More Layoffs

UBS (which was formed by the merger of Union Bank of Switzerland and Swiss Bank Corporation) just announced that they will lay off 8,700 employees which is about 12% of their workforce. This is significant here because they have a large presence in the US as well as more locally in Utah.

Apparently these cuts are necessary because there are many customers pulling their deposits out of the bank due to its new policy to cooperate more closely with foreign nations to help prevent tax evasion. The management at UBS has determined in the wake of the falling deposits and large losses in subprime mortgages it is time to adapt its size to lower levels.

This kind of adaptation is necessary in times like this, however it is still a little disconcerting to see cuts this large still hitting. The road to economic recovery will rely largely on the creation of jobs. If employment keeps being cut like this it will be very difficult to start any kind of resurgence of economic activity.

What are they thinking?

A customer sent an order to a distributor for a large amount of goods totaling a great deal of money.

The distributor noticed that the previous bill hadn't been paid and was several months past due. The collections manager left a voice-mail for the customer saying, "We can't ship your new order until you pay for the last one."

The next day the collections manager received a collect phone call, "Please cancel the order. We can't wait that long."

This appears to be the business plan of the Congressional Budget Office. I was worried about having a Democratic President while the Democratic Party controls Congress as well. One of my biggest fears was that government spending would get out of control and it seems that fear is turning to reality.

So many people criticized the Bush Administration for running $150-400 billion annual budget deficits. While I do think things could have been run better those deficits could be managable with proper planning during better economic conditions. The new estimates coming from the CBO would double the national debt from $6.7 to $17 trillion by the year 2019.

Short term deficits are to be expected. The current Administration inherited an economic and financial mess of epic proportions. Without Obama's policies this year's deficit would have been around $1.2 trillion. However, the current deficit projections are double what the Bush Administration's stimilus plans would have spent for the next two years.

All of this overspending in the next couple of years is scary, but most economists have accepted it as the lesser evil for the current problems we are facing. What gets really terrifying is the continued deficit projections over the next 10 years. I pulled these graphs from the Thredgold report from April 1, 2009.

You can see that the outlook is very grim. If this is the way things really pan out, I have no idea how we will ever even make a dent in paying off our national debt. We as a nation must figure out a way to become fiscally solvent. We must stop passing the buck to future generations because someday the bill will come due. Let's get this under control before the dollar is worth nothing and we become the United States of China.

Unemployment

Right now the current "official" unemployment rate is 8.5% which is the worst since 1983. This in and of itself is really bad news. However, that number only figures those who are out of work and looking for a job. The number of those who are underemployed is also rising. Underemployed are those people working part time hours who want to be working full time. In this rough economy we also have many people who are out of work but have given up looking for a job. If you add these two groups to the totals you have 15.6% of the US population that wants better employment. It's going to be tough for our economy to recover with that many people struggling to make ends meet.

In my last post I mentioned that as consumer confidence rises, spending increases which will boost our economy. This can only happen if people actually have the money to spend. If 3 out of every 20 people are struggling with under or unemployment it will be tough to get any stimulus in the economy. I believe that if we see much economic growth this year it will be government manufactured through all the "stimulus" packages that we'll be paying for for generations....more on that later.

Off to a good start.

There was actually some good news that came out today. Consumer confidence rose slightly in March. This is a very important factor for our current economic conditions because much of the driving force of this recession is the actions of consumers that are being driven by fear. Once people start having more confidence in the economy, both in present conditions and in their expectations for the future, their spending will increase and economic conditions will improve as more money works its way into the market.

(You can click on the image to see a readable version of the graph)

We're not talking about a huge increase, but at this point any positive news is welcome.