Counterparties: The slow-burn jobs crisis

By Ben Walsh
June 1, 2012

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Remember when all we had to worry about was an oversaturation of Facebook IPO coverage?

Today’s jobs report was decidedly bad: The US added just 69,000 jobs in May, leaving unemployment unchanged at 8.2% and employment gains in both March and April revised down. The ranks of the long-term unemployed, those without a job for 27 weeks or more, swelled by 300,000.

Justin Wolfers is convinced that economic conditions demand fiscal stimulus. And although Treasury yields are once again a fear gauge, Felix thinks they also show us the way out: vast government borrowing at cheap rates and spending to invest in infrastructure, public-sector employment and the social safety net.

But congressional intransigience and the president’s seeming discomfort with stimulus makes that an unlikely path. Betsey Stevenson calls on Congress to “stop acting like children and do something about the fiscal cliff and debt ceiling” rather than engage in seven months of brinkmanship. But Jared Bernstein, Joe Biden’s former economic adviser, doesn’t think that a Congress committed to acting on narrow, partisan terms ”regardless of the degree of hardship in the current economy” can mature on a whim. After all, the benefits of the president’s jobs bill are looking awfully attractive right now, and it was pronounced DOA.

Binyamin Appelbaum thinks the most likely source of economic juice will come from the Fed. Ryan Avent agrees that the Fed will be forced to consider action, but thinks it’s unlikely to be decisive enough:

The Fed bears the greatest responsibility for America’s pathetic recovery…The Fed’s interventions have been limited and seemingly designed to ignore the powerful expectations channel; at no point have breakevens shown inflation expectations steady at even pre-crisis levels when expectations above pre-crisis levels are what the current situation demands…It repeatedly stops pushing the economy forward as soon as it seems likely that the economic trajectory will carry inflation toward 2%.

Tim Duy feels like he’s already seen this movie in the summer of 2011. If that’s true, it will be deeply unfortunate, because after a month when the economy added too few jobs for at least one economic-recovery model to even compute, waiting to act is increasingly counterproductive. – Ben Walsh

On to today’s links:

EU Mess
Man with power to do something about the euro crisis urges others to do something about the euro crisis – NYT
What do you do when half of your country’s youth is unemployed? – TNR
Investors are paying Germany to watch their money for a couple of years – WSJ

New Normal
Americans are cutting back on debt – except, that is, for student loans – WSJ

Obama ordered a wave of cyber attacks against Iran – NYT
Stuxnet, the worm that targeted Iran’s nuclear facilities, was created by the US and Israel – Boing Boing

Everyone stop being so “dangerously facile” about deficits and growth – Ken Rogoff
Are we seeing a capital flight from China? – Tim Duy
A detailed case for “monetary regime change – National Review

Good Points
“You are no different from some teen in Indiana with a LiveJournal about cutting” – Choire Sicha

That link to a 55-gallon bottle of personal lubricant you joked about on Facebook? It’s an ad now – NYT

With bribery investigations looming, Wal-Mart chairman says integrity “is our business” – Reuters

The collapse and hollow return of private-sector employment – Mother Jones

This is the least important jobs report of all time – Josh Brown

Appropriately Surly
Raymond Chandler to a copy editor: “when I split an infinitive, God damn it, I split it so it will stay split” – Letters of Note

Teamsters criticize Romney’s private equity background, but are happy to invest their pensions in it – CNBC


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

The Fed can’t rescue the economy. All the Fed can do is ensure that lenders can lend.

News flash – without qualified borrowers there ain’t no banking multiplier. This is so basic, and yet virtually everyone ignores it.

The Federal government can spend on big projects and that will create qualified borrowers, which will enlarge the economy.

The Federal Reserve can’t spend zip-a-dee-doo-dah. All the Fed can do is cut rates until we see deflation due to banks having more money than the can lend.

Posted by BrPH | Report as abusive

Thank you for linking to Ken Rogoff taking a position opposed to the view expressed by Felix and the top of this post without feeling the need to be sarcastic or snarky toward Rogoff. One may agree or disagree with Rogoff, but his position is neither absurd nor unserious.

Posted by realist50 | Report as abusive

“Thank you for linking to Ken Rogoff ….” (R50)

seconded – when OWS/TEA take over, he’s one of a tiny few in that disreputable non-profession who should be spared the guillotine, maybe.

Posted by MrRFox | Report as abusive

What is this “powerful expectations channel”? Is it the same expectations channel which doesn’t work?

