Levy Economics Institute of Bard College Strategic Analysis April 2012

Conclusion 
Our three scenarios show that no matter how these policy issues are resolved in the next congressional session, the nation is still likely to be producing at far below its potential output levels when that session begins next January. Moreover, it is very unlikely that unemployment and underemployment will have reached even moderately elevated levels—say, an official unemployment rate of 6 percent. In fact, scenarios 1 and 2 above indicate that the CBO's meager projections of a mild surge in job growth starting two years from now are unrealistic, unless private sector borrowing takes off again. But a macro policy based on a new run-up in private sector debt levels would heighten the risk of a financial crisis, especially in light of the financial threats already facing households, state and local governments, and corporations. Once again, keeping in mind political realities, we urge at least a modest application of fiscal stimulus. Scenario 3 illustrates that a small, tax-financed increase in government investment could lower the unemployment rate significantly—by approximately one-half of 1 percent. Figure 9 depicts the paths of unemployment achieved under each of the three scenarios. Based on our results, we surmise that it would take a much more substantial increase in fiscal stimulus to reduce unemployment to a level that most policymakers would regard as acceptable.

Levy Economics Institute of Bard College Strategic Analysis | April 2012
Back to Business as Usual? or A Fiscal Boost?

by Dimitri P. Papadimitriou, Greg Hannsgen, and Gennaro Zezza

(h/t Michael Stevens at Multiplier Effect)

Weak jobs report, US economy could be in trouble, outlook for euro grows bleak

Today's jobs report was a pretty bad one. Nonfarm payroll employment rose by only 120,000 in March, which was less than half the rate of the prior three months. The unemployment rate remained at 8.2%. The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour to 34.5 hours in March.

Expectations had been for a gain of 205k. This is a terrible report and it will put a lot of pressure on Obama and deservedly so. He has bought into all the deficit hysteria being promulgated by the Debt Terrorists.

The stock market had been looking highly speculative lately, with data not corroborating the sharp advance. Indeed, a broad range of numbers out of the economy had been weakening. This is a further sign that the economy is in trouble.

All this was predicted in my 2012 Yearly Outlook. It's the only MMT-based economic forecast out there. You can still get it and read the rest of my predictions on stocks, bonds, gold, commodities and the dollar! (Get it here.)

Outlook for the euro now looks increasingly precarious. A slowdown in economic activity in the U.S. and even the prospect of recession, will put huge economic strains on Europe. The euro could slide sharply. This could be a great time to short the euro. Get the skills you need to trade Forex with my upcoming Forex Trading Boot Camp, Apr 15-17!

Data weak...again!

New home sales disappoint today, continuing a string of disappointing data this month that included personal income and spending, ISM manufacturing, mortgage applications, unit labor costs, inventories, current account, industrial production, confidence and housing starts.

The economy is softening due to fiscal drag coming in the form of government spending cuts. So far this year, according to the Treasury's operating statement, total outlays are down $397 bln compared to last year. This equates to a subtraction of 2.5% from GDP, all else being equal. Basically it leaves GDP flat to slightly positive.

Of the main line item expenditures in the Federal budget:

Education spending down 11% bln y-o-y
Defense spending down 5% y-o-y
Unemployment insurance down 22% y-o-y
Medicare down 3% y-o-y
Medicaid down 13% y-o-y
Fed'l salaries down 3.5% y-o-y
Health and human svs down 14% y-o-y

About the only thing up is Social Security (+8.4%) and interest paid on the debt (+9.4%).

Oh yeah, taxes are up y-o-y and that is also contributing to fiscal drag.

Without offsets, this will continue to weigh on the economy and slow it down.

Get the whole picture here in the 2012 Yearly Outlook. The only real MMT based economic forecast for this year.

MMT-based 2012 Yearly Outlook is here!

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