White House: Unemployment will stay at 9% for 2 more years

[Dominus Atheos]

CNN

NEW YORK (CNNMoney.com) -- The White House said Friday it expects that unemployment will stay at or above 9% until 2012, but at the same time forecast that the economy will grow by at least 4% in 2011 and 2012.

It also revised its long-term deficit estimate under President Obama's proposed 2011 budget: The administration now believes the 10-year deficit will be $58 billion less than projected in February when the budget blueprint was first released.

Under the revised estimates, Uncle Sam will ring up $8.474 trillion in deficits between 2011 and 2020, down from the $8.532 trillion estimated in February.

In the near-term, the administration expects the 2010 deficit to come in at $1.47 trillion -- slightly lower than originally forecast and slightly above last year's deficit of $1.41 trillion. Meanwhile, the 2011 and 2012 deficits will come in somewhat higher than the White House forecast in February.

"The economy is still weaker than we'd like, and [there is] a medium-term and long-term fiscal situation that requires attention," outgoing White House Budget Director Peter Orszag said in a call with reporters.

In terms of taxes, the administration now expects that the Treasury will take in $402 billion less over the next 10 years than originally expected, but at the same time will also spend $461 billion less than was forecast.

The tax revenue collected will average 18.7% a year, slightly above the 40-year historical average. Federal spending, however, will average 23.2%, above the 20.7% historical average.

Christina Romer, who chairs the president's Council of Economic Advisers, noted that she expected real economic growth to be moderate this year and more rapid for the next two years.

When asked what accounted for the White House's relatively optimistic growth estimates relative to other economists' forecasts, Romer said the administration believes rapid growth in business investment and an emphasis on U.S. exports is "what we think makes these numbers completely reasonable."

Romer explained why the White House's GDP forecast for 2011 is higher than that of the Congressional Budget Office, which forecast 2.4% versus the administration's 4%. The reason: The CBO forecast assumes all the Bush tax cuts will expire by Jan. 1, whereas the White House has proposed they be extended for the majority of Americans.

On unemployment, the White House's 9% forecast for 2011 is more pessimistic than recently revised Federal Reserve predictions. The Fed believes unemployment will fall between 8.3% and 8.7% next year.

Romer said the latest forecasts were generated from data through the end of May and finalized in early June. Since then, there have been some discouraging June reports on jobs and retail sales.

The administration's forecasts assume Obama's proposals will be adopted wholesale by Congress, which is unlikely. Moreover, Congress this year hasn't even officially debated what the fiscal year 2011 budget should look like. The new budget year begins Oct. 1, 2010.

On Dec. 1, Obama will get a report from his bipartisan fiscal commission, which he has asked to recommend ways to cut the medium- and long-term deficits. And the president has pledged that he will offer serious deficit reduction plans in his 2012 budget outline.

So even the White House admits we're fucked.

[KlavoHunter]

Hurrah for the jobless recovery that enriches only the rich!

[LMSx]

Yay lower deficit everyone take a victory lap.

9%! That the White House views 9% unemployment as tolerable is damning, particularly in light of absolutely terrifying levels of long-term unemployment. There should be a nonstop beating of the drum to abolish the Senate fillibuster and prod the Federal Reserve past their paralyzing fear of non-existent problems. Instead the White House seems pretty proud of themselves for getting in front of this whole "austerity" hysteria.

[Uraniun235]

But haven't you heard? Society can't actually afford to take care of its own people! We need to start cutting them loose, and let the ones who actually prepared for their infirmity and misfortune negotiate for services with the market. Only then can we get the economy back on track to making even more money for douchebags who sit at computers moving fake numbers around all day.

[J]

Hurrah for the jobless recovery that enriches only the rich!

It's a recoveryless recovery.

The 9% unemployment figure is actually a bit misleading, as most of you should know by now if a person is unemployed for too long and gives up looking for a job or simply cannot find a job, he's no longer counted as unemployed. With the way unemployment is counted, it is theoretically possible for all but one person in America to give up looking for jobs, and as long as that one person is working the unemployment rate is zero. To get the big picture, see the last few paragraphs this post here along with the one below which explains how unemployment is calculated.

