Update: July, 2010
Nonfarm payrolls decreased by 125,000 in May, mostly due to
the end of temporary census jobs. The unemployment rate fell to
9.5%. The Household Survey still was showing
unemployment at 14.6 million, with 6.8 million, 46% having
been jobless for 27 weeks or more. Since December,
non-farm payroll employment has expanded by 882,000, with
593,000 jobs added in the private sector. This is
welcome news for recovery, in spite of the market jitters due
to Europe's problems.
The Bureau of Economic Analysis (BEA) advance estimate of GDP
growth in the second quarter of 2010 is 2.4%, a deceleration
due to less inventory spending, exports, and state and local
government spending, but partly offset by an increase in
private fixed investment.. The annual revisions to the past
three years resulted in lower estimates (0.2 to 0.04) for all
three years. The latest estimate for the first quarter
of 2010 is now up to 3.7%, while the GDP growth in Q4 of 2009 was, as we expected, revised down to 5.0%. We expected it to be a much lower figure. BEA
admits that most of the increase was due to additional
building of inventories and deceleration of imports. My
interview on Jan. 31, 2010, with John Williams, pre-eminent
expert on deconstructing US official statistics at
www.shadowstats.com, confirmed my distrust of this revised
Q4 2009 GDP-growth of 5.6%. Williams agrees with us that
"GDP is the worst quality information from the US government."
The inventory buildup accounted for over 3.6% of that first
5.9% GDP-growth estimate; 1.5% as an over-statement of the
Personal Consumption Expenditure which GDP states as up by 2%
and another .5% as related to the actual widening of the
overall trade deficit – even though BEA emphasized that the
deceleration of imports is accounted for as part of its rise
of 5.9% in GDP. Discouraged workers still bring the total
unemployment rate to approximately 16.8%. Many economic
reports indicate that the US recovery was illusory (Seeking
Alpha, February 25, 2010).
I have long explored the entire range of distortions that make
GDP a perverse measure of US progress, and
TIME's article agrees, pointing to our Calvert-Henderson
Quality of Life Indicators and others including the United
Nations Human Development Index (HDI).
At last, better measures of human progress are gaining
mainstream media attention: the excellent Canadian Index of
Wellbeing (CIW) at www.ciw.ca and the new report by British
researchers Richard Wilkinson and Kate Pickett linking
equality with quality of life within and across countries.
They find that countries with the most equal income
distribution (by GINI) have the largest socially and
politically prosperous middle class while unequal countries do
worse on most quality of life indicators (www.equalitytrust.org.uk).
The USA scores poorly and confirms John Williams' and our view
that a massive overhaul of GDP, unemployment, inflation, money
supply and other US statistics is now urgent if we are to
address the need for more jobs.
Why has the weak US recovery still produced so few jobs? The BLS
"Establishment Survey" differs from the broader "Household
Survey" which records the civilian labor force in small companies
often failing or unable
to obtain financing, which the Establishment Survey cannot
detect. For 20 years, I have pointed to reasons the USA has
experienced "jobless growth" - rooted in the abstractions of
macroeconomics theories and methods. The faith in "free
trade" has prevented government agencies from making use of
futurists' broader forecasting and planning methods used by
most global corporations. Their economic advisors' market
fundamentalism warned against "industrial policy" except for
that covertly practiced by the Department of Defense and
activities in the name of "national security." Thus, the
"hollowing out" of US manufacturing has continued for two
decades at the behest of global corporations and their
investment bankers. President Bush I famously held that it
did not matter whether the US manufactured computer chips or
potato chips, while President Bush II's chair of the Council
of Economic Advisors, Gregory Mankiw, maintained that
outsourcing was good for American workers who could take their
severance pay and 401Ks and become day traders on the stock
markets.
Add to these idiocies the stout denials by economists that
increasing capital-intensive technological change, automating
manufacturing and services would create the structural
unemployment we see today. Conventional measures of output
per capita masked this technological unemployment as
beneficial "increases in productivity" for decades, as we have
pointed out. Unfortunately, Obama administration economic
advisors are mostly steeped in conventional theories and
models which continue to serve Wall Street and corporate
interests at the expense of workers and individuals ( see the
excellent reports at www.prospect.org).
