impaired workers simply quit looking for work and apply for Social Security Disability benefits.  Research by the economists David Autor at the Massachusetts Institute of Technology and Mark Duggan at the University of Maryland shows that once Congress began loosening the standards to qualify for disability payments in the late 1980's and early 1990's, people who would normally be counted as unemployed started moving in record numbers into the disability system a kind of invisible unemployment. Almost all of the increase came from hard-to-verify disabilities like back pain and mental disorders. As the rolls swelled, the meaning of the official unemployment rate changed as millions of people were left out.

                By the end of the 1990's boom, this invisible unemployment seemed to have stabilized. With the arrival of this recession, it has exploded. From 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million. Therefore, if you correctly accounted for all of these people, the peak unemployment rate in this recession would have probably pushed 8 percent. 

                The point is not whether every person on disability deserves payments. The point is that in previous recessions these people would have been called unemployed. They would have filed for unemployment insurance. They would have shown up in the statistics. They would have helped create a more accurate picture of national unemployment, a crucial barometer we use to measure the performance of the economy, the likelihood of inflation and the state of the job market.  . . . 

                Take the revised numbers released by the Commerce Department [recently]. They showed that output in the third quarter grew at a rate of 8.2 percent, an extraordinary pace, and productivity grew even faster. Almost no one noted, though, that Social Security also announced the latest data on disability applications. Almost 200,000 people applied in October up 20 percent from the previous month tying the highest level ever. Despite the blistering growth of the economy, the invisible unemployment problem continues. New York Times (emphasis added).

                Not even counting the number of unemployed workers who are approved for Social Security Disability benefits, the (1) unemployed workers, (2) part time workers looking for full time work and (3)  those workers who are unemployed and have given up looking equates to an unemployment rate of 9.7% UP from 9.4% a year ago.  LA Times 

                Where is America headed?  The worst [scenario] is that companies continue to eliminate jobs faster than they create them, setting up a game of musical chairs for the labor force.

                That prospect alarms Erica Groshen, an economist with the Federal Reserve Bank of New York. "If you plot job losses versus gains on a chart, it's shocking," she says.

                Losses are running at about the same rate they were in 1997 and 1998, two good years for the economy. But job creation in the first quarter of 2003 the most recent period available was only 7.4 million, the lowest since 1993.

                "If this goes on too long, you'd have to worry there's something fundamentally wrong," Groshen says. Although the economy has picked up since March, "so far I haven't seen anything that suggests job creation is picking up." LA Times 

                What does it all mean?  It means:

1.               Bush is the steward over the first Presidential administration since Herbert Hoover and the Great Depression that has lost more jobs than the economy created over net 2 million jobs lost.  It is inconceivable that Bush will be able to rectify that record before the 2004 election.

2.              The recovery thus far is stratified.  Corporate profits are up and the wealthiest Americans who got the lion share of Bushs tax cuts had money this Christmas to spend at the upper scale stores as noted in Krugmans article below.

3.              For the vast majority of Americans, the recovery is a phantom thus far.  Unemployment, underemployment and disabled workers combined remain high.  Unemployed workers getting jobs are not increasing their incomes (advancing up the economic ladder).  Most people are hanging on, in many cases working part time jobs at less salary and without health insurance benefits.

4.              The rate of new jobs being created is not in line with recoveries from prior recessions.   Something is amiss as Erica Groshen, an economist with the Federal Reserve Bank of New York, noted above.  That something is, in part, the export of high paying jobs, including those in the technology sector, oversees. In short, the jobs that are being created in the United States are trending down to lower wage positions.

                This is classic Republican trickle down economics.  For those readers who are not as old as Junkie, trickle down economics is essentially the theory that if those corporations and individuals at the top of the economic ladder become wealthier that wealth will trickle down to those of at the bottom of the ladder. 

                Bushs classic Republican policies have had their effect for major corporations and the wealthiest Americans as the numbers above clearly demonstrate.  For the rest of us looking from below, the trickle Republican economic policy promises appears to be just a drop. 