Yay lower deficit everyone take a victory lap.

9%! That the White House views 9% unemployment as tolerable is damning, particularly in light of absolutely terrifying levels of long-term unemployment. There should be a nonstop beating of the drum to abolish the Senate fillibuster and prod the Federal Reserve past their paralyzing fear of non-existent problems. Instead the White House seems pretty proud of themselves for getting in front of this whole "austerity" hysteria.

Question: What policies would you like to see the White House and Federal Reserve undertake?

[Commander 598]

The 9% unemployment figure is actually a bit misleading, as most of you should know by now if a person is unemployed for too long and gives up looking for a job or simply cannot find a job, he's no longer counted as unemployed. With the way unemployment is counted, it is theoretically possible for all but one person in America to give up looking for jobs, and as long as that one person is working the unemployment rate is zero. To get the big picture, see the last few paragraphs this post here along with the one below which explains how unemployment is calculated.

Sounded a bit low compared to what I've been hearing from actual people.

[Iosef Cross]

CNN

So even the White House admits we're fucked.

This crisis is the result of nearly 20 years of credit expansion, the correction of inefficiencies is going to be long and hard.

The problem is that since the government doesn't let the adjustment process work though, they chose to make the economy enter in a catatonic state. That's roughly like the case of Japan, with suffered a crisis in 1990 and entered in a permanent catatonic state.

It is a question of trade offs: Do you want high unemployment for 12 months or lower unemployment for 24 months. The US government choose the second.

[K. A. Pital]

This crisis is the result of nearly 20 years of credit expansion, the correction of inefficiencies is going to be long and hard.

It's probably more than 20 years of credit expansion. Consumer credit started expanding in the 80s. I'd say it's 40 years.

The problem is that since the government doesn't let the adjustment process work though, they chose to make the economy enter in a catatonic state. That's roughly like the case of Japan, with suffered a crisis in 1990 and entered in a permanent catatonic state.

I'd say Japan just hit the natural limits of a highly advanced industrialized and computerized society. With no revolutionary improvements in the productivity of labour, that's a limit of growth you hit without a possibility to change stuff much either way. Only a low base guarantees high growth.

And now the First World is hitting those limits in general. Cheap credit and increased purchasing power versus the Third and Second World are no longer feasible as long-term sources of rising life standard. In any case, even a Lost Decade or a complete halt to growth won't be a large problem for the First World.

It will just have to learn to live with what they have, not expecting more each year.

[Knife]

Question: What policies would you like to see the White House and Federal Reserve undertake?

Glass-Steagall and WPA.

[LMSx]

Yay lower deficit everyone take a victory lap.

9%! That the White House views 9% unemployment as tolerable is damning, particularly in light of absolutely terrifying levels of long-term unemployment. There should be a nonstop beating of the drum to abolish the Senate fillibuster and prod the Federal Reserve past their paralyzing fear of non-existent problems. Instead the White House seems pretty proud of themselves for getting in front of this whole "austerity" hysteria.

Question: What policies would you like to see the White House and Federal Reserve undertake?

I don't want to pretend I have strong first-hand knowledge of the Federal Reserve system, but these are the sort of things I've been reading:

Link-a-link

First, the Fed should lower the interest rate it pays on bank reserves to zero. This is a small step, as the current rate is only 0.25 percent, but there is no reason to pay banks more than the rate paid by the closest substitute, short-term Treasury bills. Three-month Treasury bills currently yield 0.15 percent, and that rate, too, should be brought down to zero.

Second, the Fed should bring down the rates on longer-term Treasury securities by targeting the interest rate on 3-year Treasury notes at 0.25 percent and aggressively purchasing such securities whenever their yield exceeds the target. That is a 65-basis point reduction from the current rate of 0.90 percent. This step would also push down longer-term yields and reduce a wide range of private borrowing rates, encouraging business investment, supporting the housing market, and boosting exports through a weaker dollar. Moreover, pushing down yields on short- to medium-term Treasury securities is precisely the strategy for fighting deflation recommended by Ben Bernanke in 2002.

