The Wall Street guys in the Obama administration have what can only be described as a tin ear. Consider Treasury Secretary Tim Geithner’s comments today in Paris:
Treasury Secretary Timothy F. Geithner said Thursday that financial markets were sending “important signs of recovery,” as he also sought to play down concerns about a new wave of bonuses on Wall Street.
The comments were in part a reaction to the quick resurgence in earnings at two of the largest United States investment banks this week. JPMorgan Chase announced a $2.7 billion second-quarter profit from stellar trading and investment banking results on Thursday, while Goldman Sachs announced a $3.4 billion quarterly profit on Monday.
Goldman has earmarked $11.4 billion so far this year to compensate its workers, raising the prospect that high bonus incentives might prompt another period of excessive risk-taking.
“We are seeing some very important signs of recovery and repair in U.S. markets, which is essential for recovery,” Mr. Geithner told an online forum moderated by the French financial publication Les Echos. “The best signs of this are in the amount of new capital that has come into the U.S. financial system, the improvement in risk premia and credit spreads, and the beginnings of improvement in consumer and business confidence.”
So the banks are making money. That’s great. But what about the rest of us?
Well, jobless claims are down, though the job market remains a shambles. The Economic Policy Institute crunched some of the numbers last week and found that there were 14.5 million jobless workers in May for about 2.5 million available jobs or “5.7 job seekers per available job.” The June numbers, EPI says, which will come out later this month, are likely to push the ratio to more than 6 to 1.
Plus, the EPI says,
Unemployed workers are currently facing record high rates of long-term unemployment: in June 29% of the unemployed had been unemployed for more than six months. With nearly six times as many job seekers as available jobs, this number comes as no surprise.
This is why Robert Reich, the former Clinton labor secretary who should have been Obama’s treasury secretary, thinks the focus on when the recovery will begin is off base.
In a recession this deep, recovery doesn’t depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.
Problem is, consumers won’t start spending until they have money in their pockets and feel reasonably secure. But they don’t have the money, and it’s hard to see where it will come from. They can’t borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water — owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can’t are hunkering down, as they must.
Eventually, he says, consumers will start consuming — replacing “cars and appliances and other stuff that wears out, but a recovery can’t be built on replacements.”
Don’t expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don’t rely on exports. The global economy is contracting.
We are a long way off from a real recovery — primarily because recovery is the wrong word to describe what is going to need to happen.
This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.
What we are looking at is likely to be wrenching and painful. But the status quo — or “the centre,” as Yeats wrote — cannot hold.
Hank Kalet 