According to figures released Friday by the U.S. Department of Labor, the American economy hemorrhaged another 345,000 jobs in May. Ordinarily, that would be regarded as a catastrophic figure, but it is far below the more than 650,000 jobs lost per month for the previous four months in a row, and it was significantly less than anticipated.
However, U.S. unemployment levels have now reached 9.4 percent -- their highest level since 1983, and the rate is expected to rise well above the psychological benchmark of 10 percent.
The U.S. economy has now lost 5.7 million jobs since December 2007. Political spinmeisters can argue all they want, but that is a depression, not a recession, by any honest description, and while it started under Republican President George W. Bush, so far it has only become vastly worse under his successor, Democratic President Barack Obama. This has been a bipartisan catastrophe for the American people and their economy.
The bankruptcy of General Motors might drive job losses significantly higher again over the summer. Some 21,000 of the remaining 54,000 jobs at GM are expected to go as part of the post-bankruptcy restructuring plan that the U.S. government is imposing on the once mighty automaker. And at least half of GM's dealerships will close, too. These developments are bound to have a negative multiplier effect on demand for goods and services in the afflicted areas.
The new figures came out after another "Hundred Days" anniversary for Obama and his administration. This week marked 100 days since the signing of the American Recovery and Reinvestment Act of 2009, the $787 billion measure meant to jolt the U.S. economy out of its downturn. The Obama administration all week has been sending officials around the country to show how Recovery Act funds are being implemented. Friday alone saw groundbreaking ceremonies for a road project in Wisconsin and an explanation in Boston of how the Recovery Act is being used to get doctors to underserved areas. But all that money so far hasn't begun to reverse the tidal wave of job losses across the United States.
Between the $787 billion stimulus package and a record $3.5 trillion budget deficit, Obama and his administration are pumping so much liquidity and demand into the U.S. economy that, according to the mainstream economic consensus, some kind of revival has to come. But so far, instead, the great flood tide of job losses is continuing, and business confidence has flat-lined.
As we have noted often in these columns, the two quickest, most successful and long-lasting recoveries from economic depression or severe recession in U.S. history followed very different principles. They were the almost totally neglected recovery under President Warren Harding and his Treasury Secretary Andrew Mellon in 1921, and the Ronald Reagan-Paul Volcker economic recovery of 1982 that broke the back of more than 15 years of serious inflation and reversed the worst economic downturn since before World War II.
In both cases, creating a secure climate for both domestic and international investment while maintaining the value of the dollar and the creditworthiness of the U.S. government proved crucial. Integral to this was also the willingness shown by Reagan and Fed Chairman Volcker to let U.S. interest rates soar sky high if necessary in the short term to retain fiscal credibility and stability.
If Obama's strategy works, the U.S. economy may finally bottom out and then begin a long and slow recovery over the next 18 months. But even if that happens, there are many crises that could derail the scenario.
A war with Iran could send oil prices even higher than their $147-a-barrel peak in the summer of 2008. If the Chinese and Japanese state banks lose confidence in Obama and Treasury Secretary Timothy Geithner's programs to maintain the value of the dollar and the creditworthiness of the U.S. government, the result could be a horrendous hyperinflation unlike anything ever experienced in 210 years of U.S. history.
Obama will need to navigate a long, careful route through the storms of economic turmoil to avoid foundering on these rocks.