Study of the Effects on Employment of Public Aid to Renewable Energy Sources

http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf

The following are key points from the study:

1. As President Obama correctly remarked, Spain provides a reference for the establishment of government aid to renewable energy. No other country has given such broad support to the construction and production of electricity through renewable sources. The arguments for Spain’s and Europe’s “green jobs” schemes are the same arguments now made in the U.S., principally that massive public support would produce large numbers of green jobs. The question that this paper answers is “at what price?”
2. Optimistically treating European Commission partially funded data1, we find that for every renewable energy job that the State manages to finance, Spain’s experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.
3. Therefore, while it is not possible to directly translate Spain’s experience with exactitude to claim that the U.S. would lose at least 6.6 million to 11 million jobs, as a direct consequence were it to actually create 3 to 5 million “green jobs” as promised (in addition to the jobs lost due to the opportunity cost of private capital employed in renewable energy), the study clearly reveals the tendency that the U.S. should expect such an outcome.
4. At minimum, therefore, the study’s evaluation of the Spanish model cited as one for the U.S. to replicate in quick pursuit of “green jobs” serves a note of caution, that the reality is far from what has typically been presented, and that such schemes also offer considerable employment consequences and implications for emerging from the conomic crisis.
5. Despite its hyper-aggressive (expensive and extensive) “green jobs” policies it appears that Spain likely has created a surprisingly low number of jobs, two-thirds of which came in construction, fabrication and installation, one quarter in administrative positions, marketing and projects engineering, and just one out of ten jobs has been created at the more permanent level of actual operation and maintenance of the renewable sources of electricity. This came at great financial cost as well as cost in terms of jobs destroyed
   elsewhere in the economy.
6. The study calculates that since 2000 Spain spent €571,138 to create each “green job”, including subsidies of more than €1 million per wind industry job. The study calculates that the programs creating those jobs also resulted in the destruction of nearly 110,500 jobs elsewhere in the economy, or 2.2 jobs destroyed for every “green job” created.
7. Principally, the high cost of electricity affects costs of production and employment levels in metallurgy, non-metallic mining and food processing, beverage and tobacco industries.
8. Each “green” megawatt installed destroys 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.
9. These costs do not appear to be unique to Spain’s approach but instead are largely inherent in schemes to promote renewable energy sources.
10. The total over-cost – the amount paid over the cost that would result from buying the electricity generated by the renewable power plants at the market price - that has been incurred from 2000 to 2008 (adjusting by 4% and calculating its net present value [NPV] in 2008), amounts to 7,918.54 million Euros (appx. $10 billion USD)
11. The total subsidy spent and committed (NPV adjusted by 4%) to these three renewable sources amounts to 28,671 million euros ($36 billion USD).
12. The price of a comprehensive electricity rate (paid by the end consumer) in
    Spain would have to be increased 31% to being able to repay the historic debt
    generated by this rate deficit mainly produced by the subsidies to renewables, according to Spain’s energy regulator.
13. Spanish citizens must therefore cope with either an increase of electricity rates or increased taxes (and public deficit), as will the U.S. if it follows Spain’s model.
14. The high cost of electricity due to the green job policy tends to drive the relatively most electricity-intensive companies and industries away, seeking areas where costs are lower. The example of Acerinox is just such a case.
15. The study offers a caution against a certain form of green energy mandate. Minimum guaranteed prices generate surpluses that are difficult to manage. In Spain’s case, the minimum electricity prices for renewable-generated electricity, far above market prices, wasted a vast amount of capital that could have been otherwise economically allocated in other sectors. Arbitrary, state-established price systems inherent in “green energy” schemes leave the subsidized renewable industry hanging by a very weak thread and, it appears, doomed to dramatic adjustments that will include massive unemployment, loss of capital, dismantlement of productive facilities and perpetuation of inefficient ones.
16. These schemes create serious “bubble” potential, as Spain is now discovering. The most paradigmatic bubble case can be found in the photovoltaic industry. Even with subsidy schemes leaving the mean sale price of electricity generated from solar photovoltaic power 7 times higher than the mean price of the pool, solar failed even to reach 1% of Spain’s total electricity production in 2008.
17. The energy future has been jeopardized by the current state of wind or photovoltaic technology (more expensive and less efficient than conventional energy sources). These policies will leave Spain saddled with and further artificially perpetuating obsolete fixed assets, far less productive than cuttingedge technologies, the soaring rates for which soon-to-be obsolete assets the government has committed to maintain at high levels during their lifetime.
18. The regulator should consider whether citizens and companies need expensive and inefficient energy – a factor of production usable in virtually every human project- or affordable energy to help overcome the economic crisis instead.
19. The Spanish system also jeopardizes conventional electricity facilities, which are the first to deal with the electricity tariff deficit that the State owes them.
20. Renewable technologies remained the beneficiaries of new credit while others began to struggle, though this was solely due to subsidies, mandates and related programs. As soon as subsequent programmatic changes take effect which became necessary due to unsustainable” solar growth its credit will also cease.
21. This proves that the only way for the “renewables” sector - which was never feasible by itself on the basis of consumer demand - to be “countercyclical” in crisis periods is also via government subsidies. These schemes create a bubble, Study about the effects on employment of public aid to renewable energy sources which is boosted as soon as investors find in “renewables” one of the few profitable sectors while when fleeing other investments. Yet it is axiomatic, as we are seeing now, that when crisis arises, the Government cannot afford this growing subsidy cost either, and finally must penalize the artificial renewable industries which then face collapse.
22. Renewables consume enormous taxpayer resources. In Spain, the average annuity payable to renewables is equivalent to 4.35% of all VAT collected, 3.45% of the household income tax, or 5.6% of the corporate income tax for 2007.

