Credibility, Jobs, and Bernanke

The Dayton Region was told to brace for a tidal wave of layoffs.

A tidal wave of layoffs is building in Montgomery County that will wash across the entire region, causing as many as 9,000 lost jobs, say officials at the county Job Center.

Seven plant closings and shift eliminations will end more than 2,600 jobs by the end of the month alone, said Lucius Plant, workforce development coordinator for the Job Center.

Another 500 layoffs will begin in August with the closing of Mead Westvaco offices in Dayton and Miami Twp. and 425 will occur by the end of the year with the closing of the Defense Financial and Accounting System in Kettering.

Plant estimates the region will see 3,616 layoffs from nine companies by the end of the year. But those closings will also likely cause layoffs among suppliers, he said.

Plant's figures do not include possible closings and layoffs at the five Delphi plants in the region, Plant told a group of 16 employment officials from 10 counties at a Wednesday meeting at the Job Center on Edwin C. Moses Boulevard.

"We think close to 9,000 people could be at risk if these things play out," Plant told the group. "These are folks who are going to end up coming to your doorsteps, your organizations, looking for services. We need to start thinking about this on a regional basis, not just as Montgomery County."

Plant urged officials to prepare for a surge in unemployed people looking for help and asked that the counties work together to share information.

"We're before the storm," he said, "but we're not a lot before it."

A major challenge the region faces, he said, is an older work force that may have a strong work history, but will face a job market very different from when they last sought a job.

Phil Masten, director of Greene County's Department of Job and Family Services, said he is worried about the timing of the layoffs.

"A lot of workers don't have time to figure these things out," Masten said.

Workers have no time to figure things out. No kidding. They were all told things were "rosy". Those workers are now going to face foreclosure and bankruptcy. This post sounds like it is about Dayton but it is not. Nor is it about autos or even manufacturing in general. This story will be replayed in every region strongly dependent on housing for jobs. The ripple effect will spill over into mortgage lending, title insurance, trucking of materials, and a dozen other related areas.

Credibility

Credibility (or the lack thereof) is the message behind Bush's job approval ratings. It is also the reason everyone is all of a sudden concerned about immigrants to the point of considering a wall along the Mexican border. The public can be lied to only so long as it is at least somewhat reasonable. The plain fact of the matter is government lies about inflation, jobs, the war in Iraq, Medicaid, and a host of other things is so far from believable that all credibility has been lost. Once credibility is lost it is hard to restore.

The same goes for Bernanke. Right now he seems to be playing "Macho Ben". When the market forces him to reverse course (and I believe it will sooner rather than later) what credibility he had will have been wasted.

Please consider Bernanke's October 8 2004 Speech What Have We Learned Since October 1979?

The question asked of this panel is, "What have we learned since October 1979?" The evidence suggests that we have learned quite a bit. Most notably, monetary policy-makers, political leaders, and the public have been persuaded by two decades of experience that low and stable inflation has very substantial economic benefits.

Central bankers have long recognized at some level that the credibility of their pronouncements matters.

The benefit of appointing a hawkish central banker is the increased inflation-fighting credibility that such an appointment brings. The public is certainly more likely to believe an inflation hawk when he promises to contain inflation because they understand that, as someone who is intrinsically averse to inflation, he is unlikely to renege on his commitment. As increased credibility allows the central bank to achieve low inflation at a smaller cost than a non-credible central bank can, the president may well find, somewhat paradoxically, that he prefers the economic outcomes achieved under the hawkish central banker to those that could have been obtained under a central banker with views closer to his own and those of the public.

Appointing an inflation hawk to head the central bank may not be enough to ensure credibility for monetary policy, however. As Rogoff noted in his article, for this strategy to confer significant credibility benefits, the central bank must be perceived by the public as being sufficiently independent from the rest of the government to be immune to short-term political pressures.

Personally I think it is perfectly clear the Fed has learned nothing since 1979. Perhaps a better way of putting it is whatever they learned has long been forgotten or abandoned. Proof of that statement is easy enough. All one has to do is look at the serial bubble blowing of the Greenspan Fed to see what a lie this all is. Greenspan (with no dissents from Bernanke) simply threw money at every problem they encountered. It became the very essence of the "Greenspan Put".

By fighting to restore his reputation in the wake of a disastrous speech about the "helicopter drop" theory of fighting deflation, Bernanke is now overdoing it. The long bond and a yield curve that once again has inverted says that Bernanke is wrong. The time for tough talk (and action) on inflation was three years ago. Three years too late Bernanke wants to restore the Feds's credibility.

"Bernanke the Hawk" is the image he wants to portray. Let's see what happens to his credibility when the market forces him to reverse course. The more he fights that reversal the bigger the deflationary problem he will face. This could get real interesting.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/