Belmont Club

The Knife's Edge

The New York Post says it’s finally happening. Manhattan’s population is dropping for the first time since 1992. Reduced budgets mean subway service is being scaled back and cops are being taken off the beat. Crime is already up. Yet rising public sector pensions mean that total spend will rise by 10%. The era of less for more is here.

Or is it? The Economist sees “hope at last”. But even this consists of being able to find opportunities in tougher times. The Economist argues that if the US can increase its exports, if it can turn the current economic crisis into downsizing business opportunities, if it can successfully develop more domestic energy resources, if President Obama taxes investment less and consumption more then America can begin “a long overdue rebalancing”.

It ain’t gonna happen, argues Marc Fisher of Bloomberg, because real productive capacity has been replaced by parasitic professions. He claims the world economy is one big bubble; one that is about to burst

Americans have become less productive while relying more on social safety-net programs such as Medicare, Medicaid and Social Security — and now expanded health-care insurance. Worse, like the ancient Romans, a sense of entitlement has replaced the drive and motivation we once championed. With easy access to abundant government handouts, it’s no wonder so many jobless people have stopped looking for work. …

China and the other developing countries that are amassing dollars, euros and pounds basically play a game of global hot potato, trying to pass the potato — worthless paper currencies — to others in exchange for energy, water and valuable food assets. …

Once people begin to realize that their paper currencies, stocks and bonds are all garbage, we can expect a meltdown.

Analysts are trying to figure whether the trends are pointing up or down. The Washington Post reported that economists who expected the private sector to add 40,000 jobs were instead shaken by a net job loss of 23,000. That will be offset in employment stats by the fact that 100,000 new government jobs will have been created, with many more in the works.

The ADP number does not always correlate to the government’s unemployment figures. However, because ADP counts only private-sector employment, not government jobs, it may show a clearer picture of the state of U.S. joblessness. Friday’s government report will be inflated by as many as 100,000 new temporary jobs — workers hired for this year’s census. Throughout the course of this year, the Commerce Department expects to hire more than 600,000 census workers, whose jobs will end when the survey does.

This tracks Fisher’s observation that deadwood is sprouting at even faster rate than the green shoots are dying. The WaPo said “the Commerce Department said that consumer spending rose only 0.3 percent last month, a troubling figure for an economy that is 70 percent based on consumer spending.” Yet not all hope was extinguished. Despite bad news on the job front the Dow Jones was up 4 percent over this time last year and NASDAQ is up 6% over the same period. And world stock markets rose “boosted by upbeat data on European and Chinese manufacturing”.

Timothy Geithner says “We’re probably just on the verge now of what we think will be a sustained period of job creation finally.” Not everybody believes that golden prospect is at hand though. Democratic strategists James Carville and Stan Greenberg think that the economy may continue to be a problem. Greenberg said “the recession has actually accelerated for people who are living in this economy”. Carville confessed that “my qualm is that … the president doesn’t do the kind of ‘1-2-3 we’ve got a plan'”.

If only it were that simple. The probable reality is that nobody really knows where the world economy will go. Most are hoping it will improve, but an equal number find very little ground for optimism. About all that can be said with any confidence is that we’ll find out what happens eventually.

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