By John Charles Rosen, Citizen
The Picayune Item
About a week ago, Fed Chairman Bernanke held a press conference — very rare and unusual for him. His concerns at that moment were the congressional deadlock on the debt limit, the end of the second Quantitative Easing (QE-II) and the slowness of the economic recovery from the Deep Recession. A reporter asked him why he thought the recovery has not been better — and surprisingly (to me) he said he didn’t know.
Which has got me to thinking: Why haven’t we seen a more vigorous recovery?
First, here are some present economic-related conditions: 1) Unemployment is 9.1% and seems unlikely to make any substantial fall in the near future. 2) New home construction is at record low — the lowest since records have been kept in the past 60 years — when the U.S. population was much less. 3) Consumer Confidence Index in May 2011 has been falling — to a reading of 58 from a top of 110 in mid-2007 (100 is average). 4) Gas price in early June were at, over or near $4 a gallon. 5) U.S. corporations are sitting on $1.1 thousand billion (that is one trillion) in cash, profits are rising, but few corporations seem interested in investing this cash in expansions of their businesses. 6) There has been until this week, an under-spoken concern about America have a “double-dip” recession or going into a deflationary trend.
The common explanation I hear for America’s business lack of aggressiveness is that there is a climate of uncertainty. Maybe business leaders are justified in being uncertain, to wit: A) In an over-reaction to the “no down payment” mortgages of the 1990s and early 2000, mortgage lenders now require 20% down payment. With 24,000,000 Americans either unemployed, under-employed or have given up looking for work, and many fearful of losing their jobs; how many can come up with the 20% down payment. So we have the fewest new homes being constructed — and the construction industry has historically accounted for 1 in 8 jobs. B) Federal banking regulators are now requiring that major banks build up their capital ratios from about 7% to 9.5%. In the case of J.B. Morgan/Chase, this will mean putting aside an extra $35 billion. This is just one bank. This may mean that a couple of hundred billion dollars is going to be taken out of the lending market - and lending is what contributes to economic growth. C) Boeing is #1 or #2 in the U.S. in the export of manufactured goods. They have built a huge new manufacturing plant in S. Carolina is a “right -to-work” state. Boeing has a backlog of orders — mostly for international sales and can’t expand. What a chilling effect this must be having on CEO and corporate boards who might be contemplating an expansion on American soil. D) United States has huge untapped natural resources off its three coasts and in Alaska. It has discovered virtually unlimited natural gas deposits on American soil, and has the technology to convert coal to oil or gas. But the Government is not allowing industry to fully tap these resources. And energy is the backbone of industrial growth. E) The poor of the world are now suffering from increases in commodity prices, particularly corn. Yet 25% of U.S. corn production is taken out of food usage to make an additive to gasoline. F) American business is waiting to learn how they will be affected by over 200 new regulations that are going to go into affect from the passing of the Dodd/Frank Financial Bill, which passed Congress last year. Add this to the uncertainly about how ObamaCare rules and regulations will affect every corporation. (Co-incidentally — it was the same Chris Dodd and Barney Frank, Chairmen of their respective House and Senate sub-committees that in 1995-96 hauled S & L industry leaders before their committees and told them: “Every American family should be a homeowner”.)
If American business leaders are “uncertain” — seems to me they have some legitimate reasons for their uncertainty.
John Charles Rosen