Economy Grows at 5.7% Pace, Fastest Since 2003

http://finance.yahoo.com/news/Economy-likely-grew-faster-in-apf-3028347842.html?x=0&.v=9

The economy's faster-than-expected growth at the end of last year, fueled by companies boosting output to keep stockpiles up, is likely to weaken as consumers keep a lid on spending.

Still, economists expect growth to slow this year as companies finish restocking inventories and as government stimulus efforts fade. Many estimate the nation's gross domestic product will grow 2.5 percent to 3 percent in the current quarter and about 2.5 percent or less for the full year.

That won't be fast enough to significantly reduce the unemployment rate, now 10 percent. Most analysts expect the rate to keep rising for several months and remain close to 10 percent through the end of the year.

Whitehouse Brass Split of Stimulus Stats

http://www.politico.com/news/stories/0110/31914.html

White House advisers appearing on the Sunday talk shows gave three different estimates of how many jobs could be credited to President Obama’s Recovery Act.

The discrepancy was pointed out by a Republican official in an email to reporters noting that “Three presidential advisers on three different programs [gave] three different descriptions of the trillion-dollar stimulus bill.”

Valerie Jarrett had the most conservative count, saying “the Recovery Act saved thousands and thousands of jobs,” while David Axelrod gave the bill the most credit, saying it has “created more than – or saved more than 2 million jobs.” Press Secretary Robert Gibbs came in between them, saying the plan had “saved or created 1.5 million jobs.”

Why Government Spending Does Not Stimulate Economic Growth

http://www.heritage.org/Research/Economy/bg2354.cfm

• The fact that government failed to spend its way to prosperity is not an isolated incident:
• During the 1930s, New Deal lawmakers doubled federal spending--yet unemployment remained above 20 percent until World War II.
• Japan responded to a 1990 recession by passing 10 stimulus spending bills over 8 years (building the largest national debt in the industrialized world)--yet its economy remained stagnant.
• In 2001, President Bush responded to a recession by "injecting" tax rebates into the economy. The economy did not respond until two years later, when tax rate reductions were implemented.
• In 2008, President Bush tried to head off the current recession with another round of tax rebates. The recession continued to worsen.
• Now, the most recent $787 billion stimulus bill was intended to keep the unemployment rate from exceeding 8 percent. In November, it topped 10 percent.[2]

Congress cannot create new purchasing power out of thin air. If it funds new spending with taxes, it is simply redistributing existing purchasing power (while decreasing incentives to produce income and output). If Congress instead borrows the money from domestic investors, those investors will have that much less to invest or to spend in the private economy. If they borrow the money from foreigners, the balance of payments will adjust by equally raising net imports, leaving total demand and output unchanged. Every dollar Congress spends must first come from somewhere else.