Posted by dsquared | Report as abusive

@ BrPH –

You are almost correct in stating that the Fed can’t rescue the economy. Allow me to tweak your comment to state that the Fed can’t rescue THIS economy. It is doing just fine in creating capital for investment in the third-world countries, which is where ALL our bailout money is really going.


Every single increasingly worthless dollar of our money is being spent to improve the economies of countries which pay a higher rate of profitability for the wealthy BECAUSE THAT MONEY IS BEING GIVEN TO THE WEALTHY BANKERS WITH “NO STRINGS ATTACHED”.

As a result, like the greedy little bankers they are, they refuse to invest in the US due to a lack of restrictions to prevent them from investing elsewhere for better profits.

It is inconceivable to me that this has been going on since the first bailouts after Lehman Brothers collapsed, and no one can seem to figure out that the American people are being deliberately screwed by their own government.

Now that the markets are in trouble yet again — mainly due to the fact the continuous bailouts are like trying to fill a bottomless pit — the issue of more bailouts has come to the fore once more.

If we had any common sense at all, the answer from the American people should be, not only NO, but HELL NO!

The government needs to stop giving free money to wealthy bankers with no strings attached.

It is not only incredibly stupid, it is now bordering on insanity (that is, performing the same action over and over, but expecting a different result each time).

Right now, the actions of the Fed are a MAJOR threat to our economy, and benefit no one but the wealthy.

Whatever else we might need to do to save this economy, FIRST STOP THE FED FROM WHAT IT IS DOING!

Posted by PseudoTurtle | Report as abusive

For those of you so seemingly enamored with Rogoff and his ideas, it just occurred to me that it was his article in the UK newspaper The Guardian that I commented on yesterday, mainly because he missed the real point about excess debt and what it is doing to the global economy, along with a lot of other comments that makes for interesting reading.

(More interesting simply because the British aren’t quite as constrained in their media comments as the US.)

For your convenience, here is the link to The Guardian, followed by my original comment in The Guardian in case you decide not to read The Guardian article itself. jun/01/austerity-debt-realism-kenneth-ro goff



1 June 2012 4:44PM

Excessive debt is indeed the problem, which as you point out is encouraged by long periods of low interest rates, mainly because it encourages speculation. That is a fair description of how and why the global economy is failing today.

What you don’t address is the result of excessive debt and speculative bubbles, which is excessive growth in the amount of wealth held by the wealthy class. Regardless of what most people think, there is only a finite amount of wealth available to any society at any point in history.

If most of that wealth is locked up by the wealthy, then the economic reality is there is that much less for anyone else. As a result, prices are forced upwards as the scarcity of wealth grows.

Right now, that principal of excess wealth being tied up in the global wealthy class (for a number of economic, legal and technological reasons that go beyond the scope of this comment) is causing global prices to rise beyond levels that are not sustainable.

The cure for this situation is to reverse the trend that has been growing steadily for more than 50 years (basically the period beginning with the recovery of Japan after WWII, and “going on steroids” with China opening up for trade around 1980).

Stated in its simplest possible terms, excess debt requires a “recapitalization” of the global economy with real revenue — BUT CERTAINLY NOT MORE DEBT, which is what the wealthy class is attempting to do right now. That is guaranteed to make matters much worse, and in the long run even for them.

Thus, there is only ONE source of that revenue, and that is the global wealthy class. Selective (meaning progressive) taxation of this class would provide the steady stream of revenue the world needs to recover.

It is INSANE to continue to bailout those who caused this crisis in the first place. This means the revenue MUST come from the wealthy bankers and the investors who have shifted the bulk of the world’s economic wealth into their hands, due mainly to free trade that is hardly anything but free for anyone who isn’t wealthy.

Like it or not, THAT is the “inconvenient truth” no one wants to talk about. The longer we wait to address our real problems, the worse the situation will become, until governments begin to destabilize, which will do no one any good.

Posted by PseudoTurtle | Report as abusive

One final comment.

Felix is dead WRONG about “vast government borrowing at cheap rates and spending to invest in infrastructure, public-sector employment and the social safety net.”

If you read my comments above, it should be clear we do NOT need “vast government borrowing” for ANY reason, especially not for “infrastructure investment” at this point.


Because the economy is in severe decline and perilously close to collapse, so there is no need to upgrade our infrastructure, especially at public expense, when the money should be used for “real” investment in our economy that produces “real” jobs.

