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THE CONSERVATIVE REVIEW - October 12, 2010
Jobs Tepid, Dems Out, Stocks Up?
by: Larry Kudlow
Townhall.com
Friday's unemployment report for September, the last before
the election, brought more bad news for the Barack Obama
Democrats.
Noteworthy is the fact that stocks rallied a bit on the
lackluster and tepid jobs numbers, pushing through the
11,000 mark. But more and more, it seems bad economic news
illustrating the failure of Obamanomics becomes good news
for stocks on the expectation of a GOP tsunami in November.
The unemployment rate itself held at 9.6 percent. It's been
over 9.5 percent for 14 straight months. Meanwhile, the
marginally unemployed -- or the so-called impairment rate
(U-6) -- jumped to 17.1 percent from 16.7 percent.
These headlines are political poison for Democrats. Voters
are going to keep asking, What exactly did we get for a $1
trillion stimulus-spending package that puts us deeper in
hock?
Overall, nonfarm payrolls fell 95,000 for September, large-
ly from a drop in census workers and state and local govern-
ment employees. Private payrolls increased 64,000, only a
third of what's necessary to sustainably reduce unemploy-
ment.
Average hourly wages were flat, as was the workweek.
Looking back, the jobs story was much stronger in the first
four months of the year through April. But job creation
has slowed markedly since then, along with the overall
economy.
The household survey, which picks up small businesses, is
the better story. This report has grown by 1.6 million jobs
year-to-date (adjusted for census workers), or 178,000 per
month. And in the payroll survey, corporate jobs have
increased 863,000 in the private sector, coming to 96,000
per month. Yet both surveys must grow over 200,000 per
month in order to truly dent stubbornly high unemployment.
There is no double-dip recession here. The recovery is
probably advancing at about a 2 percent to 3 percent rate.
But that's a sluggish pace at best. We should be growing
at least twice as fast.
Precisely because of the obvious failure of the Obama
stimulus-spending program to adequately create jobs, the
Federal Reserve is moving toward re-priming the pump. It's
the addition of yet another bad policy of dollar destruct-
ion to the first mistake of massive spending.
Think of it this way: The Fed is probably going to add
another $1 trillion of new cash to the financial system.
But as all those new dollars are created, the dollar
excess sinks the greenback exchange rate. And that means
investors will take the new money the Fed creates and
drain it out of the U.S. financial system into more reli-
able currencies. Go figure Ben Bernanke's logic.
The same thing happened between 2002 and 2006. The Fed was
too loose for too long, the dollar fell too far, and all
that cash fled the country, thereby undermining the George
W. Bush tax cuts.
Meanwhile, with today's rapid rise in gold and commodity
prices, a new inflation tax will be imposed on consumers
and businesses. Bad for growth. Oil has jumped to $83 a
barrel, and gas at the retail pump is heading toward $3
a gallon.
And on top of all this, a world currency and trade war
beckons. Treasury Secretary Tim Geithner is rapidly
escalating the China-bashing rhetoric, as he blames the
Chinese yuan for American economic woes. Shades of the
1930s. Neither the Treasury nor the Fed seems interested
in defending the dollar's world-reserve-currency status,
or U.S. global economic leadership. And no one in official
Washington seems interested in global-currency stability
backed by a golden anchor.
But here's the real problem. New numbers from the Congress-
ional Budget Office show a 9 percent increase in federal
budget spending for fiscal 2010. That's about six-times
the inflation rate. Astronomical.
Federal spending is now 25 percent of gross domestic
product, way past the historical norm of 20 percent. And
the budget gap is $1.3 trillion. So how can you blame
investors or businesses for asking this simple question:
How high are my taxes going to go to finance all this?
Until this question is answered to their satisfaction, the
job-creating engines will remain dormant. Obamacare is a
massive tax and regulatory threat. And so is the spending
and deficit problem. The Fed can pour all the new money it
wants into the economy, but it cannot change any of this.
Then again, the elections can.
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