Poison Pill - Continued

By BJ

To build a bit on Ron's post below, one of the reasons the executives say they are having second thoughts about the bailout is because they believe the market is bottoming out. Right now, I'd lay the odds of the market having hit bottom already as next to non-existant. As this story in the LA Times notes, the bad news is probably only beginning.

Even if the financial bailout plan begins to work, the nation will be lucky if all it experiences is a bad slowdown. The alternative, economists say, is something much worse -- a contraction that might go on for years.

The latest sign of trouble came Friday when the government reported that American employers sliced September payrolls by 159,000 jobs, the ninth straight month of losses and one that puts the country on track to shed a million jobs this year.

But jobs are only part of the trouble; almost every major player in the economy -- which had been growing until recently, if only slowly -- is now beating a hasty retreat:

* Consumers, who account for more than two-thirds of the nation's total economic activity and who boosted their spending earlier in the year thanks in part to more than $100 billion in government stimulus checks, have reversed course and begun cutting expenditures. Real consumption, after adjustment for inflation, slipped two-tenths of a point in June, a half-point in July and flat-lined in August, the latest month for which numbers are available, according to the government's Bureau of Economic Analysis.

* Manufacturers, many of whom had managed to profit because the weak U.S. dollar helped boost exports, have seen their business begin to dry up in recent months. New factory orders unexpectedly dropped 4% in August, the Commerce Department said Friday, the biggest decline in two years. Capital goods orders, a key indicator of companies' future investment plans, slipped 2.4%, the biggest drop in more than a year and a half.

* Governments, especially state governments, have begun making steep cuts. In all, 29 of the 50 states had already cut spending, raised taxes or tapped emergency funds to balance their budgets for the fiscal year that began July 1, said Nicholas Johnson, an analyst with the Center on Budget and Policy Priorities in Washington. But 15 of those states, including Arizona and New York, are back in the red; stalling economic growth has caused their already shrunken tax revenues to contract further.

The combination of consumers hunkering down, manufacturers losing orders and states making cuts has economists slashing their growth forecasts for the coming months and years.

This is all part of the cycle that makes really bad recessions so hard to pull out of. More people out of work, means fewer people buying things, means fewer products being produced, means fewer jobs, means even less money to reinvigorate the economy. So whatever reluctance the fat cats are having to seeing their executive compensation cut, they had best consider the consequences of trying to wait it out. Or, as John Cole says:

If they are wrong, and bring about financial armageddon due to sheer greed, well, at least we know who to blame.

I find myself wondering if I should stock up on the torches and pitchforks.

Comments

[David Browne]

Reagan famously thought the economy was good because there were lots of jobs in the classified section of the newspaper. Well, have Ron check out today's Oregonian. (I live in the same town.) Jobs used to be two sections, maybe 20-30 pages. Today? Six pages. Remember Oliphant's Reagan-era cartoons of families living in rusted cars, roasting old boots for dinner? Good times, my friends, good times.

[Ron Beasley]

I was not trying to infer that I thought the executives were right when they said the economy had bottomed out- I think it has a long way to go. I just hope that greed does prevail and Paulson is not able to spend much of the 700 Bn so it can put to uses that may actually get the economy going again.

Note: I don't think you will ever see 20 or 30 pages of help wanted ever again - that's not just the way people find jobs or empoloyees anymore.

[BJ Bjornson]

I was not trying to infer that I thought the executives were right when they said the economy had bottomed out

Didn't mean to imply you were, Ron. The phrase is that they say that's the reason. I'm pretty sure it's the greed thing myself as well. (I had a longer post done up when I saw you'd already hit the Wall Street types reluctance, so I did a bit of chopping and transition work. I suppose I could have made it more clear.)

Definitely agree with you that the less money that's wasted on this package is more that can be used to do something actually useful.

[Ron Beasley]

I know BJ, my comment was for the commentor not you.

[EL]

I'm a great enthusiast of jaqueries.

[EL]

Oops: jacqueries

[David Browne]

I agree with you, Ron, we aren't going to see those 20 pages of "Help Wanted" for some time. But your are wrong to think that is because of other ways of recruiting. I'm talking the last few months, not since the dawn of the Internet or the invention of the verb "network". There aren't any jobs. BJ's spiral is here now and has been for several years. It is like the toilet flushing, the slow turn of the water, then faster faster, then everything that was yours is gone! Job opportunities are down. I was just seconding BJ with contemporary data (today's discouraging offerings).