Finally, the Fed could bolster the stimulative effects of these actions by establishing a full-allotment lending facility to enable banks to borrow (with high-quality collateral) at terms of up to 24 months at a fixed interest rate of 0.25 percent.

These measures are all within the Federal Reserve's established powers. They pose essentially no risk to the Fed's balance sheet. They would reduce unemployment roughly as much as a 2-year $600 billion fiscal package and yet they would actually reduce the federal budget deficit. And they can be reversed quickly should the balance of risks shift from deflation to inflation.

Given the unsatisfactory outlook for unemployment and inflation and the lack of action by Congress, that is the right medicine for the US economy now.

RE point 1 - that's convincing the banks to open up their cash reserves, right? Money the Fed tried to release into the system but got stored, instead.

As a practical matter between now and January the White House will be unable to do much to help the economy, given the struggles Democrats had to find 60 votes for a mere extension of unemployment benefits. So yeah: fillibuster reform. I would have liked to have seen that 1.4 trillion stimulus taken out for a spin instead of getting arbitrarily slashed so Senate Blue Dogs could preen with their victory over those reckless liberals. Besides an actual (not month-to-month) extension of UI, more state aid like raising Medicaid reimbursement and preventing further budget cut backs would be fine to behold. And seriously: a 2 year $600 billion fiscal package entirely within pre-existing powers that dodges Congressional negotiation? The Federal Reserve is a powerful organization, and Obama shouldn't have waited so long to fill vacancies on the Board of Governors. It's smart to have a strong flanking ability.

[J]

I don't want to pretend I have strong first-hand knowledge of the Federal Reserve system, but these are the sort of things I've been reading:

Link-a-link

First, the Fed should lower the interest rate it pays on bank reserves to zero. This is a small step, as the current rate is only 0.25 percent, but there is no reason to pay banks more than the rate paid by the closest substitute, short-term Treasury bills. Three-month Treasury bills currently yield 0.15 percent, and that rate, too, should be brought down to zero.

Second, the Fed should bring down the rates on longer-term Treasury securities by targeting the interest rate on 3-year Treasury notes at 0.25 percent and aggressively purchasing such securities whenever their yield exceeds the target. That is a 65-basis point reduction from the current rate of 0.90 percent. This step would also push down longer-term yields and reduce a wide range of private borrowing rates, encouraging business investment, supporting the housing market, and boosting exports through a weaker dollar. Moreover, pushing down yields on short- to medium-term Treasury securities is precisely the strategy for fighting deflation recommended by Ben Bernanke in 2002.

Finally, the Fed could bolster the stimulative effects of these actions by establishing a full-allotment lending facility to enable banks to borrow (with high-quality collateral) at terms of up to 24 months at a fixed interest rate of 0.25 percent.

These measures are all within the Federal Reserve's established powers. They pose essentially no risk to the Fed's balance sheet. They would reduce unemployment roughly as much as a 2-year $600 billion fiscal package and yet they would actually reduce the federal budget deficit. And they can be reversed quickly should the balance of risks shift from deflation to inflation.

Given the unsatisfactory outlook for unemployment and inflation and the lack of action by Congress, that is the right medicine for the US economy now.

Oh dear. We got to where we are now in large part because we made it too easy & cheap to use credit and borrow money. The proposed fix is...to make it cheaper & easier to borrow money and hand out credit. This is much like attempting to sober up a drunk by handing him another bottle of rum.

The only good point he makes is ending interest payments on bank reserves deposited at the Fed. The rest he gets all wrong.

Attempting to buy down the rates on Treasuries doesn't work, it's already been tried and it failed. See the first chart on this page which is the yield on 10 year T-notes, the yield went up when the Fed started buying as everyone started unloading their holdings into the Fed's bid.

Next, a currency devaluation would actually harm the US as it will have a lot more imports than exports for the forseeable future. It would end up costing the US as it now has to pay more for essential imports (oil, energy, etc.) than it will gain from any reasonable rise in exports.

Lastly the 24 month fixed rate lending may not be legal depending on the definition of "high quality collateral". Under Section 13 Article 2 of the Federal Reserve Act, the Fed can only accept legal tender or US government issued securities as collateral. So if a bank wants to post a bunch of mortgage backed securities or stock certificates as collateral, it would be illegal. Not that it's stopped the banks or the Fed from doing so.

