Obama can talk jobs but he can’t fix the problem

President Barack Obama meets with Chairman of the Federal Reserve Ben Bernanke in the Oval Office of the White House in Washington. REUTERS/Larry Downing

The United States has a jobs problem and there’s not a lot President Barack Obama or Federal Reserve Chairman Ben Bernanke can do about it.

In the face of rising risks of a recession that could imperil his re-election chances next year, Democrat Obama wants Congress to extend a payroll tax cut and emergency unemployment benefits that are due to expire in December.

But the Republican-controlled House of Representatives is emboldened by budget concessions it made Obama swallow to lift the country’s debt limit this week and he has little political leverage to win significant fresh spending to aid growth.

“Obama does not have much presidential persuasion left. He is running out of capital,” said James Thurber, of American University’s Center for Congressional and Presidential Studies.

Obama’s political opponents have been openly scornful of the impact of two previous stimulus packages, which were accompanied by extraordinary measures by the Federal Reserve to kick-start the U.S. economy.

“It seems we’ve thrown everything at it. We’ve had QE1 and QE2, Stimulus 1 and Stimulus 2, and the unemployment rate is still 9.2 percent,” said John Makin, an economist at the American Enterprise Institute in Washington. “Maybe there are just not many options here at this point,” he said.

World stock markets shuddered after disappointing U.S. growth and manufacturing numbers and investors rushed to buy long-dated U.S. Treasury bonds in a move that suggests deep concerns about the economic outlook.

Data on Friday is expected to confirm the U.S. unemployment rate remained stuck at 9.2 percent in July.

Lawrence Summers, a top Obama adviser until last year, wrote in a Reuters column on Tuesday the odds of another U.S. recession were 1 in 3. Goldman Sachs has said a slight tick up in the unemployment rate could provide a strong recession signal.

HARD-WON COMPROMISE

Obama signed a hard-won compromise on Tuesday to raise the $14.3 trillion U.S. debt limit in return for measures that will reduce deficits by at least $2.1 trillion over 10 years.

Joel Prakken of the forecasting firm Macroeconomic Advisers estimates an extension of the payroll tax cut could add about 0.25 percentage points to U.S. growth next year.

Republicans fought hard to cut spending but are open to tax cuts, and the White House expects bipartisan support when Obama advances the idea in the coming months.

But analysts are skeptical it will make much difference for an economy that is having trouble gaining traction.

“A major option is extending the payroll tax cut. We did that in December, and the economy grew at a 0.6 percent annual rate over the first half of the year,” said Makin.

But the economic benefit of extending the payroll tax cut will be curbed by the government spending cuts agreed to Obama, and a weak economy will make hitting deficit-reduction targets that much more difficult.

JPMorgan’s Michael Feroli estimates fiscal policy will subtract about 1-3/4 percentage points from growth next year as spending cuts kick in, if the earlier payroll tax cut and unemployment insurance extensions expire on schedule.

“Given that GDP growth has been 1.6 percent over the past four quarters when fiscal policy has been much less of a drag, this doesn’t bode well for next year,” he said.

JPMorgan has cut its first half 2012 growth forecast to 2 percent from 2.5 pct due to fiscal drag.

Bernanke also seems to have few options at his disposal.

The Fed is not expected to announce an extension of its so-called quantitative easing, or QE, measures to stimulate economic activity at a policy meeting on Tuesday, despite the sense of gloom descending on the economy.

If push comes to shove, the Fed would likely look to cement its promise of keeping in place a loose monetary policy for a long period. It might even consider shifting the composition of its Treasury note holdings toward longer maturities, an option Bernanke has raised as a way to give the economy some relief.

“Someone should do something. Given that the Congress has declared itself unwilling to provide support for the economy, the Fed will feel pressure to try to do what it can,” said Barry Eichengreen, an economics professor at the University of California, Berkeley.

NO GAME-CHANGER

However, the Fed’s options hardly add up to a game-changing play to dramatically improve the U.S. outlook.

“Everyone is really looking to the Fed to support the economy, and I think (Bernanke) would realize that you could only do so much with monetary policy,” said Mike Knebel at Portland, Oregon-based Ferguson Wellman Capital Management.

The Fed’s scope for more easing of monetary policy has been narrowed by a rise in core inflation, which bottomed at 0.9 percent in December but has since hit 1.3 percent.

As Obama signed the debt deal, which averted a devastating default and reduced the risk to the country’s AAA credit rating, he promised more ideas to boost hiring soon.

