The unemployment report that was released earlier this month showed unemployment at 10.2%. These are the highest numbers since 1983. These numbers, the official unemployment rate, are reported by the Department of Labor. This rate represents 27.4 million Americans who want full time work and cannot find it. Not included in this rate are another 12.4 million people who want full time work but have part time jobs, temp jobs, or have simply given up and stopped looking for work. If these 12.4 million people are counted, the so called “real” unemployment rate is 17%. Ugh, that is a depressing number.
President Obama announced this week that he will be having a job forum in December. It is the right thing to do for the unemployed and it probably a good thing to do before the 2010 mid-term elections. The last time this was done was in 1993. It was called by the newly elected President Bill Clinton who wanted to follow through on the “It’s the economy, stupid” message that helped get him elected. Clearly, the economy is still a huge issue despite the indicators that show we have bottomed out and that we are supposedly in recovery.
November 13: On Friday afternoons, when I can, I venture over to Hemingway’s Cigars in nearby Highwood, IL. In a smoke free state, it is one of the few places I know where you can smoke. The place is owned by an Armenian fellow, Raffi, who has big screen TVs and leather chairs to accommodate guys like me. I go there and meet up with my friend Dro Kholamian. We smoke cigars, watch TV, and talk about things.
Today, we talked about the economic state of this country. It was not just Dro and I but also other patrons all of whom are pretty serious businessmen. The mood was not as gloomy as it was earlier this year, but it was not optimistic by any means. Everyone was concerned about the high unemployment levels, the difficulty still, to get home loans, and the looming commercial real estate collapse that was once a recurrent story in the press and is, of late, suspiciously absent.
Dro and I were in agreement on a few points. First, with the number of manufacturing jobs that have simply gone off shore, we wondered if we could maintain any economic prowess as a service based economy. Second, will we come out of this recession a different country then we were before this recession? Would we come out of this downturn permanently altered looking more like a European country, say UK, Italy, or Greece, than the United States at the turn of the century? These are excellent questions that have been on my mind for some time.
It would not be so bad to more like Europe. People live well and live with less. We are too used to excessive consumer spending and accumulating simply way more goods than we really need. I have even written about this in March 2007 http://thissideoffifty.blogspot.com/2009/01/march-2007-consumerism.html. We could stand to be more like the Europeans. Many of my friends lament, however, the direction in which we are headed. They worry about having a Value Added Tax imposed on us. They worry about, not only a return to the welfare state, but surpassing what we ever had here. I am not so sure.
I voted for Obama. I am still giving him a chance though, like the cartoonists, and late night television hosts, the luster has worn off a bit. But, I am not as worried as everyone else. I have great faith in the fickle and malleable voters in these United States. In the elections earlier this month, Republicans gained two governors and the press with rife with interpretation. Next year, 2010, how will people vote if unemployment is still high?
Not to worry, we have an unemployment summit looming.
November 16: President Obama is in Asia. He was visited China over the weekend and is in Japan today. There were several articles about his visit to China and how the Chinese officially and unofficially view the US and will treat the President. This article I read on Yahoo, http://news.yahoo.com/s/mcclatchy/3356993, kind of summed it up in a quote of one Zhou Jun a 38 year old owner or manager of a garment business in Shanghai:
The U.S. is a very big and strong country, military-wise, economy-wise. It's still important. But compared to before, China has a lot more influence on the world.This is the same kind of thing we heard in the 1980’s from Japan. Back then Japan was a more dominant economy then I perceive it to be today. They were a juggernaut in autos, consumer electronics, and many other industries. Back then a bulk of our trade imbalance was with Japan. The Japanese were buying US companies and real estate at an alarming rate that worried many people. It is not so different than what we are seeing and worrying about the Chinese today.
The Japanese economy overheated and suffered major problems in the 1990s from which they still have not fully recovered. Does a similar fate await China? Perhaps. But, a difference in China is that they have one quarter of the world’s population i.e. their own very large base of consumers. They have a growing proportion of the world’s manufacturing base. It will be interesting to see what happens in the next five to fifteen years. But, if I were to make a prognostication, I would say that China will continue to grow in terms of GNP, national wealth, militarily, and thus have a greater influence on the world stage.
Consider the following list of countries that hold US Securities, basically our creditors. The numbers are billions of dollars.
China, Mainland 797.1China holds $797.1B in US Securities. Hong Kong holds another $124.7B. All together this means the US owes China $921.8B or almost one trillion dollars. No wonder the Chinese government and people believe they are or will soon be the dominant economic power in the world.
