-By Dan Scott
Recently a number of overly rosy pronouncements have been coming out of the Whitehouse in an attempt to talk up the economy and consumer confidence. In the corporate world, putting a brave face on a bad situation is called Happy Talk. The CEO comes out with the pep talk to boost flagging employee morale to keep up productivity and key employees from jumping ship. The positive spin can be come from true concern for the drag on team spirit that would make the difference between success and failure through vision and teamwork. The overly positive spin is done cynically in the knowledge the company leadership has made some bad decisions which are about to have very negative consequences and is done to prevent employees from taking any action to protect themselves. Many things can sink a company, poor attitude, low morale, bad decisions, natural disasters and fraud among the many, but how you characterize the situation speaks volumes as to your intent. In the corporate world, the dividing line between Happy Talk and vision is denial, ignorance and deception.
The Tim Geithner Stress Test for the Banks is an example of such Happy Talk. The results were positively optimistic and a number of banks were told to increase their reserves just in case there was an unexpected drop in the economy. What Geithner and the MSM didn’t say was there are other independent companies who regularly evaluate the health of banks beyond the FDIC conducting periodic evaluations of the banking industry. One such company is called Institutional Risk Analytics (IRA). IRA rates banks via an index based on the year 1995 being a rating of 1. The relative strength of the institution drops as the index number increases.
In Q1 2009, the bank safety and soundness ratings calculated by the IRA Bank Monitor using the data from the FDIC indicate a dramatic climb in the stress in the US banking industry. The industry aggregate average Bank Stress Index calculated by IRA was 1.8 at the end of Q4 2008, but in Q1 2009 jumped to a whopping 5.57 or now half an order or magnitude above the 1995 benchmark year (1995 = 1). The apparent reason for this large increase in stress in Q1 2009 is the number of banks that delivered negative net incomes in the first quarter of 2009, one thousand five hundred seventy-five (1,575) of them. When you drill down to do some comparisons, it becomes obvious that the talk coming out of Washington was not one of vision and teamwork. The purpose of the Happy Talk it seems is to cover up the continuing restriction of credit since raising of reserves by $75 billion means that amount of money can’t be loaned. From where do you think the $75 billion will magically come? The loss of credit directly impacts the ability of companies to expand plant and equipment, which affects employment.
We hear a lot of talk from the MSM that the economy is about to turn out of the recession and they report President Obama’s assertions without challenge that the Stimulus Bill is having the intended effect. Except that only several billions of dollars were actually expended so far under the Bill in a 14 trillion dollar economy. It takes a lot of Happy Talk to convince the nation that the jump from 8.5 to 8.9% unemployment is good news by saying the light at the end of the tunnel has just appeared by dismissing it as a lagging indicator. However, such talk ignores the fundamentals of the economy such as energy consumption. Energy consumption is a direct indicator of real time economic health. Trouble is still brewing with the economy, consumption has fallen again against last year and the previous.
5/1/09 – 8,923,000 gallons/day versus
5/2/08 – 9,311,000 gallons/day
Change – (-388,000) gallons/day
4.2% drop in consumption
Nationally, prices went up to 2.078/gal from 2.049 the previous week. If you have noticed prices just jumped again this week. But when you compare this to last year at this time of $3.613/gal, which was when gas prices were accelerating upward to $4/gal, it shows the economy has become hypersensitive to even small price fluctuations. Since fuel consumption is proportional to economic activity, any further erosion against last year’s decelerating consumption (2007-08) in the face of the normal up tick in summer consumption means a significant drop in relative economic activity. Note that the 2007-08 dashed line was already lower than the previous year trend of 2006-07.
My prediction for the next four months based on this trend: As gasoline prices increase in response to the up tick in summer fuel consumption and that consumption increase will be significantly less than normal, employers not being able to pass on fuel price increases will lay more people off and due to the less than normal up tick not hire extra help for the summer season. The latter will be similar to the dearth of seasonal hires last year in the run up to Christmas. Given the demographics of May and June, unemployment may well shoot up to 11%. Entering the workforce in short order will be approximately one million college graduates in May and three million high school graduates (not going on to college) in June. No my friends, sometimes the light at the end of the tunnel is an on rushing train.
The reason for President Obama’s Happy Talk is his denial of the bad decisions he, Nancy Pelosi and Harry Reid made two years ago when he was a senator. They broke their 2006 campaign pledge to lower the price of gasoline and their failure to reform the mortgage market when they had a chance. Folks, a recession causing the price to drop from $4 to less than $2 a gallon is not a fulfillment of that pledge, that is a consequence of their failure. That failure was a direct result of pie in the sky promises of future green energy and jobs that have yet to materialize. Let’s examine how this failure cost literally thousands of jobs. The oil and gas industry has continued the downward trend in drilling domestically forcing our economy to depend ever more on foreign sources of oil and natural gas due to the recalcitrance of Pelosi, Obama and Reid’s leadership in opposition to domestic drilling. Thousands of high paying jobs that would have been created here in the US were outsourced due to government meddling. Not only have they outsourced material and labor by their meddling, they also as a consequence caused hundreds of billions of dollars to flow out of the economy annually due to purchasing foreign energy. This means all the domestic manufacturers were denied buyers for their products and as a consequence reduced jobs. Not one drop of oil was saved via conservation or green energy as a result of this meddling, it was merely outsourced. To compound their foolishness, they are allied with environmental groups who opposed coal fired electrical plant construction. Due to their collective efforts well over 151 coal fired plants have been cancelled with no like replacement of green energy substitutions to match the loss of capacity from those cancellations. Again, manufacturers were denied a market for their goods, hence additional thousands of jobs were lost not just in construction of those facilities but also in manufacturing.
In fact, the entire discussion of green energy and green jobs is just Happy Talk to cover up failure since to date there has been no net substitution of green dollars for “carbon” based dollars. Government subsidies don’t count since those were a double dip because they were taken from the consumers who are paying for carbon-based energy. If the consumer is not paying directly for green energy then it is not a dollar for dollar substitution. When it comes to managing the economy, the facts are clear and the conclusion is unavoidable, Pelosi, Obama and Reid are incompetent. Only an incompetent manager would cut resources without having a unit for unit substitution during a transition. The result of this continuing incompetence will be a lengthy recession since Happy Talk is really a rationalization not to correct bad decisions. The way out of this recession is equally obvious with vision and teamwork: stop blaming the market for government incompetence, a total repeal of the CRA, unleash the oil and gas companies to drill domestically, end all government meddling in the electrical utility industry so they can build their power plants and as a consequence spur domestic manufacturing, increase hiring and substantially reduce the outflow of dollars out of the economy back to domestic reinvestment.
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Dan Scott calls himself a “Member of the Global Capitalist Cabal preaching Capitalism and personal responsibility as the economic solution to world poverty.” He is also a member of the 14th Amendment Society — victimhood is a liberal code word for denying the civil rights of others. He is also a proud member of the Global Warming Denier Cabal, insisting that facts not agendas determine the truth.
Dan can be seen on the web at http://www.geocities.com/fightbigotry2002/ as well as http://www.geocities.com/dscott8186/saidwebpage.htm, And can be reached for comments at dscott8186@yahoo.com.
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