Gloria: I have become a pessimist, I just kind of, lost hope. When I think about the European debt the mediocre economic growth we have attained, high unemployment here and around the world, a weak Real Estate and construction and market and the slow down in manufacturing production I can’t help but to believe in a gloomy future for our economy.

Mary: Right things don’t look too good.

Gloria: At least our industrial sector is making a great deal of money.  I wonder how they do that.

Mary: By laying off workers and making the rest of them work longer hours. Eventually that technique will backfire since the unemployed workers have no longer purchasing power and therefore cannot stimulate the economy or contribute with their taxes to the well being of everyone else. Also those working harder, as it is already known, often develop physical or mental illness due to stress.

Gloria: Aha, That’s it! The large salary increases made by management and stock owners as a result of increase corporate earnings become mostly idle capital instead of being reinvested in productive ways, back into the economy, thereby creating more jobs and helping move the economy ahead.

Mary: As you probably already know there is something else that can improve to help our economy and that is top management decision making. They should invest in long term projects that are worthwhile instead of only looking only for short term profit investments.

Gloria: Right, furthermore we ought to increase investments in basic research and innovation. Banks should lend more money to creative projects that offer innovation and make us more competitive.

Mary: Also government should invest more in roads, bridges, schools and education. We need among other things more hospitals, airports and better transportation like the new fast trains built in Europe and China. Besides all that spend in infrastructure will create more jobs and help lift the economy.

I wonder why we don’t use all the knowledge we got from other previous recessions instead of letting greed control our behavior.

Arthur: On August 3, 2010 Timothy Geithner wrote an article in the NYT titled “welcome to the recovery.” In this article although Geithner recognized how devastating the economic crisis has been and that it will take a long time until full recovery is achieved he also said he felt positive about the results attained so far and optimist about the future.

What do you have to say about that?  
 
Paul the Octopus: I think he is way too optimistic; In order to have a decent future we have large problems to solve first, among which we have: the jobs we have lost and continue to lose because they are send abroad. Let me explain what I mean.
 
In a NYT article of August 1, 2010 “Four Deformations of the Apocalypse” David Slockman mentioned:
 
“Having lived beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore. In the past decade, the number of high-value jobs in goods production and in service categories like trade, transportation, information technology and the professions has shrunk by 12 percent, to 68 million from 77 million. The only reason we have not experienced a severe reduction in non-farm payrolls since 2000 is that there has been a gain in low-paying, often part-time positions in places like bars, hotels and nursing homes. It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.”
 
Arthur: It seems then that you think we are not doing that well.

Do you think we should use another stimulus package in spite of the present large deficit to get the economy moving forward?
 
Paul the Octopus: I will answer your question with a paragraph from a recent August 1 2010 editorial from the NYT “What they are not telling you”:

“We agree the situation is unsustainable. But cutting spending right now on relief and recovery efforts would worsen the economic slowdown and the suffering of millions of Americans, while making only a tiny dent in future deficits.”
 
Arthur: I understand but don’t you think that government’s economic experts and experienced politicians are aware of what’s going on and hence will fix and straiten the economy before unemployment and poverty gets worse?
 
Paul the Octopus: In a NYT article “defining prosperity down” dated August 2, 2010, Paul Krugman mentioned:

“I’m starting to have a sick feeling about prospects for American workers — but not, or not entirely, for the reasons you might think.
Yes, growth is slowing, and the odds are that unemployment will rise, not fall, in the months ahead. That’s bad. But what’s worse is the growing evidence that our governing elite just doesn’t care — that a once-unthinkable level of economic distress is in the process of becoming the new normal.

And I worry that those in power, rather than taking responsibility for job creation, will soon declare that high unemployment is “structural,” a permanent part of the economic landscape — and that by condemning large numbers of Americans to long-term joblessness, they’ll turn that excuse into dismal reality.”
 
Arthur: Fine, I get it. You made your point; I see that you rely on economists that write in the NYT to explain what you think and therefore predict the future.
 
