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Archive for May 4th, 2012

Disabled Americans Shrink Size of U.S. Labor Force

Posted by WARREN MOSLER on 4th May 2012

And then there’s this:

Disabled Americans Shrink Size of U.S. Labor Force

By Alex Kowalski

May 3 (Bloomberg) — Michael White says he wishes he still could pluck the bass line to Hank Williams Jr.’s “Born to Boogie” and pay bills with money he earns himself. High unemployment — along with ailments that he says render his fingers inoperative and make him cough up blood — have dashed his hopes.

White is among the 1.6 million Americans who’ve claimed Social Security Disability Insurance, or SSDI, since the 18- month recession began in 2007. When the slump reduced demand for tow-truck drivers, the 60-year-old Fort Myers, Florida, resident, who has also worked as a musician, lost the job he’d held for five years and started collecting unemployment benefits.

Complications from chronic obstructive pulmonary disease, or COPD, diabetes and other medical problems then made it impossible for him to return to a labor market that lacks opportunities for people with health problems and those in better shape.

“I can’t stress enough that I’d rather be working, but my health has gotten the worst of me, and any place I would have applied wouldn’t have hired me,” White says.

The number of workers receiving SSDI jumped 22 percent to 8.7 million in April from 7.1 million in December 2007, Social Security data show. That helps explain as much as one quarter of the decline in the U.S. labor-force participation rate during the period, according to economists at JPMorgan Chase & Co. and Morgan Stanley.

Expiring Benefits

The participation rate — the share of working-age people holding a job or seeking one — was 63.8 percent in March after falling to a three-decade low of 63.7 percent in January. Disability recipients may account for as much as 0.5 percentage point of the more than 2 point drop since the end of 2007, the economists calculate, and that contribution could grow when some extended unemployment benefits expire at the end of this year.

“How we measure and understand what’s going on in the economy can be influenced by the degree to which various public- support programs are available and being used,” said Michael Feroli, chief U.S. economist at JPMorgan in New York. “With a rising number of disability beneficiaries, there are both lower unemployment rates and lower participation rates.”

More light may be shed tomorrow on the participation rate, when the Labor Department releases its April payroll report. Employers probably added 160,000 new workers last month, while the jobless rate held at 8.2 percent, according to the median forecasts of economists in Bloomberg News surveys.

Nearing Exhaustion

The White House argued in December that emergency unemployment insurance should be continued, partly because some recipients probably would apply for SSDI as their benefits neared exhaustion. Congress extended the payments in February.

“Workers on SSDI rarely return to the labor force, resulting in a loss to society of the economic contribution those workers could have made,” said the report, which was written by the National Economic Council, Domestic Policy Council, Labor Department and President’s Council of Economic Advisers. “Thus, keeping the long-term unemployed in the labor force should be a priority.”

More than 99 percent of all SSDI beneficiaries remain in the program until retirement age, David Greenlaw, a managing director in New York at Morgan Stanley, wrote in a March research note, citing government data. The program provides an average of $1,111 in monthly income to eligible workers with a physical or mental impairment that will last at least 12 months or result in death, according to Social Security.

Record Applications

The number of people collecting disability surged as the economy contracted, with the share of the U.S. population between the ages of 25 and 64 on SSDI climbing to a record-high 5.3 percent in March from 4.5 percent in 2007. Applications per 1,000 working-age people rose to 18 last year from 8 in 1990.

The gain follows a pattern typical of recessions because Social Security requires that claimants be unable to “engage in any substantial gainful activity,” a stipulation more easily satisfied when jobs are scarce and wages get cut, according to Virginia Reno, vice-president for income security policy at the National Academy of Social Insurance in Washington.

“Impediments to work are compounded for people with disabilities when the economy turns sour and there are simply fewer jobs and greater competition for the jobs that remain,” Reno said. Her group researches the impact of social insurance on economic security.

Unemployment Among Disabled

Unemployment among the disabled rose by 7.6 percentage points to 16.9 percent — in August 2009 and June 2011 — from 9.3 percent in June 2008, when the government began tracking the data. The comparable measure for healthy people climbed 4.8 points to a peak of 10.4 percent in January 2010.