Adding to June's 9.5% unemployment rate, the "discouraged" and "part-timers" still makes the total
almost 17%. Although the recession is deemed officially ended, the
recovery will be fragile until job creation picks up. This may
not get big banks to step up lending to domestic companies
since they make more money with proprietary trading, hoarding
their bailout funds or sending them offshore. The good news of
the 2.7% GDP uptick in Q1 must be seen in the context of
2009's negative growth. These numbers
underline what most Americans have experienced for the
past years, along with the loss of over 8.4 million jobs since
December 2007. States facing their new fiscal year are
wrestling with budget shortfalls with California's at $24
billion, while Illinois and Arizona have much smaller
deficits.
North Dakota
still stars with continuing budget surpluses, as we discuss
later.
President Obama's $787 billion Economic Recovery and
Reinvestment plan is now underway and its effect showed in the GDP improvement. Deeply entrenched ideologies
and special-interest politics are battling over the 2010
budget of $3.6 trillion. Cutting the Pentagon's weapons
procurement and subsidies for big farmers would boost
investments in education, health care, efficiency and
renewable energy. At least the President's 30,000 troop surge
will be costed transparently in the budget. All this was
emphasized by the oversight report on TARP, July 21st
that US taxpayers are liable for up to $23.7 trillions of
bailouts (www.sigtarp.gov).
All this shows that the great transition from the
fossil-fueled, unsustainable Industrial Era to the green
economy of the Solar Age (see my The Politics of the Solar
Age, 1981) is now well underway.
Private investments in SolarAge companies since 2007 total
$1.24 trillion (see our Green Transition Scoreboard at
www.EthicalMarkets.com). The Copenhagen conference only
confirmed the need to ramp up private and public investments
in green economic development, particularly in developing
countries. The $350 billion given to banks by former Treasury
Secretary Henry Paulson and the new incumbent Timothy Geithner
has apparently been wasted. The uproar over AIG bonuses made
executive pay an international issue for the G-20 in
Pittsburgh, Sept 24-25th, along with tighter regulation of all
financial markets. The United Nations General Assembly
Meeting in New York, June 24-26th, debated the global
financial crisis and adopted many of the recommendations of
its Commission of Experts, chaired by Joseph Stiglitz. In my
editorial, “Game
Over!”, (www.ethicalmarkets.com),
I describe the new power of this new group of 192 nations
which critiqued the G-20, the G-7 and the G-8, calling for a
new global reserve currency, much deeper reforms than proposed
by the Obama Administration, as well as the need for a tax on
all global financial transactions favored in Europe, which is
on the agenda of the G-20 summit in TOronto, June 26-27, 2010 (www.un.org/ga).
US
voters are still furious, demanding to know why their schools and
other vital services are being cut and why small banks, credit
unions and homeowners were not included in the bailout. This
anger over the unfairness of the bailouts of those "too big to
fail" corporations spilled over onto the healthcare debate –
amplified by coverage of unruly town hall meetings.
Meanwhile, local initiatives to restore homegrown economies
are flourishing (see my "Democratizing
Finance" at www.ethicalmarkets.com). The campaign "Move
Your Money" (from big to small banks and to credit unions) is
catching on, while many are studying the state Bank of North
Dakota which has kept the state's budget in surplus and grown
local jobs (www.ethicalmarkets.com
The Public Option in Banking).
Trickle down economics of bailing out Wall Street is colliding
with the bottom-up demands of middle class voters for
fairness, accountability and transparency. Hearings of
the Financial Crisis Inquiry Commission and the wrangling over
Senator Dodd's bill to reform financial markets has led to the
demands to audit the Fed. It's about time
for this debate and the deeper debate about whether money is
more important than the other forms of wealth that GDP counts
and why Wall Street doesn't count: human "capital," knowledge,
ecological assets and productivity. President Obama
campaigned for recognition of these uncounted forms of wealth
and of the higher values of Americans: trust in each other and
our institutions and fairness in rewarding hard work in an
economy designed to include opportunities for a better future
for all. Many new investors see these opportunities, as I
describe in "The
New Financiers."