“Infrastructure investment” (also known as “make-work jobs” by an alphabet of agencies during the Great Depression) will NOT solve our problems, but only exacerbate our debt situation.

AND there is NO guarantee the money would be spent on anything worthwhile — past experience suggests otherwise.

Increasing public sector employment is the LAST thing we should do. Instead, we should begin to reduce the bloated overhead of an inefficient government.

What we NEED to do is to reverse the tax and trade trend of the past 30+ years that benefits only the wealthy class, in order to get our jobs back.

This isn’t “Keynesian” or anything else related to economics.

Our problems are much more basic than any economic theory. Our problems are the direct result of a wealthy-controlled government that is killing this economy for better profits elsewhere in the world.



The only “cure” for that is to force them to stop what they are doing, and reverse those tax and trade policies that benefit only the wealthy.

This also has nothing to do with our “social safety net”, by which I assume Felix means Social Security and its associated programs.

The solution to Social Security is extremely simple:

(1) remove it from the General Fund to a separate trust fund where it is supposed to be, so the government cannot “borrow” from it anymore, which is the ONLY reason it is supposedly “broke”, regardless of what the government says,

(2) remove the cap on the amount subject to Social Security completely — many would object, but the reasons are sound, except they go beyond this venue to explain — which would IMMEDIATELY make Social Security solvent by curing its present “cash flow” problem that is due solely to the government spending the money on current expenses, thus now and forever protect the young who rightfully worry about it, but for the wrong reasons, and

(3) set up legal/constitutional safeguards to prevent Congress from ever being able to access those funds again, which has always been the real problem with Social Security. The ugly truth is that once a surplus begins to build in the Social Security Trust Fund (which it has several times), Congress can’t seem to keep its hands off of it.

The government wants to get tough with “entitlements”, but I suggest we implement a “get tough” policy with a government that is clearly out of control and lost touch with reality.



Posted by PseudoTurtle | Report as abusive

@PseudoTurtle, you are very confused about the Social Security trust fund. There is *already* a separate trust fund. Social Security is not part of the General Fund. And the Social Security trust fund isn’t broke. That won’t happen for another 15-20 years.

The “borrowing” you refer to is a matter of how the Trust Fund is invested. It is obligated to use its excess to buy Treasury bonds. These bonds are carefully accounted for, but of course they are a loan to the Treasury. When Social Security was running a surplus, this meant that the federal government did not need to borrow as much from the public. Now that it is running a deficit, the federal government needs to borrow a little extra from the public (to redeem those bonds).

To a certain extent this is an accounting exercise, moving money from one pocket to another. This is why people talk about Congress “raiding” the trust fund. But this “raiding” is a legal requirement of the 1980s legislation, not some underhanded dealing. It is carefully tracked and accounted for.

How would you invest the Trust Fund?

Posted by TFF | Report as abusive

@ TFF –

I don’t know where you get your information, but it is totally wrong.

Yes, I understand that the Social Security Trust Fund *already* exists as a separate fund, but it has been commingled with the General Fund since the Johnson Administration, mainly to provide extras funds for both his Great Society program AND to continue waging the Vietnam War without having to raise taxes which would have been extremely unpopular with the American people.

The fund has remained commingled with the General Fund since then, even though attempts were made to remove it, because Social Security is a “slush fund” for government spending, mostly going to the Military/Industrial Complex.

They want to get rid of Social Security because it no longer functions as a slush fund, but now represents a drain on military spending — in other words, one or the other MUST go in order to continue overspending as we have been.

Thus the problem is NOT entitlements, but out-of-control government spending on the military.

Yes, the trust fund is “invested”, but only in special revenue bonds of the US government, backed by the “full faith and trust of the US government”, for whatever that is worth these days.

Which brings up the point of being “broke”. I guess if you believe the government will make good on its legal debt owed to seniors, then it “technically” isn’t broke.

But if you don’t believe that the government will make good on its internal legal debts, which are far easier to renege on than those owed to China, for instance, then it is broke.

The real question that decides whether it is broke or not is to look at the “cash flow”, (i.e. where do the funds come from to pay current recipients?) and the answer to that is they come directly from the General Fund, because there is no real cash in the Trust Fund as there should have been if it had not been commingled.

For example, why couldn’t the Treasury pay Social Security last year when Congress had blocked further payments of ordinary debt?

