When the federal government started handing out billions to banks to save their bacon, millions of everyday Americans asked, “Where’s mine?”
Now that many of Wall Street’s biggest players have starting paying back the taxpayers for their magnanimity, we may be about to get our answer.
Aside from wrestling with healthcare reform and prosecuting an increasingly unpopular Afghan War, the biggest structural problems facing President Obama are persistent unemployment and the yawning deficit.
Neither dilemma can be solved with the single stroke of the Presidential pen. Moreover, with mid-term elections quickly approaching, Congress is not in the mood to approve another round of stimulus spending by the White House.
The latest idea emerging from the Oval Office is to tap into TARP (Troubled Asset Relief Program).
Before Mr. Obama delivered a speech tjis morning, he was reported ready to propose propose using a portion of the bank bailout monies to tackle unemployment.
It’s about time.
Although there is an ongoing controversy about the number of jobs that have been saved or created by the President’s $787 billion stimulus program, there is no dispute that millions of Americans are still looking for work.
Right now, the economy is in the midst of a “jobless recovery.” Even though banks and other major corporations have improved their bottom line since March, job losses are expected to continue into next year.
Despite the recent excitement that was generated late last week by the down tick in the unemployment figures, from 10.2 percent to 10 percent, several business surveys indicate the job picture will probably not improve next year, and may get worse.
What Rosy Report?
According to data released by the Gallup Co., temporary hiring for the holiday season by retailers was a major reason for the decline in the unemployment rate. After the holiday season, most retailers say they will lay off most new hires.
The other reason Gallup cited for the drop was that close to 100,000 Americans simply gave up looking for work. Along with the short-term hires, Gallup says that this decline in jobseekers pushed the unemployment figures temporarily lower.
Most of the improvements in job-market conditions also appear attributable to a reduction in layoffs as opposed to a much-needed increase in job creation. On the flip side, the rate of hiring is up substantially over the same period a year ago.
The Gallup numbers also show that consumer spending was actually down 21 percent from the same holiday shopping week last year. If this trend of cautious consumption continues, some retailers may not wait until the end of the year to issue pink slips.
It will take a Christmas miracle to get the nearly 8 million Americans who have lost their jobs during this deepest recession since the 1930s back to any semblance of normalcy.
The President is getting ready to deliver.
A Route Through Congress?
Based on the latest accounts, there is still about $139 billion in TARP monies that have not been spent or allocated to any programs. To date, the bailed-out banks have paid about $15 billion in dividends and interest in addition to repaying the government nearly $57 billion for the aid they received. With Bank of America saying that it would soon repay another $45 billion, Treasury Dept. officials said they expect repayments from banks to total $175 billion by next year.
Theoretically, the President does not need to get Congressional authorization to direct these monies back into the economy. Although the TARP funds were originally intended to aid the banks, their use already has been expanded to bail out both General Motors and Chrysler.
The President is acutely aware of the cries from Capitol Hill to use these funds to offset a federal debt burden that has ballooned to nearly $12 trillion. Despite this massive budget conundrum, Mr. Obama’s advisors know that in the short term, worries about jobs will trump concerns over the deficit. Unemployment is tangible to voters. Deficits are not.
It is not a question of whether the President will redirect the TARP funds, but rather how he intends to use them.
Most observers believe that the President will direct a substantial portion of these monies to extend unemployment benefits beyond their current cap. The President’s Economy Recovery Advisory Board has recommended a massive home weatherization program dubbed “Cash for Caulkers.” It is also believed that Mr. Obama will funnel a portion of the funds to the states to prevent further job cuts and establish a separate authority to build roads and bridges.
If this Keynesian approach to a more rapid economic recovery is going to work, the Federal government has to take a more hands-on approach to job creation. The problem with the $787 billion stimulus that already has been spent is the time it is taking these monies to find their way into the real economy, and determining the actual number of jobs that may be linked to these federal funds.
Like many Americans, I have little trust in the federal government’s competence and efficiency. I also would like to see the White House start chipping away at the deficit.
In this instance, however, we have few options.
Without a swift turnaround in the jobs market, most economists agree that our prospects for a speedy recovery will be hampered. This means that we have few alternatives other than to hope that Mr. Obama’s latest proposals to use the TARP monies for this purpose will put a significant dent in this pernicious problem.
While sending more money to the states may find favor with the President’s Congressional allies and re-energize the support he still continues to enjoy from public sector employees, this would be a mistake. Sending more money to the states will take too much time and do nothing to create jobs in the private small business sector where they are most needed.
Direct federal spending and hiring will give the government its biggest bang for the buck. Getting folks back to work, even through temporary federal work programs, will lift consumer spending and help stabilize Main Street.
The President also must find a way to make more credit available to the nation’s small businesses. Corporate America now has greater access to liquidity through the banks, an upswing in bonds and the stock market. Small businesses, where almost 70 percent of all new jobs will be created, do not have the same options.
Mr. President, spend this money if you must. But spend it wisely.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