Now for the good news. The confluence of the financial
meltdown and increasing threats to climate stability are
leading to much creativity by these new financiers in devising
new ways of investing in the needed global transition to a low
carbon "re-industrialization." The weakness of the
Waxman-Markey energy bill passed in the US Congress by 7 votes
focused the critiques of its reliance on Wall Street-centric
cap and trade markets which have so far failed to reduce
carbon emissions. The new financiers' spate of proposals for a
"Marshall Plan" type plan to finance a doubling of production
of carbon-free, efficiency and renewable energy and smart
infrastructure every year for the next 10 years are welcome
indeed (see International Climate Bonds Proposals – Draft from
the Network for Sustainable Financial Markets at
www.ethicalmarkets.com, courtesy of Sean Kidney and
Climate Risk Pty of Australia). Their report, Climate
Solutions II: Low Carbon Re-Industrialization was also
supported by the World Wildlife Fund (WWF) and is downloadable
from
www.EthicalMarkets.com.
This rapid deployment of solar, wind, geothermal, ocean power
sources as well as retro fitting for maximum energy efficiency
over 10 years is projected to cost $10 trillion. This can be
covered by issuance of several classes of new assets:
long-bonds, zero coupon bonds, with hedging against the main
risk: governments back-sliding on their greenhouse gas
emissions targets under the Kyoto Protocol. While this seems
like a large sum, it is less than 10% of the $120 trillion in
pension funds and other institutional portfolios. Since
pension funds and other government bonds focus on long
maturities, they are ideally suited to finance climate
prosperity bonds out of the savings they will produce: from
energy efficiency and in reducing the cost of renewable energy
(with free fuel sources from the Earth) over the costs of
fossil fuels (projected to keep slowly rising). More good
news is the collapse of gas prices due to the availability of
gas deposits in shale in the USA and other countries. This
allows coal-fired power plants to replace coal with cheaper
natural gas for base loads as well as peak power. Thus, many
coal-fired plants may be retired and few will now be built.
Business leaders met in Copenhagen in May 2009 to address
climate risks in their companies' fossil-fueled processes and
agreed that the opportunities in shifting to a green, solar,
wind, geothermal, ocean and energy-efficient global economy
were enormous. The 700 business leaders participating in the
meeting declared that immediate action would be cheaper than
any further delays. While 193 governments failed to agree at
the UN Conference in Climate in
Copenhagen
in December 2009, investments in low-carbon technology sectors
continue to grow.
The key will be to keep pressure on governments to stop
back-sliding and pandering to the fossil-fueled industry
sectors with toothless cap and trading which will only make
Wall Street players richer. Downsizing bloated financial
sectors will be imperative. Those on Wall Street and in
London grew to 25% of U.S. and U.K. GDP. An efficient
financial sector should be less than 10% of a country's GDP.
Yet
Washington
has still to follow through with vital reforms, while
Britain's head of their Financial Services Authority agrees
that financial sectors must be downsized and recommended the tax
on financial transactions. Debate is growing that such a tax
is the best way to assess Wall Street for its cleanup costs –
rather than taxpayers.
So today's GDP figures still force us to re-examine our
rearview-mirror focus on the costly past and reformulate
statistics themselves which only measure money transactions.
They overlook the savings in shifting to the new green economy
and the vast riches in our society from energy-efficiency
while ignoring the almost 50% of all productive work that is
unpaid and therefore omitted from GDP. From caring for our
homes, children, the elderly and sick and volunteering in our
communities to exchanging and bartering goods and services,
this vast unpaid "love economy" is thriving and increasingly
electronically traded on e-Bay, Craigslist, Freecycle,
time-banking and hundreds of other websites, flea markets and
on radio programs and via cell phones. My monograph with
physicist Fritjof Capra, "Qualitative Growth," published by
Britain's Society of Chartered Accountants and Tomorrow's
Company, was launched in the House of Lords in Britain's
Parliament in November, 2009, co-sponsored by WWF, the World
Wildlife Fund.
President Obama's team includes Google CEO Eric Schmidt who
understands the transition to the green economy and sees all
the new possibilities in the Energy Transition, such as that
proposed by the Dutch Planck Foundation and Ethical Markets.