Removing water from one end of a swimming pool and pouring it in the other end will not raise the overall water level. Similarly, taking dollars from one part of the economy and distributing it to another part of the economy will not expand the economy.

But savings do not drop out of the economy. Nearly all people put their savings in: (1) banks, which quickly lend the money to others to spend; (2) investments in stocks and bonds; or (3) personal debt reduction. In each of these situations, the financial system transfers one person's savings to someone else who can spend it. So all money is quickly spent regardless of whether it was initially consumed or saved. The only savings that drop out of the economy are those hoarded in mattresses and safes.

Accepting that domestic borrowing is no free lunch, some analysts have asserted that foreign borrowing can inject new dollars into the economy. However, these nations must acquire American dollars before they can lend them back to Washington. Foreign countries can acquire American dollars by either:

• Attracting American investments in their country. In that instance, the dollars leaving America match the dollars lent back to America. The net flow of saving circulating through the U.S. economy does not increase.
• Selling goods and services to Americans and receiving American dollars in return. For the United States, these imports raise the trade deficit and thus reduce domestic demand. The government's subsequent borrowing back and spending of these dollars merely offsets the increased trade deficit.

In either situation, American dollars must first leave the country before they can be lent back into the U.S. economy. The balance of payments between America and other nations must net zero. Consequently, government spending funded from foreign borrowing does not provide stimulus.

Thus, not all tax cuts are created equal. The economic impact of a tax cut depends on how much it alters behavior to encourage labor supply or productivity. This productivity standard is the same as the one applied to government spending in the previous section.
Tax rebates fail to increase economic growth because they are not associated with productivity or work effort. No new income is created because no one is required to work, save, or invest more in order to receive a rebate. In that sense, rebates that write each American a check are economically indistinguishable from government spending programs. In fact, the federal government treats rebate checks as a "social benefit payment to persons."[20] They represent another feeble attempt at creating new purchasing power out of thin air rather than focusing on productivity.

Tax rebates in 1975, 2001, and 2008 all failed to create economic growth. By contrast, large reductions in marginal tax rates in the 1920s, 1960s, and 1980s were each followed by large surges in economic growth.[21] More recently, the 2003 tax-rate reductions immediately reversed the job losses, sinking stock market, declining business investment, and sluggish economic growth rates that had followed the 2000 recession.[22] These gains continued until unrelated economic developments brought the most recent recession in December 2007.[23]

2010 Economic Freedom Index

http://www.heritage.org/index/pdf/2010/Index2010_ExecutiveHighlights.pdf

The positive relationship between economic freedom and prosperity is confirmed yet gain in the 2010 Index. Gross domestic product per capita is much higher in countries that score well in the Index. The positive relationship holds true at all levels of economic freedom but becomes even more dramatic as economic freedom increases.

Economic freedom improves the overall quality of life, promotes political and social progress, and supports environmental protection. The 2010 Index provides strong evidence that economic freedom has far-reaching positive impacts on various aspects of human development. Economic freedom correlates with poverty reduction, a variety of desirable social indicators, democratic governance, and environmental sustainability.

Fannie Mae Eases Credit To Aid Mortgage Lending - September 30, 1999

http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html?pagewanted=1

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

The Current State of Our Economy

http://www.calculatedriskblog.com/2009/12/summary-and-look-ahead.html

Shrinking U.S. Labor Force Keeps Unemployment Rate From Rising

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHA4PMI1G2ks

Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent.

About 1.7 million Americans opted out of the workforce from July through December, representing a 1.1 percent drop that marks the biggest six-month decrease since 1961, the Labor Department report showed. The share of the population in the labor force last month fell to the lowest level in 24 years.

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- rose to 17.3 percent in December from 17.2 percent.

The number of discouraged workers, those not looking for work because they believe none is available, climbed to 929,000 last month, the most since records began in 1994.