White’s weekly income fell to about $800 as the recession struck, even though he often worked every day, from as much as $2,000 when the towing business was booming, he says. As towing jobs contracted nationally to 48,300 in 2010 from a peak of 52,800 in 2008, he was laid off and filed for unemployment insurance in September 2009, receiving about $1,200 a month.

Meanwhile, White says his health deteriorated: His COPD morphed into emphysema, he was diagnosed with diabetes, his fingers began to ache from neuropathy and he obtained a breathing device to combat sleep apnea. The former bass player for cover band Boston Post Road no longer could hold his guitar.

White says he routinely searched for eight to 10 jobs a week, more than required to keep his unemployment benefits, and would have taken any available position so long as his health permitted. No opportunities came up in the tight labor market, and anticipating his unemployment would run out, he applied for SSDI. He says he was approved in about five months.

Difficult Decision

The decision to go on disability can be difficult for people who’ve lost their job and then realize their health prevents them from working, said Sean Libby, vice president of corporate development at Freedom Disability, the advocacy company that helped White obtain SSDI. Unemployment insurance requires that applicants search for job opportunities, while disability insurance requires they be unable to work.

“You’re trying to make something gray into something black and white by saying, ‘On this date I woke up and I could no longer work,’” Libby said.

That gray area may be working to the advantage of some unemployed, according to economists David Autor at the Massachusetts Institute of Technology in Cambridge and Mark Duggan at the University of Pennsylvania’s Wharton School in Philadelphia. Because SSDI awards have soared even as the health of Americans has improved, SSDI “appears in practice to function like a nonemployability insurance program for a subset of beneficiaries,” they wrote in a 2006 research paper.

Lax Screening Procedures

Less-stringent screening procedures, more attractive benefits and a waning need for less-skilled workers have bolstered SSDI rolls, they said. In addition, “difficult-to- verify disorders,” including muscle pain and mental illness, more easily qualify for SSDI under program reforms, Autor wrote in a 2011 paper. The aging baby-boom population, changes in Americans’ health conditions and the entry of women into the workforce weren’t the driving forces behind the gain in SSDI, Autor wrote.

Kia Green, a Social Security spokeswoman, hadn’t responded to an e-mail request for comments as of 7:30 p.m. yesterday.

Based on current trends, 7 percent of the nonelderly adult population could be receiving disability benefits by 2018, Richard Burkhauser and Mary Daly wrote in the spring issue of the Journal of Policy Analysis and Management. That’s two years after the SSDI program will run through its trust fund, according to an April report by the Social Security trustees.

Costs Increase

Costs have increased with the rolls: The program spent $132 billion last year, more than twice as much as in 2000. Once the trust fund dries up, the program’s incoming revenue will be enough to cover only about 80 percent of scheduled benefits, the trustees said.

To help reduce the strain on the system and make it possible for more disabled people to remain in the labor force, Burkhauser, a policy professor at Cornell University in Ithaca, New York, and Daly, associate research director at the Federal Reserve Bank of San Francisco, argued SSDI should be modified. They said raising taxes on businesses with a larger share of employees on SSDI would provide an incentive for these companies to offer the employees better accommodations and rehabilitation programs that prolong their ability to work.

The current program, which assumes that disability and employment are “mutually exclusive” is “both archaic and fiscally unsustainable,” they said. “Fundamental reforms, if done well, can lower projected long-term costs for taxpayers, make the evaluative tasks of disability administrators less difficult and, importantly, improve the short- and long-run opportunities of people with disabilities.”

Posted in Employment | 15 Comments »

Spain’s Valencia Struggles To Repay Debt

Posted by WARREN MOSLER on 4th May 2012

Note how ‘currency users’ are limited to relatively low levels of debt by markets:

Valencia’s total outstanding debt at the end of 2011 was EUR20.76 billion, equal to around 20% of its GDP.

Spain ran up it’s current national debt as a currency issuer when it not only didn’t matter financially with regards to funding and solvency, but it was, for all practical purposes, a requirement to accommodate non govt savings desires at desired levels of output and employment.