The explosion of internet and
community trading such as Making Change Without Money, the
title of a new series of papers by Gwendolyn Hallsmith and
Edgar Cahn, both pioneer community organizers. I have been
pointing to all these alternatives to government-printed money
as well as all the local currencies helping to clear local
markets: e.g., the Schumacher Society's Berkshares in
Massachusetts and time-based currencies based on Paul Glover's
Ithaca Hours (www.smallisbeautiful.com).
The shocking truth that a badly designed, irresponsible,
poorly regulated financial system can disrupt the lives of
millions is now opening our eyes to practical alternatives to
re-knit our communities – by-passing Wall Street and bankers'
money games. Reform of the Federal Reserve System is
now before Congress which would curb the power of banks to
create our money and restore this to our government (see
www.monetary.org). A chorus of Freedom of Information
demands forced the Fed to finally describe where all the
bailout money for the big banks and AIG was disbursed.
Billions went to pay off Goldman Sachs' bets at 100% and other
credit default swaps held by other Wall Street firms as well
as foreign banks. These kinds of credit derivatives should be
banned. $683 trillion of these (Bank for International
Settlements December 2008) overhang a world economy whose GDP
is only $62 trillion! (IMF October 2008). The only issue is
who should take the hit in writing them off. So far, the
political clout of the financial sectors has forced the bill
on to taxpayers. The SEC is slow in promulgating reforms on
short-selling, as is the CFTC in bringing credit derivatives
under regulation on new clearing houses. Germany
announced a ban on short-selling in May. In the USA,
financial reform has been gutted by lobbyists for Wall Street,
so reform to prevent another meltdown is up to the G-20.
At last, all the efforts over the past 30 years to correct our
money-based GDP, including indicators of education, health and
environment and subtract costs of pollution and
resource-depletion are being publicly debated. When we add in
that 50% of unpaid work and accounts for our human, social and
ecological assets, we will take heart in our real wealth and
community riches. The European Parliament's lead in its
Beyond GDP debate in 2007 set the stage, and the commission
headed by economist Joseph Stiglitz and Amartya Sen reported
in April on how to make these corrections to GDP so that our
national scorecards of progress can steer us toward restoring
health to the real economies of
Main Street.
(See my critique of its weak recommendations at
www.EthicalMarkets.com.)
The European Commission's conference
Beyond GDP in the Parliament November 19-20, 2007, was
attended by 700 experts and parliamentarians. I am honored to
serve as a member of the Advisory Board. EU President Barosso
and the President of the Parliament both endorsed the goal to
integrate social environmental statistics. A survey in ten
countries by GlobeScan and Ethical Markets Media found large
majorities in all favoring this broadening of GDP (www.EthicalMarkets.com
and
www.beyond.gdp.eu). A re-run of this survey is
planned for 2010. A new effort has been launched, The
State of the USA, funded by the Hewlett Foundation, with
federal funding in 2010. The U.S. Senate held hearings in the
Commerce Committee on "Re-thinking GDP as a Measure of
National Strength" on March 12, 2008 -- with input from me on
our Indicators, submitted for the record, but ignored by
media.. The "BEYOND GDP"
issue is now promoted in many countries by the SIMPOL network
which fosters simultaneous policy adoption by politicians of
such proposals for global sustainability
(www.simpol.org.uk). Even The Economist
editorialized in "Grossly Distorted Picture" (March 13, 2008)
that GDP growth was not the best measure of national progress
(see my editorials at
www.HazelHenderson.com).
China's
President Hu Jintao called for continued effort on it "Green
GDP" in spite of resistance by local officials to push
traditional GDP-growth (China Daily, July 17, 2007).
China devised its own changes to GDP accounting to subtract
pollution and resource depletion (The Economist, "Greening of
China," Oct 22, 2005, p. 43). This "Green GDP" deducted 3% of
environmental costs of the current GNP-growth economic model
according to a Task Force Interim Report (2007). However,
local officials still judged by GDP-growth managed to suspend
the Green GDP. As China's pollution is now visible on TV
worldwide, after the Olympic Games, we believe the Green GDP
will be reinstated. The British government report by Sir
Nicholas Stern, the former chief economist of the World Bank,
states that stabilizing CO2 emissions at 550 parts per million
could cost one percent of global GDP growth and would prevent
a likely global depression and economic losses of from 5-20%
of global GDP (Financial Times, Oct 20, 2006). China is
moving rapidly to create its own green economy and is already
the world's largest producer of solar panels, a leader in wind
power and has the first plug-in hybrid car on sale now which
will reach the US market in 2010 costing $22,000.
