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Unemployment in the Third Depression Era
by Robert Franco | 2010/06/30 |

The end of May, federal unemployment benefits began to expire leaving 1.2 million jobless Americans cut off.  The House passed a bill providing a six-month extension, but the Senate has not been able to pass such legislation... despite three attempts.  All of the Senate Republicans have blocked the effort. 

This will certainly worsen our already troubled economy as well as pile on to our crippled housing market.  One economist has noted that we may be setting the stage for a Third Depression.  While our Congressman are busy playing politics, Americans are suffering... and it is going to get worse.

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Never before have our Congressmen let let federally extended unemployment benefits expire with unemployment above 7.2%.  Yet, we could see an unprecedented end to benefits with an unemployment rate at nearly 10%. 

The Republicans are taking a hard line position that we can't extend benefits because it would add too much to our expanding national debt.  I'm a fiscally conservative Republican, but even I see this for what it is... political gamesmanship.  Many of these same Republicans had no problem with nearly doubling our national debt under Bush's term in office.  When George W. Bush took office, the debt stood at $5.7 trillion - we added another $4.9 trillion before he left. 

Ken Rogoff, a Harvard Professor, recently told CNN's Christine Romans that he doesn't get it either.

I'm very concerned about it Christine. I'm a fiscal conservative, I think this is nuts. This is a once in every half century event. People are going to have to have a tough time finding jobs for a long time and it has a lot of physiological effects on people's health. Unemployment insurance is really one of the most important parts of the whole stimulus trying to help the people who really need it. I just don't understand this.

Later in the same interview, Romans made a very good point.

The reason why they can pay the mortgage right now is because one of the spouses is still getting that unemployment check. With out that unemployment check though they would be on the edge. I wonder Ken, if you take away that check then; do you pay for it somewhere else in society and the cost to the tax payer through the housing market or through other social safety nets?

And Chrystia Freeland, Reuters Global Editor at Large, boiled that down its essence.

People who are living on those benefits are people who have a very strong propensity to spend as the economist say. So that money is going to go directly into the economy.

Without the unemployment benefits, we will see a sharp rise in foreclosures.  Even modification cannot help those that cannot pay even a lesser payment.  That will take a toll on our housing market that we just cannot afford right now.

In addition, it will place a higher burden on the states to provide services - causing tax increases and even higher unemployment. As explained in a NY Times editorial

Meanwhile, the states face a collective budget hole of some $112 billion, but neither the House nor the Senate has a plan to help. The House stripped a provision for $24 billion in state fiscal aid from its earlier spending bill. The Senate included state aid in its ill-fated bill to extend unemployment benefits; when that bill failed, the promise of aid vanished as well.

As a result, 30 states that had counted on the money to help balance their budgets will be forced to raise taxes even higher and to cut spending even deeper in the budget year that begins on July 1. That will only worsen unemployment, both among government workers and the states’ private contractors. Worsening unemployment means slower growth, or worse, renewed recession.

Some Republicans seem to believe that we need to cut unemployment benefits to force the unemployed to go back to work.  The counter-point, of course, is "back to work where?"  There just aren't any jobs available.

Recently Senate Candidate Sharon Angle was widely criticized in the media for saying "we have put in so much entitlement, in to our government, that we have really spoiled our citizenry."  A poor choice of words, perhaps.  I don't really think she meant to say that the masses of unemployed have been so spoiled by their meager unemployment benefits that they just don't want to go back to work.  In fact, she has clarified her position by saying that what we need is a "supplement" that will pay people some lesser amount if they take an entry level position that may pay less than they were receiving on unemployment.

I don't really disagree with Angle's idea for supplemental under-employment benefits, but something needs to be done quickly.  Why?  Because we don't want to end up in a Third Depression.

Paul Krugman, A NY Times columnist and Economics Professor at Princeton University, recently wrote "We are now, I fear, in the early stages of a third depression."  Krugman has an impressive biography - B.A. from Yale, Ph.D. from MIT, and a Nobel Prize for Economics. 

[G]overnments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

He concluded his editorial with a gloomy prediction.  "And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again."

Ending federally extended unemployment is just ludicrous!  Both Democrats and Republicans had no problem casting our nation in to deeper and deeper debt to bailout AIG, GM, Chrysler, and countless banks... but when it comes to providing direct assistance to the people who need it, who will put that money directly in to our struggling economy, they want to draw some sort of line in the sand.  Really??  Does that make any sense?

The root of our problem started when the mortgage market went belly-up - we still haven't figured out a solution, despite throwing hundreds of billions of dollars at the banks who caused the mess.  Credit is still pretty tough to come by for most regular people.  Cutting unemployment benefits will mean that fewer people can afford to keep their homes, worsening our housing crisis. 