Spain, and the rest of the former currency issuers, then waltzed into the euro zone arrangements as currency users who all agreed to keep the same debt levels they had accumulated as currency issuers, rendering the euro arrangements ‘an accident waiting to happen’ from the get go.

Spain’s Valencia Struggles To Repay Debt

By Jonathan House and Art Patnaude

May 4 (Dow Jones) — Spain’s financially troubled Valencia region had to pay a punitive interest rate to roll over a short-term debt Friday, raising new concerns about its solvency and prompting the regional government to offer assurances it can avoid a default.

“We have covered our refinancing needs through June and we are planning on meeting our commitments,” a Valencia spokesman said.

Valencia had to offer institutional investors a 7% interest rate to roll over a EUR500 million debt for six months on Friday, a new sign of a deepening financial crisis for the regions that control over one third of spending in highly decentralized Spain. That’s more than four times what the Spain’s central government offered at its last auction of six-month treasury bills.

With a long history of overspending, Spain’s regions have moved to the center of the country’s fiscal crisis. As Prime Minister Mariano Rajoy tries to close yawning budget gaps at all levels of government and return the ailing local economy to growth, his government is scrambling to make sure the regions meet their financial obligations while reining in expenditures.

Spain had a general government budget deficit equal to 8.5% of gross domestic product in 2011, far in excess of the 6%-of-GDP target it had committed to with the European Union and international investors. Much of the overrun was the fault of the regions.

In recent months, the fiscally frail regions are facing increasing difficulty in financing themselves. International investors are steering clear. “There’s still a great deal of reluctance from institutional investors to get involved in Spain. The uncertainties are a bit too big,” said Elisabeth Afseth, fixed-income analyst at Investec Bank in London.

Valencia, on Spain’s Mediterranean coast, is one of the most troubled of its 17 regions. With its hundreds of kilometers of beachfront properties, it is ground zero for the collapse of the Spain’s housing industry, which has punched a large hole in national tax revenue and sent the economy into a long slump. The housing bust, coupled with years of high spending, has made Valencia one of the most indebted regions.

Valencia’s total outstanding debt at the end of 2011 was EUR20.76 billion, equal to around 20% of its GDP.

Late last year, Moody’s Investor Service downgraded Valencia’s credit to junk status and the central government had to advance Valencia some of its regular financing to prevent it from defaulting on a EUR123 million debt to Deutsche Bank AG (DB). In Spain, most tax revenue is collected by the central government.

Since then, Rajoy’s government, which came to power in December, has strengthened financial support for the regions and said it won’t let any default on their obligations. It set up an EUR10 billion credit facility they can draw on to refinance their debts and is offering EUR35 billion worth of loans to help them pay off debts to suppliers.

The Valencia spokesman said his region has received EUR2.69 billion from the credit facility that will allow it to meet all its debt obligations in the first half of the year. In addition, Valencia and other regions are pushing hard to get Madrid agree to guarantee their debts, which should help lower borrowing costs, he added.

Valencia has to refinance EUR4.5 billion worth of debt this year.

Posted in Deficit, EU, Government Spending | 9 Comments »

The not so innocent fraud of repatriation

Posted by WARREN MOSLER on 4th May 2012

Repatriation made it to Romney’s platform:

– Allow for a tax holiday for repatriated corporate profits held overseas

So I’ve been asking this question for as long as I can remember:

‘Name one company holding off on investment because it has some of its excess cash in a Citibank London account vs a Citibank New York account?’

Corporate America is currently ‘cash rich’ with all the funding they could possibly want for investment. If investment is low, it’s because they don’t see sufficiently profitable investments, and not because of lack of funding.

The funds have piled up in these ‘offshore’ accounts for one reason- the income isn’t taxed by the US until it is ‘moved’ to the ‘US books’ of the corporations. So these corporations could have either made their profits from offshore operations and paid their US taxes immediately, or made their profits and deferred taxation by leaving those profits in offshore accounts.

I understand the argument that corporations should not be taxed in the first place, as corporate taxes are all passed through to consumers, directly or indirectly.

I don’t understand the argument that repatriation somehow ‘creates jobs’ and helps the economy.