Inflation is no longer the immediate worry, as personal
consumption is falling. Long-term, inflation is likely to rise
following the trillions of various government bailouts, Fed
easing, loans, etc. The G-20 leaders of Brazil, Russia, India
and China are offering proposals for a new global reserve
currency: either a "basket" of major currencies or IM F
Special Drawing Rights (SDRs) to be expanded. China,
with over $1 trillion of US bonds, is nervous about inflation
of US dollars. The June 26-27 G-20 Summit in Toronto
will
discuss these proposals and the overdue need to end
subsidies on fossil fuels.
Many government rule changes are being enacted with no cost to
taxpayers, including the FASB's new guidance rules allowing
"significant judgment" on "fair value" modification of the
"mark to market" rules, while providing greater transparency.
Bringing back the uptick rule and regulating short-selling
are still under review as well as naked shorting and other
such criminal activities. The G-20 could agree to less a than
1% tax on the global currency trading of up to $4 trillion
daily (mostly speculation) by installing computer systems like
FXTRS (see paper at
www.hazelhenderson.com). Cleaning up Wall Street is
necessary to restore confidence and the financial sector needs
downsizing from its bloated 20% of US GDP to an efficient
financial sector of less than 10% of GDP. Unrealistic pay and
bonuses will also need cutting.
Congress can, for a start:
-
Focus the balance of the TARP's $350 billion on local
lending through credit unions. Mortgages now "under water"
should require lenders to take at least 50% of the
"haircuts", similar to the Home Owners Loan Corporation (HOLC)
from the 1930s.
-
Re-instate the very small tax on stock transactions of at
least .25% as in the Securities Turnover Excise Tax enacted
in 1914 and repealed in 1966. Many other countries in
Europe
and
Asia levy such a tax, which curbs speculation and would
bring in the USA some $150 billion per year.
-
Extend further Production Tax Credits for renewable energy
and add $150 billion to develop solar, wind, geothermal and
upgrade our electric grid. Reduce the over $200 billion of
annual subsidies to fossil fuels and nuclear power -- so as
to create a level playing field.
-
Invest more in restoring and maintaining US infrastructure.
-
Re-instate federal revenue sharing with states.
-
Extend unemployment insurance to laid off employees.
Some of these proposals are now part of the Economic
Stabilization and Reinvestment Plan.
Oil prices around $80 are still less than the high of $145 per
barrel. Much of the drop is due to reduced demand due to the
now global recession. Yet oil may stay at $80 a barrel since
$70 is the average cost of production. Constant media
coverage, million-strong protest groups like those at
www.StopOilSpeculation.com, and investigations by the
Commodity Futures Trading Commission (CFTC) and the US Senate
scared off pension funds and college endowments that lost
heavily on their oil bets! As I point out in my "Changing
the Game of Finance," it's time for asset managers to
ditch their obsolete "efficient markets" hypothesis and adopt
new ESG (environment, social, governance) asset valuation
models, i.e., triple bottom line accounting. Thus, many
speculators began unwinding their long positions and this,
plus reduced demand, brought the price down. We agree with
the "peak oil" researchers that supply is not keeping pace
with demand. Yet speculation was another factor, denied by
most financial players (see my "A Closer Look at Oil
Speculators"), as was the flight from the US dollar, bonds and
equities into commodity index funds as a hedge against
inflation (see also "New Games in the Global Casino", Inter
Press Service, June 2008 and at
www.EthicalMarkets.com). The financial crisis mentality in
Congress, Wall Street and the financial media has led to
unprecedented volatility. Useful checks on government
statistics: GDP, CPI, Unemployment and M-3 are available at
www.shadowstats.com compiled by economist John Williams
who tracks data revisions that overstate the performance of
the US economy.