The labor force will probably grow this year as the economy continues to expand and Americans believe jobs will be easier to get. That will mean the unemployment rate will head higher because there won’t be enough jobs available to satisfy the demand for work.

“We expect unemployment to resume rising over the next few months, peaking near 10.5 percent in the third quarter.”

Is it all just a Ponzi Scheme?

http://www.sprott.com/Docs/MarketsataGlance/12_2009_MAAG.pdf

...to summarize, the majority buyers of Treasury securities in 2009 were:
1. Foreign and International buyers who purchased $697.5 billion.
2. The Federal Reserve who bought $286 billion.
3. The Household Sector who bought $528 billion to Q3 – which puts them on track
purchase $704 billion for fiscal 2009.

These three buying groups represent the lion’s share of the $1.885 trillion of debt that was issued by the US in fi scal 2009. We must admit that we were surprised to discover that “Households” had bought so many Treasuries in 2009. They bought 35 times more government debt than they did in 2008. Given the financial condition of the average household in 2009, this makes little sense to us. With unemployment and foreclosures skyrocketing, who could afford to increase treasury investments to such a large degree?

Amazingly, we discovered that the Household Sector is actually just a catch-all category. It represents the buyers left over who can’t be slotted into the other group headings. For most categories of financial assets and liabilities, the values for the Household Sector are calculated as residuals.

U.S. Now a Renters' Market

http://online.wsj.com/article/SB126282425648418817.html?mod=rss_whats_news_us

Apartment vacancies hit a 30-year high in the fourth quarter, and rents fell as landlords scrambled to retain existing tenants and attract new ones.

The vacancy rate ended the year at 8%, the highest level since Reis Inc., a New York research firm that tracks vacancies and rents in the top 79 U.S. markets, began its tally in 1980.
Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession.

Who Soaked Up the U.S. Treasury Auctions?

The Lost Decade

http://5minforecast.agorafinancial.com/the-lost-decade-the-year-of-commodities-another-worlds-biggest-and-more/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+5MinForecast+%285+Min.+Forecast%29

Pending Home Sales Post Record Plunge in November

http://www.foxbusiness.com/story/markets/industries/real-estate/home-sales-plunge--november/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+foxnews%2Flatest+%28Text+-+Latest+Headlines%29

Pending home sales unexpectedly plunged in November, according to a report issued Tuesday by the National Association of Realtors, posting their largest drop on record after several months of positive gains for a closely-watched indicator of housing market activity.

According to the industry group, November pending home sales activity dropped by 16% to a reading of 96.0, compared with the previous month’s reading of 114.3. The drop was much larger than expected by Wall Street, which was looking for a dip of 2% for the indicator for November.

It was the largest drop, point-wise, since the industry group started the index in 2001, dragging the indicator to its lowest level since June.

Second Wave of ARM Resets and Foreclosures

http://5minforecast.agorafinancial.com/rule-by-outlaws-spending-insanity-the-second-wave-dreamliner-lessons-and-more/

“The second wave of ARM resets and foreclosures might come sooner than you think,” notes Jim Nelson. “According to Whitney Tilson and Glenn Tongue of T2 Partners, the experts on this subject, about 80% of option ARMs are negatively amortizing. Meaning these so-called top-tier borrowers are heading further into the hole. Once their rates reset, they could be in serious trouble.

“And that could be happening very soon

“The chart above, which should look familiar, shows the two peaks in this long-term housing conundrum. The first mountain is comprised of subprime ARM resets. And the second is mostly constructed of option ARM resets. We appear to be in the eye of the storm.

Option ARM Definition (Source):
An "option ARM" is typically a 30-year ARM that initially offers the borrower four monthly payment options: a specified minimum payment, an interest-only payment, a 15-year fully amortizing payment, and a 30-year fully amortizing payment.

These types of loans are also called "pick-a-payment" or "pay-option" ARMs.

When a borrower makes a Pay-Option ARM payment that is less than the accruing interest, there is "negative amortization", which means that the unpaid portion of the accruing interest is added to the outstanding principal balance. For example, if the borrower makes a minimum payment of $1,000 and the ARM has accrued monthly interest in arrears of $1,500, $500 will be added to the borrower's loan balance. Moreover, the next month's interest-only payment will be calculated using the new, higher principal balance.

