Is the glass half-full or half-empty? The latest employment numbers show the economy lost 532,000 jobs in May, says the Christian Science Monitor, using figures from the private firm ADP. A big number, sure, but that means fewer Americans lost their jobs in May than in the previous six months.
Not among the 532,000 who lost in May — and unlikely to be in the unemployment line soon — are CEOs whose banks didn’t do so well on the stress tests. CNN Money: “The government forced former General Motors CEO Rick Wagoner to step down earlier this year. But it looks like top banking executives will avoid suffering the same fate. Last month, banking industry regulators ordered the ten banks that needed to raise more capital as a result of the government’s stress tests to review their senior management and board members to make sure they had the right people in place to navigate the recession. …So even though the chief executive officers of top banks remain under severe scrutiny for the mistakes made before and during the credit crisis, industry analysts don’t envision major management shake-ups.”
Job losses may have slowed, but they continue to drive bankruptcy filings, which USAToday says topped 6,000 per day in May.
That light up ahead. Is it the end of the tunnel? Or an oncoming train?
A “small group of economists” believe it’s the end of the tunnel. Financial Times: “Is the US recession over? A handful of bullish economists are starting to claim that it is, or that it very soon will be. …This is still very much a minority view. Most economists think the economy is stabilising but the low point has not yet been reached.”
Paul Krugman fears it’s a train. BBC: ”
Paul Krugman, who won the 2008 Nobel prize for economics, told the BBC that any recovery would be “so slow it would feel like a recession”.
He is urging the U.S. government to introduce a second stimulus package of $500 billion to boost the economy.
And he rebutted claims that such a move would be inflationary, saying it was “not impossible” to reduce the deficit.
Speaking of the deficit, Fed Chairman Ben Bernanke warned that federal spending is necessary in the short term, but warned “… we cannot allow ourselves to be in a situation where the debt continues to rise.” McClatchy Newspapers.
That federal spending Benanke mentions has risen to a new high, as more Americans hit by the economic downturn need benefits and services. USAToday:
The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans’ income is now coming in the form of a federal or state check or voucher.
Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That’s the highest percentage since the government began compiling records in 1929.
In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show. Benefits rose at a 19% annual rate in the first quarter compared to the last three months of 2008.
The recession caused about half of the increase, according to the report. Unemployment insurance nearly tripled in the past year. The other half is the result of policies enacted during President George W. Bush’s first term.
Bernanke may sound like a deficit hawk, but Robert Reich has a different take on what Benanke is really saying: “But Bernanke also wants to deliver a message to Congress, a message the White House doesn’t want to deliver because it’s politically awkward: Congress will have to raise taxes on the wealthy in order to finance universal health care and reduce looming budget deficits. Such tax increases won’t slow down the economy because the wealthy don’t spend that much anyway (that’s what it means to be wealthy — you’ve already got most of what you need), but may be necessary, at least to ward off inflation fears.”
Raw Deals All Around?
After cutting thousands of its car dealers, GM is issuing some “tough love” to its remaining dealers, in the form of demands to sign more stringent contracts. CNN Money: “GM’s remaining dealers have been presented with new agreements asking them to stop selling other brands of cars in the same showroom, meet higher sales goals, upgrade and even relocate their dealerships. …The actual sales targets aren’t defined in the agreement and GM retains the right to change the goals at any time. Under the agreement, failure to meet a target could be sufficient grounds for GM to pull the contract.”
Dealers may get a break from Congress, which is arguing for more scrutiny of plans to shut down dealers and auto plants. This may put the breaks on the rapid restructuring of GM and Chrysler. Financial Times.
For their part, GM and Chrysler say that the dealer cuts are key parts of the firms’ revival. Reuters: ‘”We have no choice. We’re all being called to sacrifice in order to build a strong, more viable GM,” Chief Executive Fritz Henderson told a Senate Commerce Committee hearing. “This is our last chance to get it right.” …Chrysler President Jim Press called decisions for terminating showroom franchise agreements “gutwrenching” but “absolutely necessary” to facilitate his company’s successful transition into an alliance with Italy’s Fiat SpA.’
If GM’s dealers are in a tough spot, it’s retirees are in a more uncertain spot if not a tougher one, as the pensions and health benefits hang in the balance. BusinessWeek: “Worrying about the future isn’t new to GM’s 493,000 retirees and surviving spouses, who have watched the automaker lose market share for years. But with the company’s Chapter 11 bankruptcy filing on June 1, retirees have entered a new, uncertain zone. GM’s restructuring will affect salaried retiree health care, some executive pensions, and retiree life insurance, the company says. But details are incomplete.”
Dealers and retirees may have a chance of hanging on, but bankrupt firms generally don’t keep lobbyists on retainer. And neither does GM, anymore. Associated Press: “General Motors says it has terminated contracts with the dozen lobbying firms it has used to help make its case in the capital…The now-bankrupt company has long been one of the biggest spenders in Washington on lobbying, reporting expenditures of $2.8 million for the first three months of this year. According to the nonpartisan Center for Responsive Politics, $500,000 of that went to outside lobbying firms.”
It’s a moment fit for People Magazine’s “They’re Just Like Us” feature. The downturn in the housing market has come to Treasury Secretary Tim Geithner — who can’t sell his Larchmont, NY, home and will probably sell it at a loss.
Obama’s Health Care Mandate
During the campaign, President obama opposed mandates requiring Americans to have health insurance and employers to share in the cost — and criticized then rival candidate Hillary Clinton for including them in her campaigns health care reform proposal, the President signaled his his support for mandates, though without uttering the “M word” itself. NY Times:
The president said he was open to proposals for “shared responsibility — making every American responsible for having health insurance coverage, and asking that employers share in the cost.”
He did not use the terms “individual mandate” and “employer mandate,” which suggest a degree of coercion that Democrats try to avoid implying. Still, the letter provides the fullest statement of Mr. Obama’s views on proposals at the heart of legislation to cover all Americans, his top domestic priority.
“If we are going to make people responsible for owning health insurance, we must make health care affordable,” Mr. Obama wrote. “If we do end up with a system where people are responsible for their own insurance, we need to provide a hardship waiver to exempt Americans who cannot afford it.”
Moreover, the president said, “while I believe that employers have a responsibility to support health insurance for their employees, small businesses face a number of special challenges in affording health benefits and should be exempted.”
As the president lays out his health care reform agenda, health care costs are taking their toll. That’s underscored by recent news that \. Reuters:
Medical bills are involved in more than 60 percent of U.S. personal bankruptcies, an increase of 50 percent in just six years, U.S. researchers reported on Thursday.
More than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts, the team at Harvard Law School, Harvard Medical School and Ohio University reported in the American Journal of Medicine.
“Using a conservative definition, 62.1 percent of all bankruptcies in 2007 were medical; 92 percent of these medical debtors had medical debts over $5,000, or 10 percent of pretax family income,” the researchers wrote.
WaPo’s Ezra Klein says health reform is likely to have a public plan, and points out why: “A few months ago, most observers thought the public plan was a bargaining chip. It had a lot of public supporters but few real friends. In recent weeks, that’s begun to change. The White House seems genuinely intent on including a public plan — or at least some form of public competition — in the final bill. And that’s changed the incentives for senators down the line. The public plan was safe to oppose so long as the powerful players weren’t really interested in its survival. Indeed, when the policy was going to be bargained away anyway, the incentives were to try to convince the health industry that you’d been their key ally in that victory. But now that the White House has put some muscle behind the policy, opposition has potential consequences. And that’s making the policy’s opponents rethink their stridency.”
Bill Scher is away.