Recalibrating Our Future

The Obama administration believes the direct unemployment rate for 2010 will pretty much stay around 10% (it’s officially 9.7% now) and will even ride at a high 7+% well into 2013. That doesn’t even take into consideration the “alternative measurement” of under employed folks – people who have given up looking for jobs but want to work and part-timers still fighting for full time – 16.8% nationally, but well over 20% in the hardest hit states.

With growth capital in the form of bank loans to small and mid-sized business nowhere in sight, particularly as local banks deal with the massive defaults expected in commercial real estate, most businesses are realizing that their long-term employment needs require some serious downsizing. The March 15^th DailyFinance.com: “‘There are a lot of industries that are recalibrating how much output they can produce and how many people they can employ,’ says Christopher Woock, research associate at the Conference Board who co-authored a recent report on the labor market's recovery from the current recession. ‘There is going to be some significant reallocation of workers across industries, and so we are going to have this period when people are going to have to reassess and find employment opportunities in other industries.’”

Fewer workers not only generates lower consumer spending – which has a further negative pull on business growth – but generally, the tax base suffers as the unemployment benefits skyrocket and drag on for years. Almost 41% of our nation’s unemployed have been jobless for over 26 weeks… 6.1 million out of the total 14.8 million unemployed. Most of these folks aren’t going back to their former jobs and many might not even find work in the industry they left.

“‘Unemployment benefits are a big driver of the budget deficit,’ says Brian Bethune, chief financial economist at IHS Global Insight… Bethune said that from October 2009 through the end of February 2010, the government spent $114.9 billion on all unemployment benefits. During the same period in the previous fiscal year, the government spent $37.7 billion. ‘If we continue to spend at that rate, for the full year we would be close to $250 billion.’” Daily.Finance.com. Sure we see momentary increases in consumer spending, but the elephant in the room is that medium and even long-term trends don’t forecast any material increase in that consumer number. As far as average net worth also impacts consumer confidence, a vital precursor to increase consumer spending, the lack of credit also has put a lid on any significant increase in the housing market – if anything, we should see an increasing number of home values fall well below their mortgage loads.

The bigger question is, of course, whether this economic collapse is covering up a bigger shift in economic power from the Western world to Asia. The March 15^th New York Times reports that the overall credit ratings of major Western powers could easily fall: “Major Western economies have moved ‘substantially’ closer to losing their top-notch credit ratings, with the United States and Britain under the most pressure, Moody’s Investors Service said Monday in a reminder that the global debt crisis is not limited to the small or weak…The ratings of the Aaa governments — which also include Germany, France, Spain and the Nord ic countries — are currently ‘stable,’ Moody’s analysts wrote in the report. But, it added, ‘their ‘distance-to-downgrade’ has in all cases substantially diminished’.”

China – the big winner in the economic wars – is definitely feeling her national oats. She has pushed back against Google’s attempt to relax censorship rules, defied U.S. pressure to allow her currency to increase in value against the dollar and generally asserted her independence from any major policy shifts requested by the West. The March 15^th Washington Post: “China's government has embraced an incre asingly anti-Western tone in recent months and is adopting policies across a wide spectrum that reflect a heightened fear of foreign influence… The shift has accelerated as China has emerged stronger from the global financial meltdown, with a world-beating economic expansion rate and a growing nationalist movement. China has long felt bullied by the West, and its stronger stance is challenging the long-held assumption shared among Western and Chinese businessmen, academics and government officials that a more powerful and prosperous China would be more positively inclined toward Western values and systems.

“China's shift is occurring throughout society, and is reflected in government policy and in a new attitude toward the West. Over the past year, the government of President Hu Jintao has rolled back market-oriented reforms by encouraging China's state-owned enterprises to forcibly buy private firms. In the past weeks, China announced plans to force Western companies to turn over their most sensitive technology and patents to Chinese competitors in exchange for access to the country's markets.”

In the end, the only sure thing is that life in the U.S. will be different and probably downsized for the foreseeable future. That our politicians are seemingly irretrievably fractionalized and unable to grapple with the long-term realities that affect us all does not augur well for the survival of this powerful democracy through these trying times. Unless we all work together, perhaps what we are really going to see is the “beginning of the end.” I, for one, would like to think I’ve left my son and his children with a better world and a powerful long-term country called the United States of America.

I’m Peter Dekom, and the worst thing we can do for our future is fight each other.