In short, the author of that particular article is an idiot or a liar.

[The Duchess of Zeon]

Structural unemployment in Europe can be perpetually at 8% with the economy running normally. The problem isn't the US unemployment levels, it's the fact that there's no protections for the unemployed, so that if we have permanently 8 - 9% unemployed, people will end up homeless and living on a maximum of two hundred a month in food stamps for food because that's the only kind of social security most of them will be able to get.

[LMSx]

These measures are all within the Federal Reserve's established powers.

So if a bank wants to post a bunch of mortgage backed securities or stock certificates as collateral, it would be illegal.

It seems we have a fork in the road here.

Are actions to allow inflation in these conditions in the same half of the universe as the factors involved in the market collapse? The metaphorical helicopter drop, for example, does put money in people's hands and allows demand to start rising again. Given the inefficiencies in these conditions of an (edit for Zeon's note: American) economy with long term unemployment, is that cure really worse than the disease?

lol Krugman

[Serafina]

Structural unemployment in Europe can be perpetually at 8% with the economy running normally. The problem isn't the US unemployment levels, it's the fact that there's no protections for the unemployed, so that if we have permanently 8 - 9% unemployed, people will end up homeless and living on a maximum of two hundred a month in food stamps for food because that's the only kind of social security most of them will be able to get.

This.

If you get unemployed in Germany (or Europe in general), you won't fall out of the actual workforce. Your lifestyle may drop and get rather low, but you will most likely retain enough resources to avoid being homeless, starving and in a generally bad shape. Oh, and you will have health care as well - more money might make it better, but you won't have to worry about getting sick and you can afford regular checkups.

Naturally, if people are in a better condition they are more qualified as part of the workforce. Or in other words - peoples lifes won't get ruined, and peoople whose life is not ruined are better workers.

[aerius]

Structural unemployment in Europe can be perpetually at 8% with the economy running normally. The problem isn't the US unemployment levels, it's the fact that there's no protections for the unemployed, so that if we have permanently 8 - 9% unemployed, people will end up homeless and living on a maximum of two hundred a month in food stamps for food because that's the only kind of social security most of them will be able to get.

Does Europe measure unemployment the same way that the US does? If we look at the BLS A-15 table there's several measures, U-3 is the official number while U-6 is considered to be the "real world" number. If the Europeans use something closer to U-6 then it's quite possible for them to have a higher official unemployment rate while the actual unemployment levels are around the same.

[Jalinth]

[quote="Commander 598"
Sounded a bit low compared to what I've been hearing from actual people.[/quote]
The broadest measure of unemployment (U6) is 16.5%. http://www.bls.gov/news.release/empsit.t15.htm This measure includes officially unemployed, part-time but looking for full-time, and discouraged. Very ugly.

[JME2]

The problem is that since the government doesn't let the adjustment process work though, they chose to make the economy enter in a catatonic state. That's roughly like the case of Japan, with suffered a crisis in 1990 and entered in a permanent catatonic state.

Don't forget that it also crippled an entire generation of young workers, which is also repeating itself here.

[ShadowOfMadness]

Structural unemployment in Europe can be perpetually at 8% with the economy running normally. The problem isn't the US unemployment levels, it's the fact that there's no protections for the unemployed, so that if we have permanently 8 - 9% unemployed, people will end up homeless and living on a maximum of two hundred a month in food stamps for food because that's the only kind of social security most of them will be able to get.

Pretty much the case. I suspect the US unemployment rate to move slowly closer to equal with Europe as time marches on. Many of the 'economic gold mines' the US has relied on are pretty much gone...

Its just a question of whether or not the US population can accept reality (minimal improvement in the living standards of the population when compared to past generations, higher unemployment and the creation of an ability to support the unemployed, and the eventual end to US's superpower status) before its too many of its own citizens get screwed.

But I'm a cynic.

[MKSheppard]

So even the White House admits we're fucked.

So that $787 billion sure helped us recover!

Fucking retarded shitfucklickers in the Obama Maladministration demanding "shovel ready" projects; which means that the only thing we see for this is new road signs saying that some road got repaved with ARRA money.

