This post first appeared at Palingates on January 15th, 2011. As the economy is an extremely important topic Politicalgates will soon publish an article about Republican political economics which will discuss some of the issues contained in this post as well as many others.
In my last post I announced that I was going to publish a post about the US economy. Although not directly related to Sarah Palin, it’s undoubtedly an important subject. One of the main reasons, if not the primary reason why Sarah Palin seems to have a chance of winning the Republican nomination is the dire economic situation in the USA. People are looking for a “savior”, and why not choose Palin, the woman who doesn’t really know anything, but also finds some resonance in her claim that she is apparently not connected to the “Washington elite”, the people who supposedly are responsible for the huge economic problems, which are presently affecting many, many people in the USA. So why not choose Palin and “clean up the mess?” I fear that there still is a substantial amount of Republicans who are prepared to follow this simplistic and dangerous logic. The fact that the new GOP chairman Reince Priebus “coincidentally” visited Alaska
just after Christmas 2010 also doesn’t inspire much confidence.
To say that Sarah Palin is “finished” politically seems premature in my opinion. Sure, the “blood libel” speech might have reinforced the view in many independents, moderates and liberals that Sarah Palin has no business in being a serious contender for the US presidency, but what Palin apparently only cares about at the moment is her base. I get the impression that large parts of her base liked the “blood libel” speech a lot. The theme seems to be “Sarah against everybody else”. Sarah against the despised “elites.”
Without the economic crisis, Sarah Palin wouldn’t even be worth talking about. But that’s not the situation that the USA faces right now. The USA currently is probably in the deepest economic crisis since the second world war.
Views on the economy are always highly political. Also, economic developments often take a long, long time, usually several years. It’s inevitable that political “blame games” are the result. The current government might not be responsible for mistakes which were made years ago, but it has the huge task of correcting those mistakes quickly in order to improve the economic situation. Therefore, it’s difficult to find “unbiased” views, as the state of the economy and politics are so closely connected.
A few days ago, I got my hands on a new study which was published by the chief economist of one of the largest German banks, a bank with about 200 billion dollars in their balance sheets. The study was directed at the so-called institutional clients of the bank, at the investors: Primarily other banks and financial companies and institutions which are going to make decision about very large investments in 2011. The study examines the current economic situation in several countries, including European countries, and also including the USA.
This bank has a very good track record of making correct predictions. However, this is of course still just an opinion, and forecasts can be wrong. The study also included some data, which will be difficult to dispute and which sometimes “speaks for itself.” All the data which has been compiled for this assessment comes from public sources, we are not talking about “secret” information. I found it very fascinating to read such an assessment which was written from a purely economic point of view, with no political “distortions”, because it’s very difficult to find such “honest” opinions.
The picture which is being presented about the state of the US economy is not pretty. As ours is a blog for facts, even if they may be uncomfortable, I immediately decided to share it with our readers.
The study is in German language, and a scan of the page can be seen here.
There is another additional booklet with more statistical data, and I included all the graphics from this forecast relating to the economic situation in the USA in this post.
Here is the translation of the complete assessment for the current economic situation in the USA – the graphics follow afterwards:
USA: Between unemployment and mountains of debt
The year 2010 was dominated in the USA by a dent in the economic growth, which fostered concerns about an upcoming recession. The beginning of the year saw a promising development within the labor market, but the recovery later began to stutter. However, another economic downturn did not occur. Now, at the end of the year, the danger of a “double-dip” has decreased significantly. The economic indicators and the labor market seems to be stable.
As a whole, however, 2010 was a disappointment – since spring 2010 the US-economy started to grow only within its potential in production. Unemployment currently stagnates at 9 1/2 per cent – a very high level for the USA. This is not only a social and political, but also an economic issue. High unemployment could be the symptom as well as the cause of the rising structural unemployment. Many Americans lost their jobs in sectors (building sector, financial sector) in which there will probably not be a significant rise in jobs in the near future. Wrong or missing qualifications for sectors of high growth prevent a return of individuals to the labor market. In addition, long periods of unemployment devalue existing human capital. The USA will have to fight with these problems for a long time. Even at the end of 2011 the unemployment will probably still be higher than 9 per cent.
The federal state, which acted quickly during the crisis, when the private demand collapsed, will now act as a brake for the economic development. On the one hand, it doesn’t look like there will be significant budget cuts in the new year. But in light of the very high deficit and and massively rising debt there is hardly any room for additional impulses from the federal state. The fact that the stimulus package from 2009 expires in 2011 will strain the economy. The US states and cities will probably profit from the cyclical rise of their revenues. But if these revenues will be enough to leave the budget cuts of the previous years behind remains to be seen.