The Deflation Threat

http://www.americanthinker.com/2009/12/the_defaltion_threat.html

A falling price trend is at first a benefit to consumers. But then it leads to a spiral of economic decline: a depression. Deflation occurs when money for whatever reason becomes scarce, and therefore more valuable. Lower prices are the effect. Producers starve for profits, which leads to layoffs, loan defaults, and bankruptcies. Borrowers find they have to repay with more expensive dollars, so they pay off their debts. Low debt throttles growth and slows purchases. Expensive dollars make exports less competitive. Unsold inventories waste away on the shelf, crumble in value, and must be sold at deep discounts. Prices fall further, and so on, in a vicious circle.

Normal downturns are triggered by cyclic imbalances in which supply temporarily exceeds demand. Growth pauses while inventory excesses are liquidated. This time, however, things are different. The triggering event was an asset valuation bubble -- high stock and real estate prices -- boosted excessively in a buying mania fueled by cheap credit during the last fifteen years. Lots of borrowing creates financial leverage, which pumps up profits during good times and wipes them out during bad. Consumer credit swelled with the aid of cheap mortgages and home equity lines. Businesses borrowed cheap short-term money and invested long-term, expecting to roll the loans over as profits expanded. Most significantly, bankers ran high ratios of what they lent out versus what they took in. All of this borrowing was encouraged by the Federal Reserve Board and Congress to foster social goals like full employment and high levels of homeownership.

But the system eventually became unstable. The real estate that served as collateral for trillions of dollars of debt on the banks' (and the bank-like Fannie and Freddie) balance sheets became priced too high, and for the first time in seventy years, prices began a serious decline. Many highly leveraged borrowers had their equity wiped out, so they threatened to default. An increased sense of risk rippled through these debt pools, erasing much of their value and rendering them unsalable, or "toxic." Soon, a "run," or loss of general confidence, pervaded the U.S. and European economies. Though it has come to be called the housing bubble recession, a better name is the great credit bubble depression.

Deflation stems from a shortage of money. Isn't the Fed creating trillions of new dollars that they lend to banks and to the Treasury for disbursement in "stimulus" programs? Yes, but even as the Fed has recently created $2 trillion in new assets, many times, more money has been and will continue to be taken out of the world's economy through the process of de-leveraging -- that is, the paying off or writing off of a portion of the hundreds of trillions in credit floated around the world. Despite talk of TARP success and nascent recovery, those toxic assets are still on the books, some with the banks and some with the Fed itself. Eventually, much of this money will become worthless. As fast as the Fed is printing new money, money is being destroyed as debt is taken off the table. In the end, the Fed will lose as the quicksand of depression sucks more and more money into its muck.

Ironically, the 60% stock market rally of 2009, which in itself is anti-deflationary, is no source of comfort. Though it's hard to prove why stocks move, the recent rally is most likely due to a "carry trade," in which banks borrow cheaply from the Fed and invest in high-return risk markets like stock, gold, or even foreign currencies. The Fed is encouraging this with low rates precisely because this asset re-inflation makes the dollar less valuable. They are fighting the inevitable deflation.

But they are also creating a new asset bubble just like the one that imploded last year. They have lowered short-term interest to zero. As prices correct downward and the dollar rises as deleveraging continues, the Fed can take rates no lower. The last remedy available is for the Fed to buy government and corporate debt in the open market, literally printing money at will -- adrenaline for a burst, perhaps, but not sustainable. Other government measures like deficit spending and expansion of primarily public sector jobs in the "Stimulus" program are simply wasteful, destroying more dollars in the present and creating public debt to burden the future. These effects are deflationary. Obama's plans for new taxes and regulations, which extinguish dollars, are also deflationary.

What about the oft-cited signs of recovery like upticks in GDP, consumer sentiment, and retail sales? Well, even in a trending economy -- and ours is trending down -- it is normal to see short blips, zigs, and zags against the trend. The numbers are also somewhat cooked for political effect. You'll know that the grip of deflation is tightening if you continue to see more of the following: discounts, price reductions, joblessness, real estate vacancies, bank failures, business failures, public finance failures, pension defaults, loan defaults, shrinking debt and credit, higher savings ratios, and frugal spending.