By contrast; guess what the cost of the FUCKING APOLLO PROGRAM was?

$185~ billion in 2009 dollars.

We could have bought FOUR complete Apollo Programs for this fucking "recovery act"

But that would have required some planning, so was unacceptable as it didn't meet "shovel ready" criteria imposed by the Obama Maladministration.

[JointStrikeFighter]

How about spending it on NHS instead of Apollo programs my hilariously myopic friend.

[Stark]

Wait, a graph with inaccurate predictions is bad because reality isn't as predicted? If it was inaccurate to start with how does the graph tell you anything?

[J]

Are actions to allow inflation in these conditions in the same half of the universe as the factors involved in the market collapse? The metaphorical helicopter drop, for example, does put money in people's hands and allows demand to start rising again. Given the inefficiencies in these conditions of an (edit for Zeon's note: American) economy with long term unemployment, is that cure really worse than the disease?

There's two basic types of recessions, what's known as an inventory type recession where there's a supply glut in some sector of the marketplace (the dot com bubble) and a credit based recession where economic activity is choked off by having too much debt in the system (Great Depression, and current depression recession).

In the former we can speed the recovery along by dumping money into the economy to boost demand and help clear the supply glut, but we do need to be careful not to overdo it and build a permanent dependence in the marketplace. In a credit based recession the money dump at best kicks the problem down the road a few years, the money has to come from somewhere and that somewhere is borrowing, in other words, more debt. It's much like using your line of credit to pay off your credit card; at the end of the day you still owe the same amount of money to the bank, you're not any richer nor better off, the only thing that's changed is your credit card's good for another few months. Yes it means you can start spending again but once your credit limit is hit you're going bankrupt and won't be doing any spending for the next 5 years.

The same general idea is true with nations, we can do money drops now to boost demand but that happens only by borrowing from the future, in other words, we move the next few years of demand & consumption into the present. We get demand now, then nothing in the future, this was seen in the cash for clunkers and various other programs to boost demand for cars. Car sales went up while the programs were in place then fell off a cliff when they ended.

We waited far too long and made all the wrong choices trying to "fix" the recession. The only solutions left will hurt. A lot. They will turn the recession into a depression, and whomever implements them will never see power again for the next 10-20 years. But at least we can start an actual sustainable recovery within the next couple years instead of having a replay of Japan's lost decades at best and the 1873 Depression at worst.

[The Romulan Republic]

We waited far too long and made all the wrong choices trying to "fix" the recession. The only solutions left will hurt. A lot. They will turn the recession into a depression, and whomever implements them will never see power again for the next 10-20 years. But at least we can start an actual sustainable recovery within the next couple years instead of having a replay of Japan's lost decades at best and the 1873 Depression at worst.

Hate to break it too you, but any solution that costs those who impliment it power for 10-20 years is probably worthless. When they`re opponents get elected, the first thing they`ll probably do is repeal the prior administration`s reform. Since in this case the opposition would presumably be the Republicans, they can also be counted on to pursue a course of action that would make things much worse.

[ShadowOfMadness]

We waited far too long and made all the wrong choices trying to "fix" the recession. The only solutions left will hurt. A lot. They will turn the recession into a depression, and whomever implements them will never see power again for the next 10-20 years. But at least we can start an actual sustainable recovery within the next couple years instead of having a replay of Japan's lost decades at best and the 1873 Depression at worst.

Hate to break it too you, but any solution that costs those who impliment it power for 10-20 years is probably worthless. When they`re opponents get elected, the first thing they`ll probably do is repeal the prior administration`s reform. Since in this case the opposition would presumably be the Republicans, they can also be counted on to pursue a course of action that would make things much worse.

Sadly, that is likely to be the truth. And I thought I was cynical. J clearly takes that prize. I highly doubt we'll drop into a depression or Japan's 'lost decades' at this point. I do expect us to hit another recession by 2013 tho.

[JME2]

Since in this case the opposition would presumably be the Republicans, they can also be counted on to pursue a course of action that would make things much worse.

And if that were to happen, I wonder what the popular reaction would be to continued bullshit like this.