                Graphically, the Republican trickle down theory that looks like a drop is demonstrated by this chart from the Economic Policy Institute

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                2004 is an election year!  Bad economic numbers cannot threaten Bushs reelection.  Republicans are already working on making the numbers, thus the news headlines, look better.  Read how they are accomplishing that goal in this Sundays TPJ in Compassionate Conservatives Happy New Year Cooking the Economy!



COMPASSIONATE CONSERVATIVES  HAPPY NEW YEAR                                   

                You have been reading the headlines.  The Gross Domestic Product grew at a staggering 8.2% in the third quarter, the stock market is above 10,000 and unemployment claims are down.  The headlines would have you believe that Bushs economic policy is working and America is rebounding.

                Even when the economic news is not as rosy as we would like, the spin masters continue to paint a bright economic picture.  Consider the slant on this article just this week:

Anxiety about the job market is causing consumer confidence levels to dip, while housing sales also are slowing. But economists aren't worried they say the outlook for improvement remains rosy, and the pullbacks are a normal kink in the economy's path to recovery.


The Conference Board reported Tuesday that its consumer confidence index slipped to 91.3 in December, following a surge in November to a revised figure of 92.5, its highest level in more than a year. A retreat had been expected, although the latest number was below expectations; analysts had forecast the index would come in at 92.2.


Also Tuesday, the National Association of Realtors reported that sales of previously owned homes declined by 4.6 percent in November to a seasonally adjusted annual rate of 6.06 million homes.

Both reports are closely watched because of the insight they provide into the mood of consumers. Yahoo (emphasis added).

                Paul Krugman makes the point succinctly:

It was a merry Christmas for Sharper Image and Neiman Marcus, which reported big sales increases over last year's holiday season. It was considerably less cheery at Wal-Mart and other low-priced chains. We don't know the final sales figures yet, but it's clear that high-end stores did very well, while stores catering to middle- and low-income families achieved only modest gains. Based on these reports, you may be tempted to speculate that the economic recovery is an exclusive party, and most people weren't invited. You'd be right. New York Times (emphasis added).

                Bushs recovery is both relatively jobless and wage deficient. 

                First, jobless!

                Krugman first notes that, [p]ayroll employment began rising in August, but the pace of job growth remains modest, averaging less than 90,000 per month. That's well short of the 225,000 jobs added per month during the Clinton years; it's even below the roughly 150,000 jobs needed to keep up with a growing working-age population.  New York Times

Recall that Bush promised that his tax cuts would create over a million new jobs.  Job Watch has documented what has really happened.  The presidents economics staff, the Council of Economic Advisers (see background documents), projected that the plan would result in the creation of 5.5 million jobs by the end of 2004306,000 new jobs each month, starting in July 2003. Although jobs increased by 57,000 last month, November 2003, the "Jobs and Growth Plan" still fell 249,000 jobs short of the administrations projection. The administration projected that a total of 1,530,000 jobs would be created in the first five months after the tax cuts took effect. In fact, only 271,000 jobs were created over those five months for a cumulative shortfall of 1,259,000 jobs. The failure of the plan is nationwide, with job creation falling short in 48 of the 50 states (see state data). Job Watch

One reason job creation in the United States has lagged is that corporations are outsourcing jobs to other countries.  US corporations are picking up the pace in shifting well-paid technology jobs to India, China and other low-cost centres, but they are keeping quiet for fear of a backlash, industry professionals said. Morgan Stanley estimates the number of US jobs outsourced to India will double to about 150,000 in the next three years. Analysts predict as many as 2 million US white-collar jobs such as those filled by programmers, software engineers and applications designers will shift to low-cost centres by 2014. ZDNET UK

                Second, wage deficient.