The White House declined to say what he had in mind or when he would lay out suggestions. But Treasury Secretary Timothy Geithner said in an opinion piece in the Washington Post that Congress could make space to fund a payroll tax cut extension by “locking in” long-term budget savings.

With lawmakers out of town for a summer recess, no major initiative is likely before September, although Obama does plan a Midwestern bus tour from August 15 to August 17 to talk up jobs.

When it comes, the odds favor small steps that allow Obama to show he is taking action, without disturbing investors.

“There is a good case to be made for additional stimulus, but given our fiscal situation it has to be targeted to create more jobs,” said Karen Dynan, a scholar at the Brookings Institution in Washington.

20 Responses to "Obama can talk jobs but he can’t fix the problem"

  1. KerriK  August 4, 2011 at 8:02 am

    Why not try the stimulus directly to jobs created? If you add 6 jobs you get X in terms of tax credits. If you add 600 jobs you get Y. If you don’t add any jobs you pay the same as you would today.

    Large corporations aren’t adding jobs because they found they could be very profitable with fewer people – I beleive this is because of the ‘technology revolution.’ But many employees have taken on additional responsibilities of those no longer employed. Adding employees with help the corporation with tax benefits and newly working employees will spend that money in the economy.

  2. Sandune  August 4, 2011 at 8:18 am

    The best action is to bring our jobs home. Dump the trade agreements that Perot warned about and invest in home products. We may have to lower the minimum wage and cut some benefits for at least 2 years until our Manufacturers get their base going once again.

    Is it possible that Americans cannot make products these days? I read that we have lost our imaginations for new products but have we lost the ability to try? Do our schools inspire new things?

    The ultra rich did not step on any one of us. The government has controlled what we make, what we spend and what we learn in school. The government is now involving itself in social laws to control the women and gays.

    What the hell is our government and voters thinking? Are they tired of our Republic?

  3. Keith  August 4, 2011 at 9:19 am

    Sandune wrote: “Dump the trade agreements that Perot warned about and invest in home products.”

    Sorry, Sandune, but it’s not quite that easy. Indeed, doing what you suggest might actually HURT our US economy in the long run. That’s because, like it or not, we now live in an increasingly interdependent world.

    For example, beneath the boreal forests of Alberta and Saskatchewan and halfway between Edmonton and the border of the Northwest Territories, lies a black bonanza of oil-soaked sand.

    It’s hard for most Americans (and even many Canadians) to grasp the simple fact that these sands make up THE largest known petroleum assets on the planet. The pool covers an area larger than England and it absolutely DWARFS the light oil reserves of the entire Middle East.

    So, how much is there? Right now, our friends to the north are sitting on a pool of 1 Trillion (that’s right…TRILLION…with a “T”) barrels of oil with another 2 Trillion barrels in reserve. By comparison, Saudi Arabia is sitting on “only” 250 Billion barrels.

    What’s more, most Americans remain totally oblivious to the fact that the United States gets the bulk of its “foreign oil” from friendly CANADA, NOT from the Middle East.

    Indeed, the United States consumes about 18 million barrels of oil PER DAY. They get about 9 million of that oil from domestic production. This means that over HALF of what we need has to come from some other source. And , almost THREE MILLION barrels of oil per day of that shortfall comes from Canada with the rest being made up of oil from a host of other foreign sources.

    Now, if you think the price of gasoline is high in the United States these days, just imagine what it would be if we were ALSO paying a DUTY on all that oil now coming in from Canada!

    What’s more, right now, most Americans remain oblivious to the fact that Canada and the USA are each others largest trading partners.

    Indeed, about 80 percent of everything Canada produces goes south to the USA. Most of it is in the form of raw materials (like lumber, oil and gas) along with minerals and electricity….most of which is used to manufacture goods and to enable services that make our lives better. Indeed, most of the Northeast of the USA would absolutely GO DARK in the summertime without the HUGE amounts of imported electricity that’s now coming in from Quebec. And , thanks to NAFTA, ALL OF ITl coming into the USA is coming in absolutely tariff free.

    But, in return for all this stuff coming into the USA tariff free, it is also important to remember that about 35% of everything the USA produces goes north to Canada.

    So, imagine, if you will, what the citizens of both the USA and Canada would now be paying for everything if both of our countries were ALSO being charged confiscatoy tariffs on all that trade.

    Has anyone ever wondered what would happen to or our own US economy if the market for that 35% percent of everything we produce that’s now going north to Canada were to suddenly evaporate? Remember, other countries still have a choice as to where they buy things.

