Monday, August 3, 2009

Another Shoe That Is Waiting To Drop

Exhausted unemployment benefits is one of the next huge economic problems on the horizon. As people's unemployment benefits run out and unemployment numbers continues to rise, we will no doubt see more home foreclosures and credit card defaults. Congress is looking to extend benefits even further! The question is, how much more debt along with the prospect of higher taxes can this country afford? How many more bailouts? How much more spending by government can we all absorb? Businesses are failing and we are seeing many empty storefronts. Commercial real estate is taking a huge beating too. Do our leaders in Washington DC understand nothing about the last Great depression and how it was prolonged? Do they not understand that stimulus, more debt and more government spending is the fuel to this current fire? And yet, they are still seeking to spend more money on expanded social programs such as healthcare and other manners of pork!

The New York Times reported:
Over the coming months, as many as 1.5 million jobless Americans will exhaust their unemployment insurance benefits, ending what for some has been a last bulwark against foreclosures and destitution.

Because of emergency extensions already enacted by Congress, laid-off workers in nearly half the states can collect benefits for up to 79 weeks, the longest period since the unemployment insurance program was created in the 1930s. But unemployment in this recession has proved to be especially tenacious, and a wave of job-seekers is using up even this prolonged aid.

Tens of thousands of workers have already used up their benefits, and the numbers are expected to soar in the months to come, reaching half a million by the end of September and 1.5 million by the end of the year, according to new projections by the National Employment Law Project, a private research group.

Unemployment insurance is now a lifeline for nine million Americans, with payments averaging just over $300 per week, varying by state and work history. While many recipients find new jobs before exhausting their benefits, large numbers in the current recession have been unable to find work for a year or more.

Calls are rising for Congress to pass yet another extension this fall, possibly adding 13 more weeks of coverage in states with especially high unemployment. As of June, the national unemployment rate was 9.5 percent, reaching 15.2 percent in Michigan. Even if the recession begins to ease, economists say, jobs will remain scarce for some time to come.
Can government continue to bail everyone out like this? No doubt the monetization of our debt with printing presses on full steam is going to hurt us in due time. Even the Chinese are concerned about our debt, or rather our ability to repay them for the US debt that they hold.

We can be told that the stock market is up - and all will be better soon - but the reality is that millions are still out of work, and more are joining them, as consumer spending dries up and people begin to try to preserve their assets. The reality is that small businesses and the middle class are being squeezed. Higher taxes ARE on the way, and people are becoming very concerned about being able to afford even the necessities, let alone the few extravagances they have left to them. People are eating out less, they are buying less stuff and making due with what they have. Many families are truly struggling.

Unfortunately, many of us didn't make provisions for that rainy day. Despite the admonitions of others; even people like Suze Orman told folks to put aside money for that time when you'd be downsized, and not to spend money on stuff that you can't afford. But of course people still did it. They were encouraged to consume. They were given the green light to borrow far more than they could easily repay. Now they are in trouble. And still now they are even being asked to trade in their old cars - which have no auto loans on them - for newer cars with more new debt attached to it. It's insanity!

If you can't afford to buy a laptop for junior, or money for your 9 year old to go off to the movies then it just might be a harsh reality that they will have to learn to do without something. Summer camp - baseball activities and so on will have to wait.

Many people unfortunately are now in the position of losing their homes, and not being able to put food on the table. And yet, they may have very well been the same people who mocked others for hoarding food in their basements and putting money away instead of buying that flat screen TV. Therein lies the unpleasant irony. Then again, why would people need to do anything to provide for their own future when government's safety net - such that it is - is there? There has always been a safety net for people - and thus was the false sense of security and the license for all of us to neglect any thoughts of a nest egg or rainy day fund! And those of us who did put money away in the stock market have seen the value of our funds eroded. Moreover - with higher taxes all around, did government even give you a chance to save for that rainy day? Government has made itself most people's rainy day fund. Unfortunately, in the end, the government is also us! We elected the people who say that we can spend our way to prosperity. We elected people to solve our problems and give us "free stuff". And now many are paying a very dear price.
In ordinary times, employers pay into a state insurance fund, and workers who lose jobs draw benefits for up to 26 weeks. During recessions, Congress has often paid for extended coverage for an extra 13 or even 20 weeks.

In 2008, as the recession deepened, Congress provided 33 extra weeks of benefits. Earlier this year, President Obama’s stimulus plan offered an additional 20 weeks in states where unemployment surpassed 8 percent, if they adopted new federally recommended rules governing these extra weeks. (South Carolina did not make the changes, and benefits there are running out more quickly.)

Currently, people can draw benefits for up to 79 weeks in 24 states and from 46 weeks to 72 weeks in others.

The stimulus law also, through the end of the year, provided an extra $25 a week to all recipients, exempted a portion of benefits from federal income tax and subsidized Cobra health payments for the unemployed.
So now the answer to this looming crisis is to yet again have government come to the rescue... although it isn't entirely clear how government plans to pay for this new set of spending. Aye - there's the rub.
Representative Jim McDermott, Democrat of Washington and chairman of the House Subcommittee on Income Security and Family Support, said he would introduce a bill in September to provide yet another 13 weeks of coverage in states with unemployment rates of 9 percent or higher. “Legislators will line up quickly when they start getting calls from desperate constituents,” he said in a telephone interview.

The cost would be $40 billion to $70 billion, but the expense would be temporary, Mr. McDermott said.
Mr. McDermott, where exactly do you plan to get this "temporary" $70 Billion? Is it just lying around somewhere in the halls of Washington? What programs are you going to cut to pay for this one? Those questions has not been raised ... because all that really matter is that it is needed and government must apparently ante up.

Others, like Douglas Holmes, president of UWC, a group in Washington that represents businesses on unemployment issues, said that... the money might be better spent creating jobs and training people to move into emerging industries. Some believe that prolonging unemployment benefits reduces the incentive to seek work.

There's no doubt people are in trouble. Some through no fault of their own other than losing a job. Yet, the reasons we are in the predicament we are in as a nation run long and deep.

I hope for the sake of us all that we learn from these times, and yet the unfortunate thing is that we had a previous Great Depression to learn from, and we failed to heed the lessons that history offered us all. Instead, what we seemed to have learned is that government is the solution to every problem, instead of the solution being responsibility for ourselves.

(H/T Leann S.)