The Seattle Times: Sound Economy with Jon Talton

State and local government deficits will be major drags on recovery

Fri, 20 Nov 2009 10:56:22 PST

Top of the News: Washington state's budget deficit has grown to $2.6 billion, showcasing yet another factor that will keep the national economy in at best a slow recovery, if not an ongoing slump.

State and local government cuts don't just take away many needed government services, they also throw potentially millions more into the ranks of the unemployed and hurt private companies as contracts are eliminated. Ethan Pollack of the Economic Policy Institute looks at the consequences, explaining that while the stimulus has helped, it hasn't gone far enough to ease this drag on the economy.

All totaled, states face a $357 billion budget gap for the two years beginning in 2010. Local governments must contend with another $80 billion. Those in the worst shape, according to the Pew Center for the States, are California, Arizona, Rhode Island, Michigan, Oregon, Nevada and Florida. California, Michigan and Nevada also have employment above 12 percent (the other big jobless victim is South Carolina).

Pollack estimates that each dollar of spending cuts by state and local governments causes $1.41 in lost economic activity. Meanwhile, hard times raise the demand for government services. And America continues to fall behind on investment in infrastructure, education and research, a poisonous gift that will keep on giving in the big reset.

China pulls the world economy back to growth, but no momentum to halt job losses

Fri, 20 Nov 2009 07:52:06 PST

Top of the News: The OECD has good news and bad in its latest report on the world economy. Growth has resumed thanks to China. A sobering thought that, for Americans accustomed to being the enterprise engine of the globe. But that's the good news.

The bad: The growth is not nearly enough to avoid further job losses in the U.S. and EU. "The economic recovery now spreading across OECD countries is still too timid to halt the continuing rise in unemployment," according to the report by the organization of major industrialized nations.

Sure enough, today's jobs numbers are bad. First-time jobless claims for the most recent week were 505,000. The 4-week moving average was down slightly, but still at 514,000. It's better than the same time last year, but the U.S. economy must produce 127,000 net new jobs every month just to keep up with the natural growth of the labor force. Meanwhile, foreclosures are rising and mortgage deliquencies hit a record.

The entirely predictable 'unexpected' housing drop -- and vote on the jobs mess

Wed, 18 Nov 2009 09:49:03 PST

Top of the News: The only ones caught short by the "unexpected" nosedive in new house permits are people who haven't been paying attention.

Sprawl housing construction became the major manufacturing sector in the 2000s as much of the rest of the productive economy was hollowed out. But it rested on consumers taking on unsustainable amounts of debt in tandem with the "creative" financial activities and swindles on Wall Street (and WaMu). That's all gone now.

Americans still face record debt levels and mortgage requirements have been tightened. More subprime mortgages will reset in 2010, and banks continue to be saddled with huge real-estate toxic asserts. Big house-builders are still badly wounded and holding huge inventories of unsold properties, especially in the Sun Belt. Only the government's first-time buyer credit created a mini-bubble thats now fading.

The recovery to "new normal" won't come from another housing bubble.

Join me today at noon PST at seattletimes.com for a Q&A on the state of the jobs market. You can post questions here.

Depression avoided? Not so fast

Tue, 17 Nov 2009 10:31:02 PST

Top of the News: The not-especially-bearish UC Berkeley economist Brad DeLong argues that the U.S. faces a 5 percent chance of a depression-causing shock -- and a paralyzed government won't do much about it.

The significance, beyond DeLong's good reputation, is that for more than 2 years he has said there was no chance of repeating a Great Depression. And 5 percent is a small chance, but serious nonetheless given the widespread hope for a recovery.

"We could cushion the impact of another big downward shock by a lot more deficit spending," he writes. "unemployment, after all, goes down whenever anybody spends more...But the centrist Democratic legislative caucus has now dug in its heels behind the position that we cannot undertake more deficit spending right now because we have a dire structural health-care financing problem after 2030."

Meanwhile, the rescue record of both the Bush and Obama administrations is controversial, to say the least: helping Wall Street socialize losses while keeping its party going. Remember AIG?

Obama in China: Not an opera, more of an awkward meeting with your banker

Tue, 17 Nov 2009 07:54:24 PST

Top of the News: More than ever, expectations are low for President Obama's trip to China. With China (and even the EU) pulling out of the great recession faster than America, and with China holding trillions in American debt, what is there to talk about?

Plenty, of course. And wouldn't you love to be a fly on the wall if the president brings up China's currency manipulation, intellectual property, protectionism -- especially in sustainable energy -- and its looming environmental crash. Instead, from reports I've read, he's explaining to our Chinese lenders "in detail" how health care legislation would affect the budget deficit. That's what happens when you're the debtor. A new world order.

Better numbers from China don't translate into a restart of the great American consumer engine. And Chinese policies help stifle American exports. West Coast ports are still suffering -- although Seattle and Tacoma are not as vulnerable as the mega-port of LA-Long Beach. China and Asia are still buying Washington wheat. Still, Obama's warning to Asia that it can't count on American consumers as it has in the past may be the most important, and undercovered, aspect of this trip.