The depression will be terrible, but it could have a cleansing effect.

Study: Schools Face Shortfalls After Stimulus Ends

http://newsmax.com/US/US-School-Funding/2009/12/22/id/344281

Using federal stimulus money to avoid layoffs at schools is going to create a shortfall even more difficult for states and schools to contend with when that money runs out, according to a first-of-its-kind study released Monday.

In July, the GAO cautioned that many states facing deep deficits were using stimulus dollars to fill budget holes and avoid layoffs, rather than reforms that could mean longer-term savings or programs such as building new schools.

When one saves a job, it doesn't mean one saves it indefinitely," she said.

The Congressional Budget Office has noted the difficulty of measuring the number of jobs saved by the stimulus. "It is impossible to determine how many of the reported jobs would have existed in the absence of the stimulus package," a CBO report said last month.

The On-Again, Off-Again Depression

http://dailyreckoning.com/the-on-again-off-again-depression/
By Bill Bonner

The US stock market is still in “bounce mode.” All bounces come to an unhappy end. This will be no exception.

If you step back a bit further, you could see it in a different light. Ten years ago, The Daily Reckoning warned of a long, Japan-like slump. Then, the stock market fell and the economy went into a recession. But the downturn didn’t last long. And in the bubbly years that followed, our alert was quickly forgotten – especially by us! But now, 10 years have gone by. The S&P 500 has lost 20% of its value during that period. Wages and income are static. And there is not one single more job in America than there was then. It was a “Lost Decade” for the American economy.

So get ready…

How about a depression that lasts for 20 years? It could be on its way.

In December, exactly 20 years ago, Japan’s stocks closed at an epic high – 38,957 for the Nikkei 25 index. Last week, that same index closed at 9,977.

Readers will quickly note that the Japanese are idiots. Why else would they allow a 20-year bear market? Why else would they permit their economy to slide sideways for nearly an entire generation?

Where is the Japanese Bernanke?

This is almost the same question we posed readers 10 years go. Except then, we asked: Where is the Japanese Greenspan?

Greenspan…Bernanke…it didn’t seem to make any difference. American central bankers seemed to have magical powers, at least compared to their Japanese counterparts. They seemed able to succeed where the Japanese failed…

American economists mocked the Japanese 10 years ago. But what goes around, comes around…
Japanese and American economists go to the same schools. They have the same silly ideas. They are equally incompetent, as near as we can see. And yet, the Japanese have suffered one ‘lost decade’…and then another…while Americans went from bubble to bubble….

But, maybe our first idea was right after all. After we warned that the country could follow on Japan’s heels…entering a long, soft, slow depression…the Greenspan Fed and the Bush federal government opened up with all cannons. They blasted away on both fiscal and monetary fronts…ending up with the biggest barrage of stimulus the world had ever seen.

And what happened? They inflated another bubble…bigger and more dangerous than any before it.

Now, that bubble too has blown up. And now we look around. Once again, the Bernanke/Obama team is firing every gun; just as the Greenspan/Bush team did in the early 2000s…only more of them. But this time, the volleys are not having the same effect. Even though asset markets are bubbling up as hoped, the depression won’t go away. Unemployment is over 10% and still increasing. This is not another “jobless recovery” like the one in 2002-2003. This is no recovery at all.

Then, we look back at the last 10 years. What do we see? Instead of making economic progress, we see a nation making economic mistakes. And, under the leadership of the Obama/Bernanke/Geithner team…they’re still making mistakes. The same mistakes. Only bigger ones. And so we have to wonder…

Maybe the next decade will be ‘lost’ too. Stocks have gone nowhere for the last 10 years, but they are still expensive. On average, they sell for 50% more than the long-term average P/E. Usually, when they are this high, the next generation produces piddly gains. Could it be that, 10 years from now, we will look back without having added a single dollar of net return? Yes…it is quite possible. Likely even. That will mean a total of 20 years with no profit for stock market investors.

