The illusion of recovery

Let’s play connect the dots.

USA Today, 5/26/10:
Private pay shrinks to historic lows as gov’t pay rises
(private salaries fall to 41% of personal income;  public assistance reaches 18%, up 50% in 10 years)

Bloomberg, 5/24/10:
FHA volume signals ‘very sick system’
(95% of all new home mortgages are government-sponsored.)

WSJ, 4/19/10:
Rising personal consumption attributed to homeowner strategic defaults
(Chief economist of [Moody's] attributes rising personal expenditures to the fact that 5 million households now live in homes they are not paying for.)

WSJ, 5/7/10:
U-6 unemployment still over 17%, near postwar high

Marketwatch, 5/12/10:
Tax receipts still falling
(Federal gov’t runs loss even during tax month — 4/09 and 4/10 are the only two months it’s ever happened.)

Treasury Dept:
Public debt 88.9% of GDP, rising at ~10% of GDP per year
(Fastest increase in peacetime US history, similar rate to World War II)

The dots form this picture:  epic public borrowing substitutes for normal economic activity, with no end in sight. We are witnessing a titanic battle between deflationary economic conditions and inflationary federal policy. Anything could happen. Hope it doesn’t.

2 Responses to “The illusion of recovery”

  1. Paul Brown Says:


    Interesting bits of information. Although I agree that there are structural changes that need to be made, including, perhaps, additional regulation, I wonder what effect all of the negative coverage of the economy has on the psychology of the investor and consumer.

    As for public sector increase in pay, I can assure you that those issues are related to both local and federal government. This State consistently pays its employees anywhere from 15 to 40 percent less than local governments and the fed. For example, Mr. Will Kempton, the former Caltrans director was paid a hefty salary of $154,000 when he was head of the Department that employees about 30,000 people and oversees 30,000 miles of roads. He resigned about a year ago to take a position with the Orange County Transit Authority, overseeing both the county roads and county transportation system. He receives the amazing salary of $256,000.00. In my humble opinion, that seems illogical. But that’s just me.

  2. Paul Brown Says:


    Got your email. I agree with your analysis. I can assure you that there are thousands of ways to save money at all levels of government without penalizing the employees, but there seems to be little political will to accomplish those changes. Pension changes seem necessary, for future employees. Right now the State matches our contribution 100%, which is probably unsustainable given the present economic situation. However, if you are going to lower pension amounts, then you need to raise salaries to attract qualified people, that will be unpopular, so you may end up with people who can’t do their job effectively, and can’t be fired. One necessary change is to modify Civil Service Protection to allow bad employees to be fired. Right now there are at least 3 different levels of review hearings that a fired employee can avail themselves of before a final result, which can include reinstatement. I have some great stories about some of our employees who have been returned to work when they should never be allowed back in the building.

    I am not surprised that the Government has hired more people. Look at all of the programs voters have approved that lead to either new or expanded government programs. Given the economic climate more and more citizens need services, Government has to grow to accommodate those services, and historically always runs a deficit when there is an economic downturn. The problem that we have is from 1980’s when Reagan would run massive deficits and tell us that there was no reason to be concerned because it was money the American People owed to themselves. Looking back 30 years I firmly believe that the policies set forth during those eight years set the stage for the mindset that you should buy until you drop.

    On a tangential note, what I have found interesting about the people on Facebook who are “Christian right” leaning is the collective amnesia that the 8 years before the present administration never happened. Lately Mr. Niles and others are posting comments that seemingly ignore the fact that their “right thinking” politicians played as much of a role in the economic downturn and growth of the national debt as anything Obama has done in a little over a year. Hopefully the November elections will bring to government at all levels people who are qualified for their public policy credentials and not because they have the “right” Christian credentials.

    Just my rambling 2 cents.