The “Fake it Till You Make it” President and His Triple-A Country

Let’s take a moment to handicap the president’s remarkable press conference from earlier today.

First, citing Warren Buffett’s absurd notion that he would rate the U.S. government “quadruple-A” was nothing more than a silly gimmick… Of course Buffett, who is deeply invested in all things U.S. (rails, insurance, brick and mortar), would like to maintain a positive outlook on the U.S. but this is hardly a thoughtful or meaningful or even coherent assessment of our long term outlook.

OBAMA: “Last week, we reached an agreement that will make historic cuts in defense and domestic spending. But, there’s not much further that we can cut in either of those categories. What we need to do now is combine those spending cuts with two additional steps. Tax reform that will ask those who can afford it to pay their fair share and modest adjustment to healthcare programs like Medicare.”

Here is a nearly perfect example of Obama either missing the severity of the situation or so ideologically rigid that he cannot see beyond his fraudulent tax and spend policy “solutions”.

There are not only plenty of domestic (and likely defense) cuts that can be made (food stamps, long term unemployment benefits, section-8 housing, government worker pensions, etc. etc.), these cuts are mandatory.

This is what the downgrade is all about. Classic social safety net programs cannot be protected or restructured they need to be dismantled.

This is what “austerity” means… serious real deal cuts and a rollback of fraudulent policy tools that we can no longer afford.

OBAMA: “Specifically, we should extend the payroll tax cut as soon as possible so that workers have more money in their paycheck next year and businesses have more customers next year. We should continue to make sure that if you are one of the millions of Americans who’s out there looking for a job, you can get the unemployment insurance that your tax dollars contributed to. … In fact, if Congress fails to extend the payroll tax cut and unemployment benefits that I have called for, it could mean one million fewer jobs and half a percent less growth. … We should also help companies that want to repair our roads and bridges and airports, so that thousands of construction workers that have been without a job the last few years can get a paycheck again. That will also help to spur economic growth.”

Again, the president appears to be compelled to pair an absurd and un-fundable policy tool with the obvious and sound benefit of extending the payroll tax cut.

Recipients receiving unemployment benefits for longer than the current 99 weeks have largely long surpassed the amount they paid into the system.

As I have noted before, unemployment insurance was NEVER intended to be an endless stipend and by perpetuating the idea that Congress can just continuously extend the benefits, the president is demonstrating that he has no idea of the severity of our current debt situation.

OBAMA: “I know we’re going through a tough time right now. We have been going through a tough time for the last two and a half years, I know a lot of people are worried about the future, but… here’s what I also know. There will always be economic factors that we can’t control; Earthquakes, spikes in oil prices, slowdowns in other parts of the world. But how we respond to those test, that’s entirely up to us. Markets will rise and fall but this is the United States of America. No matter what some agency may say, we’ve always been and always will be a triple-A country.”

This is probably the most pathetic statement of all… We always will be a “triple-A” country?

Guess what… no matter what fantasy the president or those in Washington DC want to believe in, we are NO LONGER a triple-A rated country.

Worse yet, the specter of additional downgrades loom in the near future and with the “leadership” on display in this press conference you can bet our sovereign debt rating is going lower.

Finally On the Path

Hallelujah! The downgrade is finally here and while to many, celebrating such an event is borderline un-American, let’s take a moment to remember that this shift to AA+ from AAA represents a healthy step (however slight) in the direction of reality and away from the fantasy created by the scores of dimwits that have held seat in Washington DC over the past many decades.

From the absurd bailouts and extraordinary measures taken during the recent downturn to the failures of the massive and fraudulent “government sponsored enterprises” to ever expanding social safety net obligations and the preposterous and flatly un-fundable liabilities of archaic “New Deal” era policies, the Federal Government created a vast series of problems that, at this point, have no easy solutions.

But at the very least, the downgrade may initiate a definitive start down a path that could ultimately lead to the resolution of our fiscal woes by forcing major restructuring (i.e. significant austerity) in light of the repercussions that the degraded sovereign credit rating will bring for the macro-economy and as an effort to stave off future additional downgrades.

In short, the downgrade is a clear signal to all with a pulse that things MUST change.

In the meantime we may see a new bear market shape up for stocks, interest rates may begin to increase in the already fragile mortgage market, pessimism and fear may abound leading to a notable decline in household and corporate confidence with all outcomes working to worsen our economic slump.

The key is to recognize that this turn of events had to happen and is but one small step down the only path that can possibly lead to a stronger and solvent nation.

You will likely hear the president, like his treasury department before him, opine about the “math error” or the fact that S&P played a major role in the housing debacle but these are just efforts to discredit S&P’s action which clearly represents a substantial failure for the administration.

The fact is, the downgrade was inevitable, it was logical and wholly deserved for a nation that long ago cast any form of prudence and caution aside in favor of outlandish policy action, wholesale fraud and conceit.

Envisioning Employment: Employment Situation July 2011

Today’s Employment Situation Report showed that in July, net nonfarm payrolls increased rising 117,000 from June while private nonfarm payrolls added 154,000 and the unemployment rate declined slightly to 9.1% over the same period.

