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News Worth Noting: Stimulus Spending, Bi-Partisan Jobs Bill, The New Poor

Bulk of Stimulus Spending Yet to Come, by Louise Radnofsky
Wednesday, February 17, 2010, Wall Street Journal

Highlighted Points:

-A third of the total $787 billion has been spent so far during the first year to maintain social services, government jobs and to provide tax cuts for workers.

-Infrastructure spending is set to step up in the second year with the goal of more money flowing to private-sector employers. Economists state that won't likely have a big effect on the unemployment rate.

-The bulk of the money proposed for projects like new rail lines and water projects about $180 billion is likely to be spent this year at the earliest. According to Kenneth Simonson, chief economist of the Associated General Contractors of America, " a lot more stimulus money will go into actual contracts and actual hiring in 2010". That will contribute 1.4 percentage points to the Gross Domestic Product (GDP) this year according to Brian Bethune, chief US financial economist for IHS Global Insight.

-Many signature projects including $20 billion for doctors to create electronic medical records, $4.5 billion for an energy Smart Grid and $7.2 billion for broadband networks are still in the very eary stages.

-Of the $179 billion in stimulus funds paid out last year, $112 billion has gone out in the form of large checks to state governments to plug holes in school, medicaid and unemployment-benefits or to increase funding for food stamps.


Bipartisan Jobs Bill Advances Past GOP Filibuster, By ANDREW TAYLOR Associated Press Writer WASHINGTON February 23, 2010

Highlighted Points:

-Four provisions, one including a measure exempting businesses hiring the unemployed from Social Security payroll taxes through December and giving another $1000 credit if new workers stay on the job a full year.

-$250 payment to Social Security recipients

-$25 billion to help cash-strapped states

-$30 billion in Wall Street bailout money redirected to help community banks lend to small business


The New Poor: Millions of Unemployed Face Years Without Jobs, By PETER S. GOODMAN, February 20, 2010

Highlighted Points:

-Economists fear that the nascent recovery will leave more people behind than in past recessions, failing to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed.

-Social safety net is already showing severe strains.

-Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different. An unusual constellation of forces — some embedded in the modern-day economy, others unique to this wrenching recession — might make it especially difficult for those out of work to find their way back to their middle-class lives.

-Labor experts say the economy needs 100,000 new jobs a month just to absorb entrants to the labor force. With more than 15 million people officially jobless, even a vigorous recovery is likely to leave an enormous number out of work for years.

-Large companies are increasingly owned by institutional investors who crave swift profits, a feat often achieved by cutting payroll. The declining influence of unions has made it easier for employers to shift work to part-time and temporary employees. Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.

-“American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics.

-Traditionally, three sectors have led the way out of recession: automobiles, home building and banking. But auto companies have been shrinking because strapped households have less buying power. Home building is limited by fears about a glut of foreclosed properties. Banking is expanding, but this seems largely a function of government support that is being withdrawn.

-The continued bite of the financial crisis has crimped the flow of money to small businesses and new ventures, which tend to be major sources of new jobs.

-“You have very large sets of people who have no social protections,” said Randy Albelda, an economist at the University of Massachusetts in Boston. “They are landing in this netherworld.”

Economic models can be such powerful tools in understanding some economic relationships, that it is easy to ignore their limitations. One tangible example where the limits of Economic Models collided with reality, but were nevertheless accepted as "evidence" in public policy debates, involved models to simulate the effects of NAFTA, the North American Free Trade Agreement. James Stanford published his examination of 10 of these models.

Small Banks and Trust Preferred Securities What?

I came across a very interesting article in the Wall Street Journal the other day "Small Banks Hit Snag As They Raise Cash", by Robin Sidel. This is what made my eyeballs pop: From 2000 to 2008, more than 1,500 small and regional banks issued about $50 billion in trust preferred securities, according to Red Pine Advisors LLC, a New York firm that helps small banks value illiquid investments. The banks favored the securities, a mixture of debt and equity, because they could be counted as capital for regulatory purposes. That gave the banks firmer footing to lend and boost earnings.

Many of the trust preferred securities were placed into pools of collateralized debt obligations. Ratings downgrades have battered the value of many trust preferred securities, which trade infrequently. "For many banks, raising capital is contingent on the extinguishment of the trust preferred securities, " said Brad Larson managing director at Hexagon Securities LLC, a New York Firm that advises small banks on the problem and is affiliated with Red Pine. " A long list of banks is likely to fail if their capital- raising efforts are unsuccessful."

The Consumer and Main Street especially small business owners need to understand the impact of the residue of the meltdown and keep the pressure on.

Slow Start But a Good Start to 2010

It has been a few weeks since the last post. A slow start but a good start as the economy continues to trek along, as more and more data is coming out about how "challenging" things really are with regard to getting small business lending and job growth on a re-newed course. About a week or so ago, the Obama administration announced a new initiative to use over 30 billion dollars of Troubled Asset Relief Fund (TARP) money to use for Coummunity Banks in as a guarantee to jumpstart lending for small business.

Let's track this process and see how successful this initiative will be.

Obama calls for $30 billion small business lending fund By Catherine Clifford, February 2, 2010 CNN Money