They should have been able to IF Social Security was the stand-alone fund it was designed to be, because then it wouldn’t be considered part of our total debt.

But that was the problem, they couldn’t pay Social Security without raising the debt ceiling, which means it is considered to be part of the General Fund and total debt.


Your comment that “To a certain extent this is an accounting exercise, moving money from one pocket to another. This is why people talk about Congress “raiding” the trust fund. But this “raiding” is a legal requirement of the 1980s legislation, not some underhanded dealing. It is carefully tracked and accounted for.” is more than a little disingenuous, since if the Social Security Trust Fund was being handled by an outside firm instead of the government, the investment firm would be liable for both civil and criminal charges for its gross mishandling of the fund.

It’s the first time I have heard of “raiding” (i.e. embezzling from a trust fund) being a legal requirement.

Let me put it more simply for you.

If you had a private retirement fund, and it was commingled with the investment firm’s accounts such that they were using it directly to pay their salaries and operating expenses, would you think something was wrong?

From what you said, apparently not.

It sounds like I am far too close for comfort and you are nothing more than a government shill trying to discredit me.


Posted by PseudoTurtle | Report as abusive

@ TFF –

There is on other point I want to make absolutely clear.

You state, “To a certain extent this is an accounting exercise, moving money from one pocket to another. This is why people talk about Congress “raiding” the trust fund. But this “raiding” is a legal requirement of the 1980s legislation, not some underhanded dealing.”

That makes it sound like everything is just fine and dandy, with Congress doing what it is supposed to be doing, but nothing could be further from the truth.




Posted by PseudoTurtle | Report as abusive

PseudoTurtle, the present system was established under Reagan. It hasn’t changed since. Have you been unaware of it all that time? Or have you truly been shouting IN ALL CAPS WRITING FOR THE LAST TWENTY FIVE YEARS?

Social Security, in its present form, is already dead. My Social Security statement promises us an eventual $40k/year (present-value dollars). My anticipated benefit? Zero.

The time to worry about Social Security surpluses was when it was still running a surplus. It isn’t now, and will never run a substantial surplus again. Your shouting is too little, way too late.

So given your premise, and mine, that Social Security in its present form is dead — its promises worthless — how would you reinvent it? Raising the cap on contributions isn’t a sufficient fix, even with your other proposals. My guess is that it will turn into a welfare program with strict income/wealth limits.

Posted by TFF | Report as abusive

“Yes, the trust fund is “invested”, but only in special revenue bonds of the US government, backed by the “full faith and trust of the US government”, for whatever that is worth these days.”

By the way, this is an excellent point. And this would be true regardless of how the Trust Fund were set up. Social Security depends on the “full faith and trust of the US government”. And these days that is worth very little — especially on promises reaching forward 30-40 years.

Posted by TFF | Report as abusive

@ TFF –

Sorry, I guess I hadn’t realized Reagan was president when Social Security was inaugurated — in 1935.

I think a lot of history books will need to be changed.

Social Security is NOT dead, but it certainly is in intensive care right now, mainly because of government manipulation.

Apparently, even with my “shouting” — I tend to use capitals to emphasize things I consider important, whereas those used to texting probably take it as shouting, but if you read what I write, it is your problem to deal with it — you clearly do not understand what I said.

My proposal to remove the cap on earnings subject to Social Security would more than compensate for its present state, since ALL income above the present cap would be subject to the tax (yes, even Bill Gates).

IF, however, the tax rate was not sufficient, it is easy to make a simple adjustment based on actuarial projections (provide the government can get them right, which I doubt, since it is not interested in telling the truth, but in creating issues for its own purposes).

Let me ask you, do you believe the unemployment rate is only slightly above 8%? If you do, then you can’t possibly understand what I am trying to tell you.

To do that, you have to stop listening to the government propaganda.

I don’t think you are ready to do that yet, because I have already answered the questions you just posed.

Unless you open your mind and think about what I am saying, you will probably not be able to understand what I have already laid out for you.

For your info, I am presently retired, but in my “other life” I worked for several international high-tech firms, mainly as a Plant Controller and Finance Manager, usually reporting to the CEO/CFO and provided support for them in conference calls/BOD meetings.

I think I may have a bit of a better handle on the situation than you appear to have.

I suggest you go back and read what I said again.

Posted by PseudoTurtle | Report as abusive

For others who are “Social Security Challenged”, here is a link to the history of Social Security, which makes for interesting light reading.