Maybe our Congressmen just don't understand the importance of unemployment benefits.  The salary for the rank-and-file members of the House and Senate is $147,000 per year.  And, most of them probably don't even need it.  How can they possibly relate to the average Joe who lost his $12 an hour job and needs an unemployment check to keep a roof over his head and provide food for his family? 

I get that Republicans want to see President Obama and the Democrats fail.  The problem is that the rest of America will likely get it too.  Come election time, they won't look favorably on political maneuvering that cut the only support many Americans had in the midst of a recession where jobs just aren't available. 


Categories: Economic Indicators, Legislation

1947 words | 3256 views | 10 comments | log in or register to post a comment

Where Do We Get the Money?

We’ve already spent ourselves and our great-grandchildren into oblivion with this Keynesian “stimulus” nonsense.  Where’s all this extra money going to come from and how much is enough? 

I didn’t get any of the bailout money when my business started to feel the pinch of the recession.  I didn’t see a penny of unemployment compensation when I got behind on my mortgage and was facing foreclosure.  Hunger is a great motivator.  It forced me to seek alternative solutions that I otherwise might not have.  Bottom line is that I used my available resources and was able to find a stopgap in the form of a position that didn’t pay quite as well, but helped me to keep my head above water until I got back on my feet.  America is still the land of opportunity, despite the best efforts of our current government to undermine it.
I’m certainly nobody special, so if I could do it, anyone can.  I refuse to let my fate be determined by who wins elections.  But, that’s just me.

by Scott Perry | 2010/06/30 | log in or register to post a reply

Far-Sighted Stuff


I consider myself in the Krugman camp on this one.

What makes your article interesting is the fact that -- knowing your political sympathies -- you might be one of the first from your side of the aisle to understand what fiscal austerity in the midst of a clunking economy can (and probably will) do to our current situation.

Great insight as always.

When can I get you to start your political campaign?  I think it is time.

by Robert Holman | 2010/06/30 | log in or register to post a reply

Not enough political clout...

Thank you, Rob.  I threw my hat in the ring to run for the House seat this year, but I didn't have enough political clout to even get a meeting with the local GOP. I did meet with a few guys from the State GOP who were interested enough to encourage me to run, but when it came down to it the local guys made the call. 

I knew I didn't have the money for a primary campaign and the Democrat incumbent is running for re-election.  He is fairly popular and a fund-raising machine; he raised about $300,000 last time around and only needed about $60,000 for his campaign.  Would have made for a very tough general election.

I haven't given up on the idea, though... maybe I'll run in 2012!



by Robert Franco | 2010/06/30 | log in or register to post a reply

Juggling Fire

I also come from a very conservative ideology but understand the need for continued unemployment benefits.  Nancy Pelosi, whom I generally don't like, was recently blasted in republican media for saying that unemployment benefits create/save more jobs more quickly than any other form of government spending.  While she did a very poor job articulating what she was trying to say, her point was, amazingly enough, spot on.  Unemployment benefits are received by individual citizens and are spent immediately on mortgages, rents, phone bills, groceries.  That spending keeps those companies afloat and the people they employ, employed.  That money is not tied up in savings accounts, investments, or corporate bonuses for executives. 

Where do we get the money?  Good question.  I don't agree with the democrates that who say it should just be tacked on to an ever growing deficit.  How about the $1.4 million that was awarded in the last 4 years to study HIV among male prostitutes in Asia?  Cut their funding along the millions of other rediculous research projects and other waste.  That would be a good start to pay for unemployment.  How about a Congressional paycut?  That's another good place.  Administrative pay cuts?  Yup that will rack up some more.  Did you know that federal employees across the board got pay raises last year while the rest of the employed country took pay and hour cuts and were just greatful to still have jobs?  How about an across the board Federal pay cut at a modest 10%, how much money would that net the rest of the citizenry?  how about the required $350 sign that must be posted next to each and every road project that has been funded with stimulus dollars?  Let's stop buying those.  You get my point. 

Unemployment benefits good, paying for them, possible.  Politics are the one and only problem here.

by Cheryl Hartzman | 2010/07/05 | log in or register to post a reply

Absurd On Its Face

I congratulate you for your astute insight, Cheryl.   The Feds don't have a revenue problem, they have a spending problem.  I'm in complete agreement with you there.

Speaker Pelosi's remark about unemployment benefits, however, is absurd on its face, since no "new" revenue is being generated.  It's just like the fallacy of the broken window.  If we follow Madame Speaker's line of reasoning to its logical conclusion, why don't we just spend our way out of this recession/depression by having all employers lay off all their workers and let them collect unemployment?

by Scott Perry | 2010/07/07 | log in or register to post a reply

I agree with Cheryl...