Paul the Octopus: Right and they do a very good job don’t they; so good in fact that we can predict the future from what they say don’t you think?

Read Part 1 here.



Part 1 can be found here.

Part 2 coming soon!

Brenda: Europe’s economic austerity plan has saving the Euro as its main objective. However, once implemented, it will tank the European economy for more than a decade.

Judy: Right. Also, many of the benefits that European workers have attained through the years will be lost. For instance: an early retirement plan, free health care for everyone and maternity pay. And that just the beginning. Most European countries will have to learn to live with high unemployment rates and no economic growth for more than a decade.

Brenda: We are in trouble here too. Congress seems to have two lines of thought; those that think the rescue package didn’t work and that any monetary injection into the economy will be a waste of time and the others who believe that the rescue package did work, although poorly, and slowly but surely the economy will grow. The last group of Congressmen will try to rescue the economy until the deficit hits a dangerous level and it will only mildly improve the present economic conditions.

Judy: I guess both groups in Congress will not back any new stimulus programs in the near future.

Brenda: Yes, we won’t have any futher stimulus which will ultimately create an economic depression by 2011.

Judy: I think you probably remember in 2009 when Obama approved the stimulus fiscal tax reduction package for 282 billion dollars, another health education and unemployment package for 224 billion and finally 275 billion in other forms of federal aid. That added up to 787 billion to stop our GDP free fall.

Brenda: I know I remember that in the first quarter of 2009 our GDP fell 6.4 percent thanks to the rescue package. By the 2nd quarter the GDP had started to grow again. Still, unemployment remained around 10 percent which was too high for the economy to climb out of the hole.

Judy: Unfortunately consumers used their federal aid to get rid of their debts and banks used the government’s help to buy more toxic bonds and invest in U.S. bonds instead of making more loans with reasonable interest rates available to the public. By the Fall almost all of the fiscal stimulus from the Obama administration will have come to an end. Then a world depression will haunt us. I think those that think China’s commercial demand will save us are in for a surprise. China won’t grow much next year because their economy is based mostly on exports which neither Europe or the U.S. has demand for. China’s internal demand can’t pull the world’s economy out of the doldrums. In fact, China’s internal consumption isn’t strong enough to pull itself up. I wonder exactly how bad things are going to get in 2011?

Eva: I just learned from one of my professors at grad school that we have more than twice the amount of military power than Russia, China, India, Japan, Europe and Brazil together. I think that is amazing don’t you?
 
Helen: Yes, I do.
 
Eva: And not only that but he was also explained to us that when it comes to nuclear weapons, we have great superiority to relation to everyone else too.
 
Helen: That’s cool.
 
Eva: I guess while we have such a superior power we don’t have to worry about being destroyed or harm in any way by another country.
 
Helen: Well, I used to think that until recently. Last week I read an article by Alan Robock and Owen Brian Toon in the January 2010 issue of Scientific American where they explained that: “in a nuclear war in between Pakistan and India Nuclear bombs dropped on cities and industrial areas in a fight between India and Pakistan would start firestorms that would put massive amounts of smoke into the upper atmosphere. The particles would remain there for years, blocking the sun, making the earth’s surface cold, dark and dry. Agricultural collapse and mass starvation could follow. Hence, global cooling could result from a regional war, not just a conflict between the U.S. and Russia.
 
Cooling scenarios are based on computer models. But observations of volcanic eruptions, forest fire smoke and other phenomena provide confidence that the models are correct.”
 
Eva: You mean that we don’t even have to be involved in a nuclear war and nevertheless we can be greatly affected by it; but how much harm could such a war bring to us?
 
Helen: Well smoke will cloak the earth blocking the sun as a result of a regional nuclear war in between Pakistan and India. Therefore as many as one billion people worldwide could die of starvation due to an agricultural collapse caused by a nuclear winter. Also in case we are lucky and survive our living conditions might become a nightmare with very low temperatures, almost no food and an increased radiation rate in the world atmosphere.

 George: Where does the sun, the earth and all the planets come from?

 Cathy:  It's from the left over gas remaining from the explosion of giant Super Nova star.