Japan 731.0
United Kingdom 225.8
Oil Exporters 189.2
Carib Banking Ctrs 180.2
Brazil 137.2
Hong Kong 124.7
Russia 121.6
http://www.treas.gov/tic/mfh.txt
Note that with all this talk and worry about China, let us not forget about Japan. This country is our number two creditor at a not so paltry $731B! Between these two Asian countries, they hold $1,652.8B. This is a serious chunk of change.
I heard a talking head on television or maybe National Public Radio say the following. “If you owe the bank thousand, then the bank owns you. If you owe the bank millions, then you own the bank.” We owe China a trillion dollars. I am not so sure we own them, but we certainly are mutually dependent economically. China is most interested in having a vibrant US economy with a strong dollar.
November 23: I also heard on a radio talk show another talking head. I believe it was a conservative comparing yesteryear with today. The speaker was referring to the 1950s and early 1960s. These were the golden years after World War II when the United States had the strongest and most dominant economy in the world. We also were the only industrial power that did not have most of their industrial base destroyed during the war.
At the end of the ware, we simply turned our factories from the production of war supplies and munitions to commercial goods. The world had no place else to buy many of these goods. They did just that… for about twenty years.
The speaker compared those times to now. Stamps were 3¢. Only one person, most always the husband, worked. Health care was readily available. Homes were easy to buy. Food was cheap. Gasoline was 25¢ a gallon. Now, both husbands and wives have to work to support the home. Stamps are 44¢, gasoline hovers between $2.50 and $3, homes are expensive and all of a sudden harder to buy, and so on. The speaker had really compelling examples that made me miss “the good old day” for a few seconds.
Sure, things were simpler then. But then, most households had only one car. That is laughable today. Houses were smaller, there were way less conveniences in terms of appliances and the appliances today are infinitely more reliable. Sure stamps only cost 3¢, but I can e-mail this letter to almost 400 people for about that. It quickly became an unfair comparison. I worry more so about what we will look like in the years to come when we emerge from this morass.
I remember reading an article on the auto industry in The New Yorker, a few years ago. It was relating the health care burden for retirees. This was costing General Motors between $1,000 and $2,000 per vehicle. It contributed in some part to their filing bankruptcy earlier this year. These benefits date back to the UAW negotiations with the company back in the 1950s – the good old days. The New Yorker article (gee I wish I had saved it) mentioned that after negotiating this with General Motors and the auto industry, Walter Reuther advocated a national health plan. He was summarily pounded down and vilified as a communist by many business leaders led by the then head of General Motors. The article pointed out that if we had listened to Reuther then, the US Automotive companies would have been better off at the time the article was written circa 2006.
I remember when I started working at Ford Motor Company in 1976. Everything was covered: Salary and health and life insurance. I remember thinking that this was a kind of capitalist socialism. The state in this microcosm was Ford Motor Company. Looking back, my thinking was not so far off.
Yeah, I was some kind of visionary alright. That and $2 will get me a double espresso at Starbucks.
November 26 – Thanksgiving Day: It is early Thanksgiving morning. We are in Detroit at my parents’ home in Livonia. Save for the hum of the refrigerator, the house is quiet. I am sitting at their kitchen table finishing this letter. I am looking out the window across the backyard at a little wooded area. The trees are free of their leaves, the sky is a pale blue striated with purple grey clouds that are visibly moving from west to east. The thermometer in their window indicates that it is a balmy forty-five degrees. It is a perfect time to reflect before the football, family, and food.
As mentioned earlier, we could come out of this recession looking more like a European country. Generally, we view that as a negative but that may be too harsh a view. In such a case, taxes will grow at a crazy pace making just about everything more expensive. As a result, people simply have to worry less about consumerism and more about the quality and durability of the goods they buy.
Note that the same double espresso that cost me $2 at my local Starbucks cost me $8 when I was in the UK two years ago. Are we headed in that direction? Without a manufacturing base, I cannot fathom anything else. How will be pay for health care, roads, military, and education? Will we end up with the European style Value Added Tax on top of our Income Tax? Um… I can see that coming as well.
What we are living through is basically watching the economy re-set and get to a new level of equilibrium. It sounds pretty a natural and inevitable progression. It seems harmless unless you are on the negative side of living through it and having your lifestyle dramatically adjusted because of it.
An ancillary benefit of all this might be that we simply focus more on the quality and durability of our lives than on the quantity of things we accumulate.
That may not all bad.