Answering Two Readers’ Questions

1. One comment referred to the abundance of well-paid job listings on Internet job and career placement sites as possible evidence that the economy is more robust than either I or the unemployment statistics suggest. Interesting observation until you look behind the listings.

First, even when the economy is good, a sizeable number of those listings are “in form only.” Many employers, who have already decided to promote from within or have already picked the person they wish to hire, often use these job sites to prove that they are in compliance with contractual open hiring requirements (often required of government vendors, for example) and/or as evidence that they have complied with Equal Opportunity laws. By showing these online advertisements, whether or not they generate resumes, these ads offer proof that the company opened the job description to all qualified candidates.

Second, in tough economic times, companies may be focused on more than taking down online job postings as the positions are filled. Many employers are remiss in this task. The proof of the pudding is to apply through these sites and watch what happens. There’s not much real employment coming out of those sites these days.

2. Another reader noted that if the Fed (the Federal Reserve) further drops the interest rate they charge banks, this will stimulate the economy by making lending easier. In normal times, this may have been more true than today (although, look at what cheap money did to our borrowing addiction). In fact, lowering interest rates can actually backfire. Let’s look at a recent example.

Australia’s central bank (the Reserve Bank of Australia) dropped its lending rate to banks by a full percentage point (what bankers call “100 basis points”) a few days ago, but after a very brief stock market rally, the Australian dollar fell into a tailspin against other currencies. Lower rates meant that investments in Australian currency would experience a lower rate of return – hence the currency dropped in relative value. The move that was intended to make borrowing easier actually reduced the buying power of the Australian dollar, pushing the cost of necessary imports like oil to a higher level.

In the United States, the big issue is not interest rates anyway (although it is easier for banks to borrow money from the Fed when rates are low, theoretically giving them more access to funds to lend to consumers and businesses) – it’s the lack of money in the system that can be lent (a “liquidity” crisis); the money available for loans is just not there because it was sucked out of the marketplace by bad home loans and all of the heavily borrowed institutions (who had used what were now clearly a huge number of “bad mortgages” as collateral – companies like Lehman, Bear Stearns, AIG, etc. – that literally inhaled all of the available borrowing capacity into the vortex of their own destruction). Sure the government could just print more money (a figure of speech, because lots of cash moves without real paper currency anyway; the government instead increases the “money supply”), but take a wild guess what that does to inflation.

And while the “rescue plan” (Emergency Economic Stabilization Act of 2008) has provisions to allow the Treasury Department to move money into place to be used to create that liquidity (and the Fed is helping by buying up “commercial paper” – literally corporate promissory notes that have legitimate trading value, usually with larger, established entities), there are real questions as to whether this bill provides enough money to “unfreeze the credit markets,” and whether the timing of the release of the money is going to be fast enough. After all, if a worker is laid off because the boss can't borrow against goods sold but not yet paid for, getting a loan two weeks after a job is gone is not particularly comforting.

In the end, most economists don't see a depression, but there appears to be a strong consensus that recession will be with us for a while. On the other hand, the average American seems to expect much worse; according to a CNN/Opinion Research Corp. poll of a thousand people taken this past weekend, “21 percent of those polled say that a depression is very likely and another 38 percent say it is somewhat likely.” Since “trust” is needed to restart this engine, from a pure psychological perspective, we've got a lot of work ahead of us.

I’m Peter Dekom, and I approve this message.