 George: And where does the universe come from?

 Cathy: The big bang.

 George: What will happen to mankind?

 Cathy: Only God knows that

 George: Where will our jobs will go in the future.

 Cathy: To China.

Jane: Did you know that from 2000 to 2008 the number of poor people increased by 5.2 million? The total amount is now about 40 million; the new poor represents a 15% increase of poor folks.

Jackie: Where did you get that info from?

Jane: From a recent Brooking Institution study.

Jackie: You mentioned from the years 2000 to 2008. What about 2009?

Jane: Well, you're right about pointing out that year. Many workers lost there jobs and many families suffered a lot from the consequence.

Jackie: Those numbers are frightening! We probably have way over 40 million poor if we count 2009.

Jane: Not only that, but in 2008, $21,834 marked the federal poverty line for a family of four and about 30% of the entire US population was close to that category. If you take 2009 into consideration then the number could be even worse.

Jackie: I wonder how we are going to get out of this terrible crisis?

Lillian: A few years ago investors bought bonds from Greece thinking that Germany would pick up the bill in case Greece couldn’t pay. They were in for a surprise, Germany doesn’t want to become responsible for the Greek debt. In deed on a NYT April 9 2010 article Paul Krugman wrote: “What can be done? The hope was that other European countries would strike a deal, guaranteeing Greek debt in return for a commitment to harsh fiscal austerity. That might have worked. But without German support, such a deal won’t happen.”
     
Jane: I think that the Greek economy represents only 3% of the European Union GDP and that is rather small amount; however Spain’s GDP is 12% of the total.
 
Lillian: You are right if Greece, Spain, Portugal, Ireland and Italy default on their debt the Euro will probably disappear.
 
Jane: Yeah the Euro zone doesn’t even have a mechanism that allows for money transferences among its members.
 
Lillian: You are right although if Germany and France wanted to they could save Greece anyhow.
 
Jane: To ensure that countries belonging to the Euro zone could have a state of solvency their rules for the zone where that no Euro zone country could exceed a 60% debt of their GDP or a fiscal deficit beyond 3% however few of the countries respected the rules.
 
Lillian: I really think Germany and France should help Greece with their debt problem otherwise they are running the risk of a domino effect taking place with other vulnerable countries like Portugal Spain, Ireland and Italy. In that case the future of the Euro zone will be in danger.
 
Jane: Yes and the new austerity rules that the Greek government had to impose in order to pay the debt are very tough I am not sure they will be able to comply with them. As Krugman mentioned recently “the debt crisis in Greece is now in a point of no return.”  God only knows what will happen.

Peggy: Have you seen Bob lately?

Diana: No, I haven’t.

Peggy: I am beautiful, charming and intelligent. I also dress well and still Bob doesn’t care about me. There is definitely something wrong with him.   

Diana: Well, you gave him such a hard time, no wonder he hasn’t called you again.

Peggy: Yes but I am so good looking that my harsh personality shouldn’t cloud his judgment.

Diana: He is a good looking too and a Rock Star!  He has many fabulous gals after him… I know four of them: Kim, Debby, Kelly and Susan.

Peggy: Well if he has four instead of me then he will have four times more trouble than with me alone; don’t you think?

Diana: Gulp!

 
Betty: The head of my department told me today that because of the financial crisis they might have to let me go.

Laura: Life is terrible and then you die.

Betty: John hasn’t call me in two weeks, I think this is the end of the relationship.

Laura: Life is terrible and then you die.

Betty: My mortgage is due on Tuesday and I don’t have enough money to pay it.

Laura: Life is terrible and then you die.

Betty: Can’t you say something else?

Laura: Yes; life is terrible and then you are alive.

 
Lori: Under Obama the America’s Trouble Asset Relief Program (TARP) will end up costing tax payers less than 1% of GDP. In the past the average cost to resolve such a crisis was around 13% of GDP.   Great news right?!