    So, you see, Sandune, free trade agreements are NOT always the “boogiemen” that they are made out to be…particularly if they are mutually beneficial for both parties. Clearly, NAFTA is one such example.

    The truth that nobody in these discussions wants to admit is that we in the USA are LONG past the time when we were entirely self-sufficient… particularly as it relates to raw materials (like timber, oil, gas and electricity) to live in our own little bubble.

    It’s about time we faced these facts and stopped blaming others for our own economic problems.

    • bmclellan  August 4, 2011 at 11:31 am

      Excellent point Keith concerning the energy bubble, which leads me to ask, what harm could befall our economy if tool making, textiles, electronics, and durable goods manufacturing were to be wrested from the slimy grip of the Chinese and our corporate cabal?

      What they foist on us is low-grade slave labor products and that cannot be argued. You name it and it hasn’t the durability or the half life of a gnat.

      Ask any US steel manufacturer for example who has gone under because of the rigged bidding process for public works here in America about the quality of Chinese building products. Better yet ask the worker who can’t find two pipe fittings in a crate of 100 that match. The list of crap is as endless as there are the Chinese themselves.

      Excuse me please, I’m corporate America, will you please give me a moment ? I have to wring some formaldehyde out of this ching chang sheet rock so the heads of the middle class can be preserved in a jar..Hack..

    • Almandine  August 4, 2011 at 1:05 pm

      Excellent post Keith…

    • Carl Nemo  August 4, 2011 at 5:09 pm

      Why would our leaders want to slap duty on oil imports from Canada? There’s nothing wrong with trade agreements as long as they aren’t damaging to our infrastructure. Those nations that are exploiting such agreements need to be jerked up by the short hairs via “constructive tariffs” whereas oil and other vital necessaries we receive from Canada would be exempt. Besides Canada is an Anglo ally and a friend of ours to the north. There’s no reason to create a hostile trade environment between us.

      I’m for tariffs, but mostly against those nations that are linked to “dumping” charges over time; I.E., flooding America’s marketeplace with products at or below cost in order to command total market share. This happens quite frequently in the electronic semiconductor markets as well as consumer goods produced overseas.

      We need incentives for domestic reconstruction of our manufacturing infrastructure in order to create jobs for our people. I don’t give a flying flip about providing cheap labor jobs for China, India, Malaysians, Vietnam et al.
      I”m an America firster to the core. I don’t get why so many folks are enamoured with the bogus paradigm of globalism, now seemingly run amok, now causing a planetary meltdown in a financial sense due to bad banking practices and an unstable FOREX market.

      Carl Nemo **==

      • Keith  August 5, 2011 at 8:38 am

        Carl Nemo wrote: “Besides Canada is an Anglo ally and a friend of ours to the north. There’s no reason to create a hostile trade environment between us.”

        Precisely.

        Indeed, this is what NAFTA was all about.

        That’s because we WERE paying tariffs on not just Canada’s oil, but all the OTHER 80 percent of what they produce that comes south of the border prior to NAFTA…primarily TONS of raw materials that the USA uses to manufacture its goods and the 35% percent of what we make that goes north. The latter, too, was being slapped with tariffs going the other way making US goods prohibitively more expensive in Canada.

        Yet, unfortunately, NAFTA is often one of the first trade agreements that gets mentioned as being “bad” for America by those who remain blissfully ignorant of the facts.

        Clearly, we continually allow such ignorance to prevail upon us in the USA. It makes us myopically think we can survive alone, alone in patches, alone in groups, alone in races and even alone in genders.

    • woody188  August 5, 2011 at 12:23 am

      What a deal, and in return, we just had to give Canada Chrysler/Mopar jobs, and a few other of our highest paying blue collar jobs. Plus we provide the bulk of their defense. I think I’d rather pay the tariff than our inflated defense budget!

      I think most the Northeast would survive without Canada’s power. Boston and New York might suffer, but the rest would probably be OK. We have one of the largest energy reserves in the world in our very own Kentucky coal.

      The world is more interconnected, but that doesn’t mean we should buy products made from slave labor just so billionaires can pocket more money. Remove the fascists (corporate paper citizens) and we might see the playing field level for mom and pop again. Some Canadians agree…the more government and economies are centralized, the less control the people have over them. We should keep the nation-states or go smaller, not larger, to protect our freedoms.