I do understand the desire for corporations to support candidates on this issue, to the point of misrepresenting the ‘job creation’ aspect.

In fact, there’s new proposal coming out of Puerto Rico that appears to be a ‘back door’ route to unlimited repatriation for US corporations.

Posted in Political | 15 Comments »

Answer to question on stocks

Posted by WARREN MOSLER on 4th May 2012

>   (email exchange)
>   Warren, what do u think stocks do here?

Been bearish all along from mid March and still thinking same.

Euro zone still melting down.

US coming off Q4 rebuild of Japan’s pipeline.

And now unemployment benefits expiring in 9 states with more to come?

State and local cutbacks are ‘high multiple’ and actual state and local deficit spending coming down as well?

Housing not picking up enough to add meaningfully to aggregate demand/GDP.

With ‘real productivity’/technology and management advances’ continually reducing labor needed per unit of output, recent declines in productivity in line with softer employment?

Global austerity = global slow motion train wreck?

Posted in Deficit, Equities, Government Spending | 4 Comments »

April Job Data – ‘Mixed’//Fed Implications

Posted by WARREN MOSLER on 4th May 2012

Karim writes:


  • April Payrolls rise 115k, below expectations.
  • March revised from 120k to 154k and February from 240k to 259k
  • Unemployment rate falls to new cycle low of 8.1% (already close to Fed’s year-end forecast of 7.8-8.0%) though due to drop in Participation Rate from 63.8% to 63.6%.
  • A lot of volatility in the job data, making it difficult to divine the broader trend:
    • Manufacturing employment growth slows from 41k to 16k (vs rise in ISM employment component)
    • Leisure/Hospitality slows from 52k to 12k
    • Retail rises from -21k to +29k
    • Temp help rises from -9k to +21k
  • Income equation on the weak side as no growth in average hourly earnings and index of aggregate hours up just 0.1%
  • Diffusion index slows from 64.7 to 56.8, but still well within expansion zone.
  • Median duration of unemployment falls from 19.9 weeks to 19.4 weeks, a new cycle low.


  • The Fed would most certainly have liked to see better headline job growth, but I don’t think this report is enough to push them into additional easing for the following reasons:
    • Data is volatile and the net revisions were significant
    • Unemployment rate continues to fall
    • Inflation right at target
    • Financial conditions (equities and credit spreads) remain loose.
    • Structural issues continue to wane

Agreed on the conclusion. It will take a lot to get the Fed to do any more QE. Not the least reason being most of them know it doesn’t actually do anything apart from getting a lot of people scared and angry, including our esteemed politicians, for example, ready to make a propaganda show out of what they like to call ‘money printing.’

Of more concern, Bill Mitchell mentioned the drop in public sector employment may be dragging us down to negative growth. He may be right, as those paychecks are probably very ‘high multiple’ and require larger federal deficits to make up for the lost aggregate demand.

Actual multiples- propensities to spend out of income- are variable and hard to get a handle on, and therefore generally must be ‘reacted to’ with fiscal adjustments.

Unfortunately, however, all political forces are currently aligned towards deficit reduction.

And note the labor force participation rate is heading back to about where it was before women entered the labor force.

Posted in Employment, Fed | 1 Comment »

Another good read on the euro situation from Bill Mitchell

Posted by WARREN MOSLER on 4th May 2012

Why the Eurozone is destined to fail

By Bill Mitchell

Posted in ECB, EU, Government Spending | 5 Comments »

U.K.’s Quantitative Easing Has Worked, BOE’s Bean Writes in FT

Posted by WARREN MOSLER on 4th May 2012

We know part of the precise impact:
We know the $80 billion per year the Fed has been turning over to the Treasury would have otherwise remained in the economy.

U.K.’s Quantitative Easing Has Worked, BOE’s Bean Writes in FT

May 3 (Bloomberg) — Studies of the Federal Reserve’s large-scale asset purchases provide corroboration that quantitative easing has been effective, Bank of England Deputy Governor Charlie Bean writes in the Financial Times.

The precise impact of QE is uncertain and it’s “plausible that the effectiveness of the policy depends on the state of the economy,” Bean writes.

Posted in CBs, Fed | 22 Comments »