The unemployment rate, now at 9.5%, still excludes those
"discouraged" while including increases in part-time jobs held
by those needing full-time work, bringing the true rate to
17%. The Fed's easing to 0.25% rates, which are effectively
zero, leaves fixed-income investors with few choices. All
these bouncing numbers and uncertainty about Congress continue
to spook markets. The Fed can no longer oblige Wall Street
with more interest rate cuts. Chairman Bernanke, whose
re-appointment was supported by President Obama, no doubt
realizes his own role in pushing up oil and food prices and
hurting the US dollar. The result is that commodities became
a new asset class, which then crashed. Traders piled into
commodities with 16 to 1 leverage due to low margin
requirements. The quickest, best way to curb the pure
speculators is to raise margin requirements to force traders
to put up their own money. The CFTC closed the "ENRON
loophole" enacted in 2000 which shielded energy trading from
oversight, and is addressing the "London loophole" where
traders move to the Intercontinental Exchange (ICE).
Subsidies for ethanol and mandates in legislation should also
be repealed.
The Fed's job with so many new tasks is now harder -- trying
to steer between recession and inflation. Interest rates are
actually negative when corrected for inflation. The role of
the Fed, a private institution owned by its 12 regions' banks,
is now coming under scrutiny by Bloomberg, Fox Business News
and other media for its secrecy, while over 300 Congress
members have co-sponsored Ron Paul's bill to audit the Fed.
State-owned banks like the Bank of North Dakota could expand
local lending. It provides funds to local banks for low-cost
credit directly to
North Dakota's
infrastructure, education and services, as well as businesses
(see "Monetize
This!" and "Escape
from Pottersville" by Ellen Brown at
www.ethicalmarkets.com). The middle class is hurting from
high prices, job losses and foreclosures.
A revealing look at these issues is A Demon of Our Own
Design (2007) by former hedge fund manager Richard
Bookstaber and Fools Gold by Gillian Tett of the
Financial Times showing how financial engineering of
ever-more exotic swaps, derivatives, options, etc are
themselves adding to market instabilities worldwide. Another
market institution, the Depository Trust and Clearing
Corporation (DTCC) has a backlog in handling the huge volume
of derivatives trading. Much of the volatility on Wall St. is
due to the failure of these exotic "quant" models and the need
for hedge fund managers to sell assets to cover margin calls
from their bankers. Yet other challenges to Wall Street's
conventional wisdom are the best-seller, The Black Swan,
by veteran options trader and mathematician Nassim
Nicholas Taleb, and Lecturing Birds on Flying by Paulo
Triana, who critique risk assessment models used by investors
and banks. I made similar critiques of such models as Value
At Risk (VAR) used so widely that unanticipated events could
lead to system-wide crises in The UN: Policy & Financing
Alternatives which I co-edited (Elsevier Scientific, UK,
1995, 1996).
Inflation must keep the Fed on alert longer term, despite new
fears that collapsing demand may mean deflation. The core
rate (excluding food and energy) is suspect, prompting a
scathing editorial in The Economist calling this use of
the core index "highly misleading" since most people eat and
drive! (June 23, 2007, p.16) We have made this same point for
many years. Meanwhile, behind all the headline numbers,
average wages for non-supervisory workers remained stagnant,
foreclosures continue, house prices stagnate, and many deeper
structural problems in the USA go unaddressed. The $787
stimulus has repaired some USA infrastructure and provided
some green jobs. The growing green economy worldwide is
overlooked by Wall Street's obsolete asset-allocation models
dominated by the fossil fueled sectors (see my The
Sustainability Sector at
www.seekingalpha.com). The growing gap between rich and
less affluent citizens is worrying Democrats and Republicans -
but their concerns offered the familiar remedy: more GNP-based
economic growth. Economist Joseph Stiglitz now estimates the
Iraq occupation will total $3 trillion in his The Three
Trillion Dollar War (2008).
I hope the Calvert-Henderson Quality of Life Indicators may
whet your appetite to delve deeper and feed your interest in
some or all of these aspects of quality of life. These
Indicators are featured in the financial TV series "Ethical
Markets," which showcases the most ethical CEOs and companies,
the cleanest and greenest technologies, and all the new
indices of socially responsible companies. This series is
airing on many PBS stations covering 45 million households in
the USA (see
www.ethicalmarkets.com). We will continue tracking this
holistic view of our lives, society, and the economy, so that
you can remain empowered with these facts, as citizens,
consumers, employers and investors. Below are links to more
details about current issues relating to:
Hazel Henderson can be reached at
www.hazelhenderson.com |
