So Much for The Stimulus Plan

Back in January I wrote that this stimulus plan was not going to save us from a recession. If you doubted my prognosis, today’s unemployment and retail sales numbers were an exact confirmation of what I wrote.

Consumers are finding that their paychecks are not keeping up with rising food and gas prices. They are also dealing with tighter credit, a housing slump that does not look like it will be ending anytime soon and a weaker job market. Such fears have dragged down consumers’ outlook for the economy to the lowest level in decades, according to the Conference Board.

A report on unemployment Thursday underscored the woes in the job market. The Labor Department reported that the number of newly laid-off people signing up for jobless benefits last week climbed to its highest point in more than six years as companies cut back. New applications for unemployment insurance rose by a seasonally adjusted 7,000 to 455,000 for the week ending Aug. 2, putting claims at their highest level since late March 2002.

Most analysts understand that when new unemployment claims average over 400,000 a week, we are in a recession. I believe the recession actually started in January and will continue for another 9-12 months. WalMart noticed that sales dropped in the last week of July, either because the stimulus checks had been spent or their customers had the normal end of month “run out of money” effect. The more serious problem is the Hidden Unemployment in which people who would like to work full time are having to take part time jobs. In effect this would push the real unemployment rate over 10%. The only saving grace from this quarter’s GDP numbers was that the cheap dollar helped exports, but our favorite Cassandra, Nouriel Roubini makes a fairly compelling case that we are about to enter a global recession. That will surely cut exports.

As I have said all along, the end of the Presidential campaign in late October will be played out against a backdrop of an angry country, with lots of unemployment and an even deeper downturn in retail sales. Despite Phil Gramm’s entreaties, it will not be a “mental recession”. I don’t see how the Republicans can win in that “throw the bums out” atmosphere.

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0 Responses to So Much for The Stimulus Plan

  1. Ken Ballweg says:

    Not exactly hard to foresee, since, other than those congress critters, I don’t know of anyone who thought that going deeper in the deficit hole by tossing out chump change to the masses was going to change anything.

  2. Brian says:

    It’s time to fire up the printing presses once more. Let’s see if we can do better than Zimbabwe.

    When will the Fed see the light and raise interest rates? Inflation will be over 10% by the end of the year and that’s with slowing demand. When the economy turns around late in 2009, if rates are still low, than watch out for inflation near 20% when demand comes back on line.

    In the real world, one bad decision (Bear Stearns) does not cancel out another (credit lines to investment banks) and the higher the sewer gets, the more people will drown when the dike breaks. That’s the reality of globalization.

  3. Thomas says:

    When the desert nomads would sack the cities and take the precious metals and jewels from the temples, the economy boomed. The nomads would end up trading with the same people from which they seemed to had stolen. This economic activity allowed for the circulation of currency when the economy’s problem was a tying up of wealth by the religious powers.

    In our country that’s not the problem. In fact many would say that our monetary policy is too liberal. The fed makes it too easy to borrow money, money lenders become predatory, and we get ourselves in a huge housing mess.

    Please, keep your pittance of a stimulus check to yourself, Uncle Samuel, and start making real strides to ensure these economic crises are less damaging and more like regular business cycles that are bound to happen anyway.

    Nice post.

  4. tsfiles says:

    But the socialists tell me that when you re-distribute wealth, it’s supposed to do good things. You know, world peace, kumbaya and rainbows.

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