      • Carl Nemo  August 5, 2011 at 2:04 am

        Thanks Woody for the superb link article written by Paul Hellyer. It’s a keeper and nails down in the broadest scope the endemic problems facing both our nations as a result of the plague of “globalism run amok” and the foul ‘free trade treaties’ that support this nation destroying NWO paradigm.

        My brother in law (deceased) and his family formerly from Germany are Canadian citizens residing in Alberta. We always enjoy our trips to Canada. Unlike many Americans I like Canada and their citizens. To me, visiting Canada is like visiting an America of thirty years ago. It still has a civility and gentility about it that’s long since passed from our nation which now has seemingly become a “desperate voyage” for all.

        Carl Nemo **==

        • woody188  August 5, 2011 at 3:43 pm

          It seems funny. We all refer to it as globalism, but corporatism (aka fascism) seems to be what’s causing all the troubles. In article after article, corporations reap the benefits into the hands of the very few, while the majority of the people reap the whirlwinds of austerity and poverty.

  4. Rick  August 4, 2011 at 9:53 am

    The cost of extracting oil from sand or from our vast shale oil potentials is prohibitive – for now. Just give technology and need a little push.

    I know Obama had to satisfy his support with a big ticket item but investing such political time and energy in health care simply took away from the primary target – the economy. Now we are faced with a new recession or one that really didn’t end. Unemployment is at 9+% and not getting better. What has been attempted has failed. A price has already been paid in the elections of 2010 and another will be paid in 2012. Will it get better?

    • Keith  August 4, 2011 at 10:41 am

      Rick wrote: “The cost of extracting oil from sand or from our vast shale oil potentials is prohibitive – for now. Just give technology and need a little push.”

      Not quite, Rick.

      The current “break even” cost for tar sand oil is about $85 per barrel. And that cost is dropping by the day as extraction technology improves.

      And for those who continue to say it’s “dirty oil”, it seems to me that what comes out of Canada’s oil sands still PALES in comparison to what BP did to the Gulf of Mexico a year or so ago.

      THAT, my friends, was “dirty oil”!

      • Rick  August 4, 2011 at 2:23 pm

        Thanks for the info, Keith, as I hear and read all sorts of numbers tossed around.

  5. Carl Nemo  August 4, 2011 at 12:13 pm

    This is a psychological game they play with the unwashed masses. Our ‘leaders’ have been systematically allowing the offshoring of America’s manufacturing infrastructure since the mid-nineties, even before, but on a lesser scale. It’s estimated that 30 million jobs have been lost to China, India, Malaysia and now Vietnam in the past twenty years. The under 10% unemployment rate is pure b.s. It’s closer to 20% when one figures in the long term, hard core unemployed and those that are now working several rather menial jobs in order to make ends meet as opposed the single, quality job of times past. Even access to the professional job market is being compromised by the issuance of H1-b visas to allow offshore professionals to work in this nation. Where does that leave our college grads? I guess they have to emigrate to China in order to find work.

    We’ve lost millions of jobs that once provided income to the blue collar class of citizen. Everyone can’t be a doctor, lawyer, engineer or scientist. So shy of massive public works projects at depressed wages, there are no jobs. Even the growing “green sector” of technology is being given to the Chinese rather than our domestic companies with the aid of Obama’s ‘stimulus bill’ money to boot in the form of grants. / : |

    Obama, Bernanke, Geithner et al. know exactly what they’ve done to this nation over time along with their predecessors of the same stripe, all marching in unison to their globalist oligarchs’ directives, U.S. domestic interests be damned.

    The jobs are gone and seemingly forever unless there’s a general in their face uprising with a loud and clear message…enough is enough or else…!

    The ballot box alone isn’t going to cut it. Change via this medium is like watching paint dry. They’ve reduced politics and elections to the level of a sham. : |

    Carl Nemo **==

  6. Sandune  August 4, 2011 at 1:19 pm

    The deals that we made with China did not bring a single cent of profit to America.

    If we decide to improve the infrastructure here at home where do we start. Apparently there are very view projects ready to start even with money from the federal government.

    Americans are so damn stupid that they allow things like Morro Bay to be filled up with debris because they dammed up the north entrance to the Bay for access to the famous morro rock. San Luis Obispo County is constantly having to beg for those large ships who vacuum the debris and disturb the fishing industry. For years we pleaded with the State to bomb that damn road and clear the north entrance to the bay to clean it up. The east bay on the south side is a natural preserve of some of the finest birds, plants on the planet. It is being choked by a lack of tide. Morro Bay figured that having the rock as a parking spot would increase income to the city. Now it is a drug drop and a place to drop unwanted pets.

