A reader of this blog asked if I could write about the debt ceiling and its impact on people with fixed incomes. So, let me try and start with some background. The United States has a debt ceiling, a limit placed on the total amount of debt that the federal government can accumulate. The debt ceiling was imposed by Congress in 1917, and as you know from reading and watching the news, our current debt is very close to the current ceiling. It will certainly hit that ceiling in the near future.
Actually, we've reached it many times before, but every time we approached the debt ceiling, the Congress simply voted to increase the ceiling. Now, some congressmen and congresswomen are saying that they will not vote for another increase of the debt ceiling.
So what? What impact will that have on us? Well, we don't have history to see what happens. We've never refused to increase the ceiling, and since the debt climbs daily, something is going to happen. Moreover, since we owe much of the debt to other countries, you can be certain that there will be a strong reaction.
A 2008 report by the Congressional Research Service says that if the debt ceiling is not increased, the federal government will be unable to meet its financial obligations. But that's still not enough detail. Which financial obligations? Would the federal government shut down some operations? Cancel pay checks? Refuse to pay interest on the debt? Who knows? But for certain, once the debt ceiling is hit, the debt is going to stay at the ceiling. Voting against raising the debt ceiling will not lower the ceiling, and a vote against raising the debt ceiling will not lower the increasing debt hitting that ceiling.
Social Security will be able to pay its benefits. Social Security is a pay-as-you-go system, and there are still enough taxes from workers to pay the benefits of the retired people. That is, until 2017. In 2017, the Social Security System will begin to cash in the Treasury Bonds it has in its trust fund, and there will be enough bonds to allow Social Security payments at the promised levels until about 2037. I don't know if the chaos caused by a refusal to increase the debt ceiling will leak over into Social Security, but it shouldn't happen.
Other fixed income problems? Individual payments from the federal government may be affected, but again, we simply don't know. The decision makers in Washington will have their hands full trying to deal with a refusal to increase the debt ceiling. Is inflation a possibility? A new economic slowdown? Again, all are theoretically possible, but let's hope we don't have to find out. I very much agree that the debt is a major, major problem, and Washington has been out of fiscal control. It's a shame that we've brought ourselves to this point. Perhaps, the suggested refusal to increase the debt ceiling will be used as a lever to require fiscal control again. Perhaps the debt ceiling will be increased but tied to strong fiscal control. I hope so, but then I'm always the optimist.April 20, 2011
Sometimes a graph can say much more than a list of numbers, and today one of my bright students showed me how to copy a graph from the Bureau of Labor Statistics to this blog. The graph below shows the path of employment over the period from January 2000 to March 2011.
You can clearly see the fall in jobs after the 2001 recession, bottoming out in mid 2003. Then the strong increase in jobs for almost 5 years topped out in early 2008, and the steep decline in jobs during the Great Recession. Finally, we bottomed out in early 2010.
Graph: Total Nonfarm Employment
Can you see how little we've recovered in jobs? It's that little uptick that remains far, far below the number of jobs we had before the Great Recession. I'll remind you again: the recession is over. It ended in June 2009, and the economy is now producing more goods and services than it did before the Great Recession started. It's no wonder that many people think that we are still in recession - jobs have not recovered much at all.April 13, 2011
Once each month, the Bureau of Labor Statistics (BLS) releases labor force data for the previous month on their web site www.bls.gov. In this blog, I've been writing about this "jobless recovery," a recovery from the Great Recession characterized by (1) a rise in the output of our economy but (2) stubbornly high unemployment rates and very slow growth in the number of jobs during the recovery. That is, the recession is over because firms are producing more, but the job market is lagging far behind. So, here's quick summary from the March 2011 data, but if you want more detail, look at the information at http://www.bls.gov/news.release/pdf/empsit.pdf
A Quick Recap: The Great Recession started in December 2007. In that month, the unemployment rate was 5.0 percent. One month later, the number of nonfarm jobs peaked at 137,996,000 jobs in January 2008 before starting a long decline that ended in February 2010. The Great Recession officially ended in June 2009, and in that month, the unemployment rate was 9.5 percent.
While the recession ended in June 2009, the unemployment rate continued to rise reaching 10.1 percent in October 2009. The number of jobs continued to fall until February 2010 when nonfarm jobs were 129,246,000. Therefore, the unemployment rate more than doubled and 8,750,000 nonfarm jobs were lost in the Great Recession.
The March 2011 Data: OK. How have we done since? The unemployment rate fell slightly to 8.8 percent in March 2011, and there were 13.5 million persons unemployed. The number of nonfarm jobs in the February 2011 BLS report increased by 216,000 jobs to a total of 130,738,000 jobs. Therefore, in the 21 months since the Great Recession ended, we've regained only 1,492,000 of the 8,750,000 jobs lost in the downturn - only 17.1 percent recovered. We are still very far from just getting back to the number of jobs we had at the beginning of the recession.
This is a good improvement over the data from earlier in 2011; the progress towards regaining the lost jobs of the Great Recession picked up steam but still remains slower than we'd like so far into this recovery. Moreover, there were 230,000 jobs created in the private sector as state and local government employment fell in March 2011 - more good news for the private sector. Remember: the benchmark for comparison is that we need to add 100,000 jobs per month simply to keep the unemployment rate where it is, and we must have a sustained monthly increase of 300,000 and more jobs per month to significantly reduce the unemployment rate. Last month's data is a glimmer of hope, but it's not nearly enough - this jobless recovery has a long way to go until we get back all the jobs we lost in the Great Recession. In an earlier blog, I stated that this is the third jobless recovery in a row, but it's becoming clear that this jobless recovery will be much, much longer than the previous ones.