I do see the value of unemployment benefits.  Scott is also correct that our government has a spending problem.  However, in the midst of a recession it is not a good idea to try to balance the budget.  Though I most certainly would love to see a balanced budget, I think we need to do that in good times, not bad.  Of course, when times are good people tend to forget what we went through and they seem to think that the money will just keep flowing in and they have no desire to balance the budget.  Idiocracy at its best!

I think the point Cheryl (and Pelosi, apparently) were really trying to make is that every dollar the government spends on unemployment benefits provides an immediate return.  It allows people to pay for necessities and keep their homes.  Businesses benefit by higher revenues, which generates at least some return of taxes.  The majority of the bailout money has not been used so wisely.  The companies that have received most of the TARP money are not putting it back into the economy. 

I don't think I'd describe extending unemployment benefits as "spending our way out of the recession."  It does however keep things from getting much worse while we wait it out and try to get our private sector back on track and hiring.

by Robert Franco | 2010/07/07 | log in or register to post a reply

Can't Agree With You There...

My daddy always told me that the first thing you do when you find yourself trapped in a hole is to stop digging.  The whole problem with your argument is that eventually, you run out of other peoples' money.  The current economic situation in Greece is a prime example of that.

Here we have the same set of circumstances that led to the subprime mortgage meltdown a while back.  The key difference is that when a consumer spends more money than they take in and borrows more with no way to pay it back, we call that irresponsible.  When the government does it, we call that compassion.

If President Obama and the Democrats are serious about getting people back to work, they need to do away with their current unsustainable economic model.

by Scott Perry | 2010/07/08 | log in or register to post a reply

But you really have to look at what you are saving...

If the government stops spending, especially on things like unemployment benefits, you have to look beyond the amount of money that they "save" by not paying the benefits.  If the loss of the only means of support for more than a 1.2 million people (so far) causes more foreclosures, higher costs to states to provide welfare benefits, loss of revenue to private business, and loss of other jobs (particularly due to cuts at the state level)... you have ask if it really saves anything. 

I think if you look at the bigger picture, the government and society at large would be worse off.  Sometimes spending cuts can cause more losses than they save.  I believe that is where we are now with unemployment benefits.

by Robert Franco | 2010/07/08 | log in or register to post a reply

US Congress and Wall Street Aren't the friends they purport.


I think "unemployment benefit" arguments that people become  lazy lying around relying on handouts is another example of how out-of-touch our representatives are with the lives of working people.

It's interesting to note that Bill and Hillary Clinton are close to purchasing an $11,000,000.00 home. And here's a guy who was impeached and lied under oath!!

But along these same lines is the issue that several states were trying to implement "fair lending" laws that would have nixed much of the activity which caused this economic meltdown. Georgia had passed the GFLA (Georgia Fair Lending Act) and North Carolina had a version ready to enact but withdrew it.

The reason? Standard & Poor would not give a "rating" to any MBS (mortgage backed security) pools or special purpose entities comprised of mortgage loans governed by the GFLA. Standard & Poor claimed that penalties contained within GFLA would exceed the principal amount of the loan and therefore create an investor liability beyond a complete loss of cash flow from the loan.

The point here is had all states and the US Congress implemented laws similar to GFLA we wouldn't be in the mess we're in. This is another example of how Wall Street influence and the incestuous fee frenzy from mortgage lending trumped any consideration of protections!

During the runup to the housing meltdown these kinds of protections were denigrated and determined to have "unintended consequences".

As you point out it seems perfectly comfortable to this Congress to infuse trillions to the Wall Streeters allowing them to consolidate and grow ever larger and more concentrated with no consequences while claiming people who are seeking work have had benefits for a period and they need to "get a job" or they're deemed lazy.

I can tell you I have 2 young sons and I see them and their friends trying every trick to land a job with a living wage. It's tough!! I know they get no comfort that Congress and Wall Street are continuing with their filet mignons and jet travel so they may protect us from ourselves and not allow us to become lazy!

"So knowing what we know, it should be no surprise that people distrust Wall Street, Congress, and just about anybody that regulates our lives. It is they who have betrayed out trust. We gave them our most precious possession - the fruits of our hard labor, with the unquestioned idea that they would treat it as their own. Instead, with help from all corners of our financial system, they squandered our wealth to the benefit of a few."

It would seem to me that unemployment benefits would sure be a better use of our "money printing" than keeping a banking cartel intact which will use any tactic possible to undermine contraints on their reckless and often illegal behavior!

Way back in 2001 --

by Wyatt Bell | 2010/07/13 | log in or register to post a reply

in case anyone missed it...

Congress extended unemployment benefits.  Finally!

by Robert Franco | 2010/07/22 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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