    All up and down the coast we can see a natural condition of near perfection like Big Sur. The State of California has poor leadership and some preventive measures would help maintain the areas who do make money and help the economy.

    I could name thousands of situations like this where our elected officials do nothing. When Clinton and Bush started their trade agreements like NAFTA not a damn agreement made a dime for America. Thomas Friedman made this information available and I wonder how many more years do they continue to move our jobs overseas? How many more years do these agreements cost us money?

    A few bright economists could take a look at where our money is wasted but where are they?

    I remember reading some reports about this oil in sand and what it would cost to process it for our use. There were several books out on the subject of peak oil and it was discussed in those books. Does our government care enough to read this stuff? We had a very bright woman Elizabeth Warren head up a Consumers group and she worked up a whole plan to protect the users of many of our faulty products. The GOP caught wind of her and refused to fund her programs. Obama thought it was Warren who was the best but with the denial from the GOP, he gave it to another leader; this time a man and the GOP blasted it out of possibility.

    Come on, Americans aren’t careful enough to investigate what they eat, what they wear, what they use, where they swim and the GOP under the leadership of the Tea Party has denied any progress and they never will.

    Throw the bastards out of office. There is not enough money left in the stimulus pot do even afford the planning of our dams, bridges and updated trains. None are shovel ready and we might as well forget about any of them.

    We’ve been lied to for years by the Republican Party and now the Democrats were lying abou the shovel ready plans that do not exist. Everyone lies to get elected and I’m sick of it.

    • kishind  August 5, 2011 at 8:11 am

      Sandune wrote: “The deals that we made with China did not bring a single cent of profit to America.”
      That could very well be true for the 99% of Americans who enjoy 10% of this country’s wealth. I suspect some very specific Americans profited many, many cents. Regardless, absolutist language without references to back it up reduces the quality of the discussion.

      Sandune wrote: “Throw the bastards out of office.”
      Is this just a statement made in anger or are you serious? Because I agree, and I’m serious. We need to install a direct democracy so we can blame ourselves and take real responsibility for our country’s future. woody188 wrote: “Some Canadians agree”. The focus of that article is yet another bill for the supposed public good that quietly expands global corporate influence and subverts autonomy of nations around the world, passed by legally bribed legislators. It is easy to bribe a handful of men… it is not so easy to bribe an entire nation.

      • Keith  August 5, 2011 at 8:27 am

        kishind wrote: “The focus of that article is yet another bill for the supposed public good that quietly expands global corporate influence and subverts autonomy of nations around the world, passed by legally bribed legislators.”

        So, where, pray tell, are we going to get that OTHER 9 Million barrels of oil per day that we use in the USA over and above what we produce unless it comes from “global corporate influence”?

        Like it or not, we now live (and compete with others) in a GLOBAL economy.

        Burying our heads in the sand and myopically thinking we are still “king of the hill” and don’t need other nations to buy from (and sell to ) will only lead to more economic ruin.

  7. Rick  August 4, 2011 at 6:00 pm

    In 15 months the election will take place and if the economy is in the same position it is today complete with consumer sentiment of what it has been Sarah Palin will get elected. Mitt Romney will get elected. Bugs Bunny will get elected. Hannibal Lector will get elected. Just about anyone will get elected but Obama. He owns it. Folks don’t give a shyte about Bush or RR or Clinton. It stops at the Oval Office and no amount of excuse making or even facts – real or imagined – is going to save his arse.

  8. Danny Adams  August 5, 2011 at 12:30 pm

    How feasible would it be to close up some of our overseas bases and (re)open similar sized ones in the U.S.? Local economies tend to do pretty well around a military installation.

  9. Carl Nemo  August 5, 2011 at 5:26 pm

    Rest assured Woody, when I refer to globalism so too I’m referring to corporatism. Globalism is the grand design of the corporatist; I.E., their vision for a “New World Order” with corporations rather than governments running the planet. Their mission is to destroy the concept and existence of nation states. The world is to be divided into simply enterprise zones, with the U.S. moving towards the status of a minor plantation within the greater order of such.

    There’s also the phenomenon of fascism merging with socialism. The corpo-fascists are privatizing their obscene ill-gotten gains while the losses are being passed on to the greater unwashed masses in the form of illusory ‘feelgood socialism’, but not at the expense of these fascist controllers.

    The “New World Order” tax slaves will be paying the freight as both consumers and as victims of their planetary wide scams.

    Carl Nemo **==

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