Net private sector jobs increased 0.14% since last month climbing 1.68% above the level seen a year ago but but remained a whopping 5.58% below the peak level of employment seen in December 2007.

Full Time Workers Fully Under Pressure: July 2011

Today’s employment situation report showed that in July the full time unemployment rate went flat at 9.8% of the civilian workforce remaining near the highest rate seen in 41 years.

The Bureau of Labor Statistics considers full time workers to be those “who have expressed a desire to work full time (35 hours or more per week) or are on layoff from full-time jobs”.

Full time jobless workers currently account for roughly 88.5% of all unemployed workers.

Recovery-less Recovery: Unemployment Duration July 2011

Be sure to bookmark the "Scary Unemployment Dashboard"... it's live.

Today's employment situation report showed that conditions for the long term unemployed went mixed in July while remaining epically distressed by historic standards.

Workers unemployed 27 weeks or more declined to 6.18 million or 44.4% of all unemployed workers while the median number of weeks unemployed declined to 21.2 weeks and the average stay on unemployment jumped to 40.4 weeks, a new high for the series.

Looking at the charts below (click for super interactive versions) you can see that today’s sorry situation far exceeds even the conditions seen during the double-dip recessionary period of the early 1980s, long considered by economists to be the worst period of unemployment since the Great Depression.

On The Margin: Total Unemployment July 2011

Today’s Employment Situation report showed that in July “total unemployment” including all marginally attached workers declined slightly slipping to 16.1% from the prior month's level of 16.2% while the traditionally reported unemployment rate declined to 9.1%.

The traditional unemployment rate is calculated from the monthly household survey results using a fairly explicit definition of “unemployed” (essentially unemployed and currently looking for full time employment) leaving many workers to be considered effectively “on the margin” either employed in part time work when full time is preferred or simply unemployed and no longer looking for work.

The Bureau of Labor Statistics considers “marginally attached” workers (including discouraged workers) and persons who have settled for part time employment to be “underutilized” labor.

The broadest view of unemployment would include both traditionally unemployed workers and all other underutilized workers.

To calculate the “total” rate of unemployment we would simply use this larger group rather than the smaller and more restrictive “unemployed” group used in the traditional unemployment rate calculation.

On The Stamp: Food Stamp Participation May 2011

As a logical consequence of the prolonged economic downturn it appears that participation in the federal food stamp program is continuing to rise.

In fact, household participation has been climbing so steadily that it has far surpassed the last peak set as a result of the immediate fallout following hurricane Katrina.

The latest data released by the Department of Agriculture shows that in May, a whopping 1,105,217 new recipients were added to the food stamps program, an increase of 12.14% on a year-over-year basis, while household participation increased 14.22%.

Individual participation as a ratio of the overall civilian non-institutional population has increased 11.43% over the same period.

Participation continues to increase with nominal benefit costs climbing a lofty 12.32% on a year-over-year basis to $6.12 billion for the month.

Downgrade! Downgrade! Downgrade!

What an epic non-event.

So the "game of chicken" was played to the end and what do we get for all the strife and tumult?

Nothing more than further confirmation that our legislators (and executive branch) in Washington D.C. are a bunch of big government policy sissies.

Like a gaggle of peacocks, the Feds put on quite a show when agitated but once the going got really tough, they cut and run.

$917 billion over a decade back-loaded so as to mostly take effect after 2013 (or even 2016)?

Another trillion (and change) of cuts over that same period left to be decided by some congressional super committee?

What a ridiculous crock?

This is nothing but a charade, not so surprising I suppose given this "fake it till you make it" era we find ourselves in, but still what a phony baloney outcome.

S&P was looking for at least a $4 trillion debt reduction plan and as the outcome came nowhere near that mark, I say downgrade! Downgrade! Downgrade!

The American people deserve a good downgrade.

Like a good swift punch in the face, cutting the credit rating of the U.S. government would provide an abrupt and sensational burst of painful truth to be felt in all corners of the economy.

No individual, household or firm would be spared and a sense of real outrage would be shared and immeadietly directed at the perpetrators of generations of policy malfeasence and grotesque tax and spend bloat.

But the outrage would not stop with policy junkies in Washington DC.

In all likelihood a downgrade (and the shared pain) would work to force Americans to face the truth about the dire economic predicment they are in and moreover, the fact that they themselvs are culpable for having fallen prey to snake oil pushing policy wonks with a penchant for providing cradel-to-grave "solutions".

Kicking the can down the road may have provided an adequate resolution for this episode of political theater, but the real economy and your future remains under siege of big government debt overload.

Bring on the downgrade!

Extended Unemployment: Initial, Continued and Extended Unemployment Claims August 04 2011

Today’s jobless claims report showed slight decline to initial and an increase to continued unemployment claims as a recent rising trend was called firmly into question for initial claims.

Seasonally adjusted “initial” unemployment declined 1,000 to 400,000 claims from last week’s revised 401,000 claims while seasonally adjusted “continued” claims increased by 10,000 resulting in an “insured” unemployment rate of 3.0%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.71 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.75 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.47 million people on state and federal unemployment rolls.

