Busch: No Jobs = More Spending, More Deficits
President Obama announced Friday that he would be pushing for more spending on job-creation programs. Many in the media are circling that fact that had the participation rate in the US stayed the same as last month, the unemployment rate would've jumped to 10.4%.
Obama has urged Congress to pass a jobs package that includes new infrastructure spending, aid to small businesses, funding for state and local governments struggling to keep workers and incentives for green investments according to the Hill. "On Friday, he also called on them to include $5 billion to expand a tax credit for manufacturers who invest in clean energy technologies." Plenty of skepticism since reports have surfaced that the green jobs are costing 135k per job to create.
The House passed a bill critics are calling the "Son of Stimulus" that is a $174 billion measure of infrastructure spending and federal aid to stave of public worker layoffs. (Last month, there were 22k of government jobs lost.) The Senate has yet to pick it up and work on their own version. Liberal and Keynesian economists are supportive of an additional bill as well.
Mark Zandi of Moody's Mark Zandi forecasts that the unemployment rate will reach 10.8 percent by October and argues that argues that the economy requires an additional $125 billion jolt of stimulus spending on construction projects and aid to state and local governments according to the NYT. No word from anyone yet as to how this will be paid for or what this will do the already stressed fiscal position.
Given the disappointment with the original $787 billion program has had jobs and the poor track record (1970s) of Keynesian managing of the economy, it would seem that the US government will eventually have to attempt a new tack to get on track. Again, the biggest driver of economic growth now will be the ultra-easy Federal Reserve quantitative easing program. St. Louis Fed President Bullard's comments from last night clearly state that policy will remain in place for the foreseeable future.
However per Bullard, the train wreck for inflation will be two to four years down the road. Given the fiscal plight of the United States and more stimulus spending likely, it will be a Casey Jones special.
Andrew B. Busch is Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.