Which would serve them right. You’ll recall, perhaps, that at the end of the ’90s it was widely advertised that the surest, simplest road to riches was the stock market. The Dow was supposed to go to 36,000, according to one well-publicized forecast. All you had to do was ‘buy and hold.’ You’d get rich for sure.

Of course, it doesn’t work that way. As soon as investors all come to think the same thing the only sure thing is that what they all think is balderdash.
Well…then…what do they think now?

As near as we can see they believe two contradictory things. On the one hand, everyone says the dollar is doomed. On the other hand, they all seem to want dollar-denominated US Treasury bonds.

But actions speak louder than words. They may talk about the end of the dollar; but that is what they still own. And that is what they’re still buying – via US Treasuries. So…we want to be short US Treasuries for the next 10 to 20 years.

But wait. Isn’t it too soon? Ah, there’s the rub. Treasuries seem to be approaching a major peak. Maybe they are there already. Maybe they aren’t.

“What bothers me is that we still haven’t had that other major leg down in the stock market,” we told colleagues Issy Bacher and Dan Denning today. “It’s not natural for a bear to take a chunk out of asset prices…and then just go away. Typically, the assets bounce back…and then the bear takes another chunk out of them.

“Since we haven’t had that next leg down…we have to assume it’s still ahead. But investors seem totally unprepared for it. When it comes, they’re going to panic. They’re going to sell shares all over the world. And they’re going to seek safety…where? They’re probably going to turn to US Treasury bonds. Treasuries will go up, not down…

“Now the funny thing is that moving to Treasury bonds will help the US government finance its deficits…and possibly stretch out the depression for years. As long as the dollar is in jeopardy, the feds are in danger. They might not be able to finance their deficits. Which means, foreigners…and investors generally…could walk away from the dollar at any time. That would cause a major crisis. If the feds couldn’t finance the deficit with borrowed money…they’d be forced to print it…causing hyperinflation.

“As long as they can finance it, on the other hand…we could face a long depression.
“That’s the risk that no one is paying attention to…and no one is prepared for. That’s why it seems like the most likely outcome. A long, slow, on-again, off-again depression…just like we forecast 10 years ago.”

New Jobless Claims Rise to 474,000 After Falling For 5 Straight Weeks

http://www.foxnews.com/politics/2009/12/10/new-jobless-claims-rise-falling-straight-weeks/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%253A+foxnews%252Fpolitics+%2528FOXNews.com+-+Politics%2529

The number of newly laid-off workers seeking jobless benefits rose more than expected last week, after falling for five straight weeks.

Despite the increase, claims have fallen steadily since this summer, a sign that job cuts are slowing and hiring could pick up as soon as early next year amid a broad economic recovery.
Initial claims for unemployment insurance rose by 17,000 to a seasonally adjusted 474,000, the Labor Department said Thursday. That was above analysts' expectations of 460,000 new claims.

Still, claims will have to fall to about 425,000 for several weeks to signal the economy is actually adding jobs, according to many economists.

U.K., U.S. Top Aaa Ratings Tested by Debt Burdens, Moody’s Says

http://www.bloomberg.com/apps/news?pid=20601087&sid=av16pDNNrMig

Moody’s Investors Service said the top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because public finances are worsening in the wake of the global financial crisis.

Moody’s defines “resilient” countries as “Aaa countries whose public finances are deteriorating considerably and may therefore test the Aaa boundaries, but which display, in our opinion, an adequate reaction capacity to rise to the challenging and rebound.”

We shall see if we have an adequate, or correct reaction then...

$246,436 Per Stimulus Job

http://blogs.reuters.com/james-pethokoukis/2009/12/07/cost-benefit-analysis-of-jobs-stimulus/

The Obama Administration is touting that their stimulus program has saved or created 640,329 jobs since it was enacted back in February through the end of October. This number is updated and posted on the Administration’s recovery.gov web site. That amounts to $246,436 per job based on the $157.8bn that has been awarded so far! Total compensation earned by the average payroll employee during October, on an annualized basis, was $59,867.

If the government had simply used the funds awarded so far to pay for a year’s worth of labor, that would have paid for 2.6mn jobs!