Andrea: Well banks have found other ways to reestablish their financial health; for instance with interest rates so low it is easier for them to borrow from the Feds and invest that money in US bonds. The US bonds pay considerably better interest rates and earn a substantial profit without having to engage in public lending, an activity that can entail some risks for them.

Lori: Nevertheless banks have returned money they owe the government. This action has demonstrated their good will.

Andrea: By returning the money they owe quickly, banks free themselves of government supervision. Now bank executives can once again earn huge bonuses every year, bonuses that sometimes are worth millions of dollars.  Also banks have benefited from the Feds low interest rates in other ways, for instance; a large number of the savings deposits that banks now hold, were earned without having to offer high rates to their clients in order to attract them. Savers have nowhere to go but to banks in order to park their money without risk.

Lori: I tell you what worries me the most about the economy is the unemployment situation 10+% is too high and with such numbers it is doubtful the economy will recover soon.

Andrea: With the banks reluctance to give loans, even to small businesses, and with so many unemployed workers, the economy will not likely recover for a long time. In deed, Joseph Stiglitz a Nobel Peace Prize winner economist said recently that he and other economist believe the financial system today is even more frail than before the crisis. Stiglitz believes that another crisis is probably around the corner and that it would be a good idea to reform the global financial system to avoid more financial disasters.

Lori: I read Stiglitz's article too.  He believes we need a global response to the problems we are facing. He also advises there should be a new reserve only coin to be backed up by some of the countries with stronger economies in the world.

Andrea: On top of all the problems we have, the Stock Market, according to The Economist, is about “50% overvalued on the best long-term measure” and although the market rebound was needed in order to stabilize the economy last year, it appears now excessive growth is creating dangerous bubbles. On the other hand the Feds can not respond by raising interest rates to break the bubbles that could crush economic growth.

As The Economist indicated; the problem is not just that valuations look high by historic standards, but it is also that the current combination of high asset prices, low interest rates and massive fiscal deficits is unsustainable.

 

Robert: I studied ecological engineering and never thought I was going to end up working in a garbage dump.
 
Jim: Consider yourself lucky that you have a job.
 
Robert: Well by separating the garbage in two group, organic and inorganic stuff, at least I am helping the environment.
 
Jim: That is interesting. I see what you mean.
 
Robert: I guess in some ways I have a green job since I contribute to help save the world from an ecological collapse.
 
Jim: You're right; and you are one of the very fortunate ones that have a green job like the jobs Obama promised.
 
Robert: That’s true, I am helping the environment, earning  money and helping feed my family as well. I found a few rotten oranges in the garbage and some chicken leftovers for dinner that maybe won’t make my wife and kids sick.

Jim: Yeah, one has to be optimistic in order to survive. When the new government investment to create jobs is implemented I am looking forward to become garbage analyst II, then I can work on separating plastic container from cans. Gosh I am so happy living in a tent on a community park close to nature. I see crickets and mice close to me all the time besides I even get wet when it rains. You couldn’t be any closer to nature than me and my family are right now.

 
Charles: Unemployment has gone from 10.2% to 10% both figures are close to the historical high figure of 10.80 in the winter of 1982.

Richard: Yes and unfortunately the average amount of time it takes someone to find employment is now 28.5 weeks; that is six and a half months!

Charles: And six and half months is one of the worst averages in history, even worse than in 1982.

Richard: That's right.

Charles: We can also say we have a new record in terms of a worker’s time to get a job in the first place. The last time it took that long was back in the spring of 1983, 26 years ago.

Richard: And I recall the winter of 2003 has been pretty bad too. Many families went hungry or actually broke up because of the situation.

Charles: All those were terrible years and now it is even worse; it's going to take a long time for full employment to return and it might never be 4.5% again, instead we may have 6% or 6.5% as full employment. Our total labor force is about 154 million people, therefore the over 15 million that are unemployed at present represent the more than 10% unemployment figure although some analyst believe that the actual amount, allowing for those that stop searching for employment and those that work only a few hours a week, is approximately 17.5%.

Richard: you are right; and for those that are lucky enough to have a job they are working 4% more hours than what they were working in 2008. These are rough times. No doubt about it.