Thursday, April 28, 2011

The Beltway Fantasy Land in Operation

It is almost impossible for me to freshly describe the ongoing disconnect between what we see and hear coming out of the mouths of people in and around the Beltway Village and the facts on the ground for the rest of the country. I won't say that they must be on drugs because I've used drugs and I never was as far away from reality as the Beltway Village Idiots Pundits, Politicians, and Courtiers. They just live inside a fantasy bubble. It might be acceptable if the decisions they make each day didn't have such negative consequences for the rest of us.

The Initial Unemployment Claims report for last week came out today (Thursday April 28), and guess what? It surprised the economists. From Reuters:

Initial claims for state unemployment benefits jumped 25,000 to a seasonally adjusted 429,000, up from a slightly upwardly revised 404,000 the preceding week, the Labor Department said. Economists polled by Reuters were expecting claims to slip to 392,000 from the previously reported 403,000.
Of course, usually the surprise is the claims didn't fall as much as expected but today the claims went in the totally opposite direction than the predictions. Yet some of them refuse to give up their pre-conceived notions as AP quotes a Deutsche Bank economist that it is just "technical factors."

Well, those "technical factors" include the US economy growing at 1.8% for the first quarter of the year. From the NY Times:
American economic expansion slowed to a crawl in the first quarter, but economists are hopeful that the setback will be temporary. Total output grew at an annual rate of 1.8 percent from January through March, the Commerce Department said Thursday, after expanding at a 3.1 percent pace in the fourth quarter of 2010.

When the year began, economists expected a more robust growth rate of about 4 percent, only to be barraged by bad report after bad report. Turmoil in the Middle East led to higher oil prices, which had already been climbing because of increased demand in emerging markets like China. Housing sales dropped sharply. Winter blizzards closed businesses and delayed construction, causing investments in nonresidential structures like office buildings to fall 21.7 percent from the previous quarter. Imports, which are subtracted from gross domestic product, surged. Military spending sank.
There are all sorts of ready-made excuses for the economists as to why the slow growth, however there were two other stories in the news today that tell me far more about where the economy is today than any of the economic predictions.

First up is this report via CNN:
NEW YORK (CNNMoney) -- Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.


Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.


Wal-Mart (WMT, Fortune 500), which averages 140 million shoppers weekly to its stores in the United States, is considered a barometer of the health of the consumer and the economy.

To that end, Duke said he's not seeing signs of a recovery yet.
Then there's this from Bloomberg:
McDonald’s Corp. (MCD), the world’s biggest restaurant chain, said it hired 24 percent more people than planned during an employment event this month.

McDonald’s and its franchisees hired 62,000 people in the U.S. after receiving more than one million applications, the Oak Brook, Illinois-based company said today in an e-mailed statement. Previously, it said it planned to hire 50,000.

The April 19 national hiring day was the company’s first, said Danya Proud, a McDonald’s spokeswoman. She declined to disclose how many of the jobs were full- versus part-time. McDonald’s employed 400,000 workers worldwide at company-owned stores at the end of 2010, according to a company filing.
My bold. Think about that for a minute. Think about an economy where McDonald's receives one million job applications for their proposed 50k hiring. Twenty applications per planned job. Even increasing their hires to 62k puts it at 16 applicants for each hire.

The Federal Reserve has as part of its mission:
conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
Fed Chair Ben Bernanke held a press conference yesterday. When it came to the unemployed? Well, I'll let David Dayen at FDL News make the point for me:
I bugged out of the Ben Bernanke press conference shortly after he answered the crucial question. The questions were generally terrible, many of them dealing with things where Bernanke has no role whatsoever – gas prices (though he never mentioned over-speculation), fiscal policy and the deficit – and not the biggest problem facing the country, the jobs crisis. But one reporter finally raised the issue. “What can do you to increase the pace of job creation, and why aren’t you doing it,” was essentially the meat of the question.

And Bernanke answered that, while he has been engaged in extraordinary efforts to aid the economy, he had to be concerned about inflation as well. So basically, the Fed is failing at one of their mandates (maximizing employment) because they’re worried about their other mandate (price stability)… which they are ALSO FAILING AT! There’s also no awareness that, if inflation rises unacceptably, you can deal with it at that time. Refusing to stop the human suffering of mass unemployment because of the possibility of an inflation rise that can be dealt with if it happens is just a giveaway that the inflation mandate matters overwhelmingly more than the employment mandate.
So instead of dealing with what is happening, Bernanke is more concerned with what might happen if the Fed helped fix what is happening.

To reinforce the concern of the Very Serious People, I will leave you with two links to today's Washington Post. First up is Michael Gerson's column:
The deficit debate, now fully engaged, is also an evaluation of political seriousness.

House Republican leaders have passed the test, supporting a politically risky budget that changes Medicare into a premium-support program and eventually returns federal spending to sustainable levels.
Gerson is matched in idiocy by this about lobbying for another corporate tax holiday:
As Washington politicians grapple with how to lower the federal deficit, a coalition of powerful corporations has a seemingly tantalizing offer: Give us a big tax break, and we’ll give you $50 billion or more in fresh revenue.

More than two dozen major companies and business groups — including the U.S. Chamber of Commerce and technology giants Apple, Google and Microsoft — have joined together under the banner of the “Win America Campaign” to push for a one-time tax holiday on overseas profits.
$1Trillion dollars in untaxed profits sitting in tax havens and the corporations want to buy in for a nickel on the dollar. I wonder how many billions in taxes could be raised if the 25M to 30M long term un and underemployed in the US had decent jobs paying a living wage?

And because I can:

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