It’s harder to find than it used to be, probably since most of it isn’t very complimentary to what the US government has done to it since 1935.

If reading this doesn’t make you distrust government promises regarding Social Security as I do, then you are indeed hopeless.


The link to Wikipedia: Social_Security_in_the_United_States


Specifically to support what I said about Social Security being commingled (i.e. mixed with) the General Fund during the Johnson administration, I have included part of that passage below.

This is an important fact because it illustrates how Congress has manipulated the Social Security Trust Fund for many decades.

Remember, this is but one example among many instances of government mismanagement of the fund.


“Medicare and Medicaid were added in 1965 by the Social Security Act of 1965, part of President Lyndon B. Johnson’s “Great Society” program.

The government adopted a unified budget in the Johnson administration in 1968.

This change resulted in a single measure of the fiscal status of the government, based on the sum of all government activity.[53]

The surplus in Social Security trust funds offsets the total debt, making it appear much smaller than it otherwise would.

This allowed Congress to increase spending without having to risk the political consequences of raising taxes.”


Any questions?

Posted by PseudoTurtle | Report as abusive

@PseudoTurtle, you really are a pompous ass, aren’t you?

My apologies for getting the dates wrong. It was in 1990 that Social Security was moved off-budget. The Trust Fund was still loaned to the Treasury after that, but they could no longer count a Social Security surplus against a budget deficit.

“ALL income above the present cap would be subject to the tax”

Including investment income? Not simply wage income? That would be a substantial change — but I’m still not sure it would suffice. Show me some numbers on that please?

Yes, the tax rate could be increased to cover the difference. Do you think there is popular support for that solution? Obama *cut* the tax rate by 2% — it is clear where he stands on that issue. The Republicans, of course, hate any and all taxes.

My apologies if you have already answered the questions I posed. You tend to ramble, and it is nearly impossible to read anything written entirely in capital letters. If you think that is helping to get your point across, you are sadly mistaken.

It is a shame you never learned to write in your prior career. And Wikipedia as your primary resource? Seriously?

Posted by TFF | Report as abusive

@ TFF –

I apologize for attempting to treat you with a modicum of respect, since you deserve none.

Clearly, you are not interested in learning the truth, but only in attacking me personally.



Posted by PseudoTurtle | Report as abusive

@PompousTurtle, in your first response to me you wrote, “It sounds like I am far too close for comfort and you are nothing more than a government shill trying to discredit me.”

If that is a “modicum of respect”, then I’m quite happy to have none at all from you. I prefer to deal with people who are a little less self-important. You don’t see anybody else here signing their professional qualifications, do you? Do you presume that means we have none?

The funny thing is that I agree your criticisms are spot-on. The system, as presently constituted, is bankrupt. Even that 1990 law that I cited — formally removing the Social Security surplus from the budget — is merely an accounting exercise. It is a promise to repay, but those promised benefits depend on the whim of Congress. I believe it has already been established that Congress has the legal right to redefine/redistribute/eliminate Social Security benefits.

Where we disagree is in the solution. You want to raise taxes so that the Trust Fund will be replenished. You believe you can construct a lockbox that Congress cannot raid. Short of “personal retirement accounts” (which would defeat the redistributive nature of Social Security), I don’t see how you can accomplish that.

Here is an alternative — redefine benefits LOWER for anybody presently under the age of 50. Turn it into a welfare program for those who are otherwise bankrupt. Set the FICA tax to whatever is necessary to balance the cash flow, automatically dropping as the program phases out.

Under that alternative, you’ll get everything you were promised. (Not that you need it, as a brilliant mind like yours has surely accumulated 10x the wealth you will ever require.) I’ll get nothing — but then I don’t expect anything to be left in 30 years anyways.

But raise taxes, in an attempt to generate a surplus? How well did that work the first time it was tried?

Posted by TFF | Report as abusive

@MrRFox, from CNN/Money: “Next year, barring congressional action, the exemption level falls to $1 million, and the top rate jumps to 55%. There will also be 5% surtax on a portion of very large taxable estates.”

Isn’t the 100% rate you are calling for, but it is a reasonably strict (hah!) exemption, and a top rate that would take a big bite out of the larger estates.

Best thing is that Congress doesn’t need to act — they merely need to refrain from cutting taxes. Since Congress is constitutionally incapable (albeit not Constitutionally incapable) of positive action, this is our best hope of getting a sensible system in place.

Posted by TFF | Report as abusive