ISM Non-Manufacturing Report on Business: July 2011

Today, the Institute for Supply Management released their latest Non-Manufacturing Report on Business indicating that overall service related economic activity continued to pull back a bit throughout July while the business activity component increased on the month.

At 56.1 the business activity index increased a notable 5.06% since June while sliding 0.36% below the level seen a year earlier.

Like the ISM Manufacturing index released earlier this month, the non-manufacturing sector respondents are raising some concern over sluggish growth:

"Sales and customer traffic recovered slightly, pulling even with last year after trending lower for several months. Discretionary spending per customer has continued to decline in all areas of the operation." (Arts, Entertainment & Recreation)

"Sales volumes are steady. Input costs are increasing." (Agriculture, Forestry, Fishing & Hunting)

"Business outlook remains steady, but concerns about the second half of the year remain." (Professional, Scientific & Technical Services)

"Municipal government has not bounced back at a similar pace to the private sector." (Public Administration)

"New home construction is still very slow. Repair and remodel is the only bright spot." (Wholesale Trade)

ADP National Employment Report: July 2011

Today, private staffing and business services firm ADP released the latest installment of their National Employment Report indicating that the situation for private employment in the U.S. strengthened in July as private employers added 114,000 jobs in the month bringing the total employment level 1.78% above the level seen in July 2010.

Looking at the chart (click for full-screen dynamic version) showing ADP’s total private nonfarm payrolls since 2001 as well as the year-over-year and month-to-month percent change, you can see that while the job recovery had been anemic throughout most of 2010, more recently the trend had been picking up momentum.

Although the level of jobs is still far below the peak seen in late 2007 and still near the lows seen during the worst period of the "dot-com" recession, the bottom looks to be clearly defined and the trend is looking comparable to past recoveries.

Perusing the rest of the data in the ADP dataset you can see the the economy is currently showing the most growth for small to mid-sized service providing jobs with goods-producing jobs remaining near trough levels.

Look for Friday’s BLS Employment Situation Report to likely show somewhat similar trends.

Reading Rates: MBA Application Survey – August 03 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage declined a notable 12 basis points to 4.45% since last week while the purchase application volume increased 5.1% and the refinance application volume increased 7.8% over the same period.

It's important to note that the average rate for a 15 year fixed rate mortgage is now sitting at the lowest level seen in at least four years.

In any event, the purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to bounce around a bit.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

Outstanding Contraction!: Commercial Paper Outstanding July 2011

The Commercial Paper (CP) market is essentially a private debt market used by corporations as a generally cheaper means of funding typical recurring operations than drawing on a line of bank credit.

Commercial paper, as financial instrument, is by no means a recent innovation and, in fact, you can read about how the CP market was affected by the many historic financial shocks experienced by the U.S. (read Panic on Wall Street: A History of America’s Financial Disasters)

Although the Federal Reserve was able to artificially bring CP rates down significantly since the shocking 615 basis point spread blowout (A2/P2 spread) of late 2008, they had not been successful in preventing an overall contraction in the CP market.

The Federal Reserve calculates and published the total amount of CP outstanding every week and for July commercial paper outstanding continued to rise climbing from a series low (data tracked back as far as 2001) set back in January and is currently expanding at a rate of 9.81% on a year-over-year basis to $1207.50 billion, a level that is still notably lower than even the worst periods of the last two recessions.

Constuction Spending: June 2011

Today, the U.S. Census Bureau released their May read of construction spending showing near-cycle low levels of spending for residential construction while indicating a slight improvement for single family residential and total non-residential spending.

On a month-to-month basis, total residential spending declined 0.3% from May falling 4.82% below the level seen in June 2010 and a whopping 65.15% below the peak level seen in 2006 while single family construction spending increased 0.27% since May falling 10.51% since June 2010 and whopping 77.62% below it's peak in 2006.

Non-residential construction spending increased 1.80% since May but declined 2.02% since June 2010 and a whopping 39.56% below the peak level reached in October 2008.

The following charts (click for larger dynamic versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year, month-to-month and peak percent change to each since 1994 and 2000 – 2005.

ISM Manufacturing Report on Business: July 2011

Today, the Institute for Supply Management released their latest Report on Business for the manufacturing sector indicating that economic activity continued to weaken in July with assessments of most measures slowing.

At 50.9 the purchasing manager’s composite index (PMI) declined a whopping 7.96% since June and slid 7.62% below the level seen a year earlier.

Some respondents indicated sluggish domestic sales, slowing trends and hesitation coming as a result of the debt ceiling debate:

"Market conditions — Europe weak, U.S. soft, Asia strong." (Computer & Electronic Products)

"Export sales very strong, while domestic sales are sluggish." (Paper Products)

"The looming debt ceiling has government agencies backing away from spending. Forecasting a slowdown in demand in the short term." (Transportation Equipment)

"Generally seeing a slowdown, which is typical this time of year. Hopeful that this is seasonal only." (Plastics & Rubber Products)

"Most industrial customers seem to be sustaining their business. Export orders continue to remain strong. Price pressures persist, especially with commodity materials." (Chemical Products)