                Not only is job creation weak, wages are not rising despite significant gains in productivity.  After all, companies have been able to increase output without hiring more workers, thanks to the rapidly rising output per worker. (Yes, that's a tautology.) Historically, higher productivity has translated into rising wages. But not this time: thanks to a weak labor market, employers have felt no pressure to share productivity gains. Calculations by the Economic Policy Institute show real wages for most workers flat or falling even as the economy expands. New York Times

In fact, the Economic Policy Institute reaches this damning conclusion:

Labor compensation's share of total income growth averaged 61% in previous recoveries, and has never been lower than 55% until the most recent one, in which labor compensation has accounted for only 29% of total income growth. Conversely, profits' share of total income growth averaged 26% in all previous recoveries, and have never been higher than 32% until the most recent recovery, in which profits accounted for 46% of income growth. -- Economic Policy Institute

                In practical terms this means, [s]ince July the average hourly wage increase for the 85 million Americans who work in non-supervisory jobs in offices and factories is a flat 3 cents. Wages are up just 2.1 percent since November 2002 -- the slowest wage growth we've experienced in 40 years. The American Prospect  

According to a study by the U.S. Conference of Mayors, new jobs created during the 2004-05 period are forecast to pay an average of $35,855 far lower than the $43,629 average pay of those jobs lost between 2001-03. Increasingly, companies are shipping well-paying manufacturing and white-collar jobs overseas. At the same time, the productivity gains we gloat about are just code for the fact that companies are squeezing more and more work out of fewer and fewer workers. That means the jobs that are exported are either not replaced, or replaced with other ones in lower-paying sectors of the economy. The result is what Business Week calls the "Wal-Martization of America": an economy dependent on "hiring temps and part-timers [with no benefits], dismantling internal career ladders, and outsourcing to lower-paying contractors at home and abroad." All told, "More than a quarter of the labor force, about 34 million workers, are trapped in low-wage, often dead-end jobs." AlterNet 

                Is it surprising then that Christmas sales at middle class stores were weak as noted by Krugman?  Not in the least.

                The jobless and job deficiency of Bushs recovery is even more startling given Bushs deficit spending is at record levels.  With the federal government spending massive amounts of money, one would reasonably think that the economy would be roaring.  It is just the opposite:

The biggest policy blunder, when it comes to strong and stable growth, has arguably occurred with respect to federal government outlays. As households and the economy needed better employment opportunities, the Bush administration not only squandered the chance to implement an effective economic stimulus in 2001, but it also mortgaged the future, and thus raised the chance of future economic slowdowns, due to large and largely ill-advised tax cuts. The Congressional Budget Office even called the long-term fiscal trend unsustainable in their updated budget outlook released in December 2003. In order to return to a more sustainable path, the government would have to raise taxes or cut discretionary expenditures, which are already low outside of homeland security and defense. After the deficit party of the 1980s, when deficits soared as high as 6 percent of GDP, the U.S. economy faced a prolonged budget hangover to bring deficits back to more manageable levels. As long as deficits are high, the economy faces the risk of higher interest rates, of slower growth due to less private and public investment, and of fewer stabilizing interventions when things turn sour.


The large budget deficits, however, exacerbate the problem of the U.S. trade deficit. A colleague recently called the U.S. record trade deficits, the trap door under economic growth." Already, the U.S. needs to borrow about $2 billion per day from overseas investors to finance these deficits. At some point, foreign investors will decline to lend more money to the U.S., especially if the federal government also runs large unsustainable deficits that need to be financed through more debt as well. Investors may simply require higher interest rates to continue lending, or they may start withdrawing their funds. Higher interest rates, a rapidly declining dollar, or both could be the result, with detrimental effects on growth and employment. The situation is made even more worrisome by the Bush administrations ability to offend important international allies. As unilateralism breeds mistrust, the U.S. may have to pay a price, literally, in the form of higher long-term interest rates. Center For American Progress

                As noted in TPJs Junkie Update from this past Tuesday (appearing below), Bushs compassion runs to Americas corporations and Americas wealthiest citizens.  A Compassionate Conservatives Happy New Year!