However, the private demand should slowly become more stable, especially because of the slight decrease in unemployment and the positive effects on the income of the households. On average the US economy should grow about 2 per cent in 2011 (2010: 2,7 per cent), and the dent in growth at the end of 2010 will be followed by a recovery during 2011.
The US Federal Reserve will probably not extend their program for government bonds in mid-2011. A slight upturn in prices and a more robust economy will allow the Federal Reserve not to issue another stimulus. But the high level of unemployment will stop her from abandoning the “zero per cent interest policy” in 2012.
That’s the assessment. There is good news and bad news. One of the most important facts seems to me that a huge disaster, a breakdown of the economy could be prevented, due to the actions of the federal government. In addition, the situation seems to be quite stable now. But the bad news is that the high unemployment and the high debt will be problems that the USA will have to deal with for a long time.
Regarding the unemployment, there were very interesting, if not outright shocking statistics which accompanied this forecast.
(Click on pictures to enlarge)
First, we have an overview about the rate of unemployment from 1980 until today. Headline: “High unemployment – and no quick solution in sight.” The graph shows the rate of unemployed people, in per cent of all people who are able to work (the grey ares mark “recessions”):
This statistic is of course already well known, but what really gives huge cause for concern is a second statistic that I wasn’t aware of up until now: The statistic about the average duration of unemployment in the USA from 1950 to today. Headline: “Long-term unemployment at an all-time high.”
Explanation of the German terms: “In Wochen” means “in weeks”, and “Durchschnittliche Arbeitslosendauer” means “average duration of unemployment.”
This statistic really shows how dramatic the current situation is: During previous times of crisis since the second world war, the duration of average long-term unemployment in the USA peaked at around 20 weeks. These days, the average duration of unemployment in the USA has sky-rocketed: It’s currently at about 35 weeks!
High-unemployment always has been a “gateway” for extremists, and that’s why we cannot simply “declare” at this point that Sarah Palin is history and turn to other, more pleasant topics. In these times of crisis, the “usual rules” of politics don’t apply any more. Irrationality will continue to gain a foothold in 2011.
The “silver-lining” on the horizon is that the economic growth is expected to stabilize, according to the next statistic. Headline: “Expansion stabilizes in 2011.”
Explanation of the German terms: “Real gross domestic product, change in % to the previous quarter, yearly rate.”
Then we have a statistic about the salary development. This is a bit more complex, but also very interesting.
Explanation of the German terms:
a) Red line: Rate of unemployment (scale on the right)
b) Dark blue line: Hourly salaries (scale on the left), change in % per cent, average every 3 months
c) Light blue line: Hourly salaries (scale on the left), in % in comparison to the previous year
Headline: “Risk of deflation – High rate of unemployment dampens the salary dynamic”
What is interesting about this statistic is that there only appears to be a relatively moderate rise in salaries in the USA since the 1980s, which also certainly doesn’t help to stimulate the US economy in general.
The last statistic is a more “unusal” one: It gives an overview about the “due date” (“Fälligkeit”) of commercial US-mortgages (in billion USD). Headline: “The problem of re-financing continues to grow.”
It is interesting to see that the need for re-financing of US-mortgages will continue to be extremely high during the next years. This will certainly also be a problem with permanent political consequences: It will greatly affect many families in the USA and will not be helpful for the current US-government and for the President, as many people will blame the government for the ongoing problems.
Please be aware that such an economic assessment and forecast is only an opinion, and other economists might come to different conclusions. But the most striking fact in my view is the dramatic scale of the current unemployment in the USA, and the data is hard to dispute. Especially the huge, unprecedented rise of the long-term unemployment which will continue to open the path for political pied pipers. The huge unemployment is not the fault of President Obama, as these economic trends took many years to develop and have complex causes which were set way back in the past, but he will continue to be blamed for not finding a quick solution. I do hope that the majority of voters will make their choice in 2011 and 2012 with a cool head and will not be swayed by those people who come along with the cheap promise of flushing out the “elites.”
Additional note by Patrick:
On the one hand I can see that one might feel uncomfortable to talk about facts which might be “damaging” for the current administration. But let’s face it: President Obama will be blamed for the current economic situation anyway. Isn’t it better to:
1) Research the facts
2) Then explain with facts why
– Obama is not to blame for the problems he inherited
– Obama did everything possible to avert an even greater disaster
The data shows that many problems appear to be structural problems: They developed over a long period of time. It’s not President Obama’s fault that the current workforce partly seems to have the “wrong” qualifications, and that in previous years many jobs were shipped overseas.
President Obama made huge efforts during the last two years, including saving the car industry.
Therefore I say:
Gather the facts and throw them in the face of the teabaggers. Don’t retreat, re…..no, wait…..respond. 😉
Please treat this in the comments as an open thread.