• Net payroll employment declined in March by 663,000 jobs.
• That’s a terrible number, and in line with expectations.
• The unemployment rate increased from 8.1% to 8.5%.

Much of the press coverage talks about “5.1 million jobs lost since the beginning of 2008.”  I think that using January 2008 as a start date gives an incomplete and possibly misleading picture.  The past fifteen months can be divided into two parts.  For the first nine months, the economy was shrinking slightly and employment was declining at a disappointing but not panic-inducing rate.  For the last six months, beginning in September as the financial market crisis came to a head, the bottom fell out of the employment market.  Take at look at the sudden drop in employment beginning as the market crashes in September.  This is the best example that what happens on Wall Street affects what happens on Main Street.

Employment was clearly shrinking in the first 8-9 months of 2008.  But the huge employment losses immediately followed the financial crisis.  I include September in the first segment because the employment data was collected for that month before the fateful two weeks in the markets.  2008 was a bad economic year, but it’s the fourth quarter of 2008 and the first quarter of 2009 that were disastrous.

This matters because, if the diagnosis is different, then the solutions may be different.  If the principal cause of the severity of this recession is the financial crisis, then that would suggest that the most important and urgent element of the solution is to fix the problems in financial institutions and financial markets.

Nobody would or should be happy if the economy were losing 137K jobs per month.  But that would be a huge improvement compared to the 600K+ jobs lost over each of the past six months.  By the same logic, you use different tools and prioritize different policies if the principal cause of the severe decline in growth and employment is the financial sector trouble.  This may sound obvious, but I don’t think it is a given in the Washington policy debate.  Everyone says “severe recession,” and then immediately jumps to “huge stimulus” or (“we need a second stimulus”).  Fiscal and monetary stimulus can undoubtedly increase GDP growth, but they cannot solve the problems in financial institutions and financial markets.

This is why I try to remind myself to talk about economic problems and a financial crisis.  It is also one reason why I am much more concerned about whether the Administration’s new financial policies will work, than whether their spending bill will stimulate GDP growth.  In my view, if the financial problems are not fixed, we’re still in trouble almost no matter what else happens.  This means I’m in line with Fed Chairman Bernanke, who included a crucial if clause in his March 3rd testimony to the Senate Budget Committee:

Although the near-term outlook for the economy is weak, over time, a number of factors should promote the return of solid gains in economic activity in the context of low and stable inflation. The effectiveness of the policy actions taken by the Federal Reserve, the Treasury, and other government entities in restoring a reasonable degree of financial stability will be critical determinants of the timing and strength of the recovery. If financial conditions improve, the economy will be increasingly supported by fiscal and monetary stimulus, the beneficial effects of the steep decline in energy prices since last summer, and the better alignment of business inventories and final sales, as well as the increased availability of credit.

Jobs Day

© 2010 Keith Hennessey - Your guide to American economic policy

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3. Rose Garden Statement by President Bush on financial markets

Good morning.  I just completed a meeting with my working group on financial markets.  We discussed the unprecedented and aggressive steps the federal government is taking to address the financial crisis.  Over the past few weeks, my administration has worked with both parties in Congress to pass a financial rescue plan.  Federal agencies have moved decisively to shore up struggling institutions and stabilize our markets.  And the United States has worked with partners around the world to coordinate our actions to get our economies back on track.

This weekend, I met with finance ministers from the G7 and the G20 — organizations representing some of the world’s largest and fastest-growing economies.  We agreed on a coordinated plan for action to provide new liquidity, strengthen financial institutions, protect our citizens’ savings, and ensure fairness and integrity in the markets.  Yesterday, leaders in Europe moved forward with this plan.  They announced significant steps to inject capital into their financial systems by purchasing equity in major banks.  And they announced a new effort to jumpstart lending by providing temporary government guarantees for bank loans.  These are wise and timely actions, and they have the full support of the United States.

Today, I am announcing new measures America is taking to implement the G7 action plan and strengthen banks across our country.

First, the federal government will use a portion of the $700 billion financial rescue plan to inject capital into banks by purchasing equity shares.  This new capital will help healthy banks continue making loans to businesses and consumers.  And this new capital will help struggling banks fill the hole created by losses during the financial crisis, so they can resume lending and help spur job creation and economic growth.  This is an essential short-term measure to ensure the viability of America’s banking system.  And the program is carefully designed to encourage banks to buy these shares back from the government when the markets stabilize and they can raise capital from private investors.

Second, and effective immediately, the FDIC will temporarily guarantee most new debt issued by insured banks.  This will address one of the central problems plaguing our financial system — banks have been unable to borrow money, and that has restricted their ability to lend to consumers and businesses.  When money flows more freely between banks, it will make it easier for Americans to borrow for cars, and homes, and for small businesses to expand.

Third, the FDIC will immediately and temporarily expand government insurance to cover all non-interest bearing transaction accounts.  These accounts are used primarily by small businesses to cover day-to-day operations.  By insuring every dollar in these accounts, we will give small business owners peace of mind and bring stability to the — and bring greater stability to the banking system.

Fourth, the Federal Reserve will soon finalize work on a new program to serve as a buyer of last resort for commercial paper.  This is a key source of short-term financing for American businesses and financial institutions.  And by unfreezing the market for commercial paper, the Federal Reserve will help American businesses meet payroll, and purchase inventory, and invest to create jobs.

In a few moments, Secretary Paulson and other members of my Working Group on Financial Markets will explain these steps in greater detail.  They will make clear that each of these new programs contains safeguards to protect the taxpayers.  They will make clear that the government’s role will be limited and temporary.  And they will make clear that these measures are not intended to take over the free market, but to preserve it.

The measures I have announced today are the latest steps in this systematic approach to address the crisis.  I know Americans are deeply concerned about the stress in our financial markets, and the impact it is having on their retirement accounts, and 401(k)s, and college savings, and other investments.  I recognize that the action leaders are taking here in Washington and in European capitals can seem distant from those concerns.  But these efforts are designed to directly benefit the American people by stabilizing our overall financial system and helping our economy recover.

It will take time for our efforts to have their full impact, but the American people can have confidence about our long-term economic future.  We have a strategy that is broad, that is flexible, and that is aimed at the root cause of our problem.  Nations around the world are working together to overcome this challenge.  And with confidence and determination, we will return our economies to the path of growth and prosperity.

Thank you.

Rose Garden Statement by President Bush on financial markets

© 2010 Keith Hennessey - Your guide to American economic policy

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2. Address by President Bush on financial markets
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