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Farrell: You Ain't Alone, Joe

Tuesday, 7 Jul 2009 | 11:12 AM ET

Vice President Joe Biden admitted the other day that the administration had guessed the economy wrong. If you knew Jared Bernstein, Biden's chief economist, you would have suspected they would have been too optimistic. Bernstein is an outstanding guy but feels, in my opinion, government is the answer to a lot of our ills. I would disagree but that's neither here nor there. The administration isn't the only one that got flattened by the steamroller that has been our economy recently. Unemployment is at 9.5% and some of you might remember I had a bet with a Soleil director it would level at 8.5%. So much for my predictions.

Some are calling for the administration to conjure up Stimulus II. With only about 10% of the original $787 billion Stimulus I program spent it's too early to plan another one. Paul Krugman for example feels we absolutely need one. But since the money spent so far has been mostly on transfer payments (Social Security, unemployment etc.) the alleged impact on jobs is yet to be felt. The potential job creation will/should/might/maybe play out over the next year and a half as construction projects get off the ground.

It's arguable that a new stimulus plan would get any traction in Congress. With the health care proposal, cap and trade, and financial reregulation all on the docket another expensive program is not likely to gain many backers. Besides, we have another financial disaster waiting in the wings and that would be led by California and other states in dire fiscal straits. Over 230,000 workers in California have had two days a month in work cut to save money. The deficit they are arguing about is well over $20 billion and no resolution is in sight. The states collectively have over $100 billion in deficits to figure since most states are required by law to balance their budgets. They have resorted to the age old tactic of raising taxes which work only on paper. There is now an additional 5% tax on renting a car at Newark Airport. Milwaukee raised its car rental fee from $2 to $18. Hawaii raised its hotel tax to 7.25% with provisions for going to 9.25% in two years. Not to be outdone, Las Vegas raised its hotel tax to a max of 12%. These are just the things to stimulate usage. The taxes won't be there because business won't be there. But, on paper, the budget gets balanced. You can be sure a lot of this mess will wind up on the White House doorstep as states turn to the Feds for help do what they are unwilling to do. Probably not the best time to plan another billion dollar stimulus program.

There was an auction of some 8 year Treasury Inflation Protected notes on Monday. The auction went well but the more critical auctions will be Wednesday and Thursday when 10 and 30 year notes go up for sale. Continued good auctions will help the stock market. Also on Monday, the services ISM (Institute of Supply Management) survey was released. 47 is still in the contraction area but the way the arithmetic works this number alone would imply a GDP of positive .5%. Business activity, new orders, and employment (!) all showed healthy advances. Inventories fell to 45 from 47 and that is actually good in that it spring loads a production increase as depleted inventories sooner or later need to be refilled.

On a lighter note and apropos of nothing at all, I read this in a book the other day - be nice to incompetent people. At least you'll get a smile. Be nasty and they are still incompetent.

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