The invisible recovery is all around us if you would only close your eyes, and trust your instincts. Contrary to the implosion of many state budgets, the Federal government amazingly seems to have an unlimited amount of money for select causes. For example, Wall Street seems to get every single penny it desires without much question from both parties in Washington. Sure, we’ll have politicians on both sides of the aisle argue their case and fight for the common good while they get their pockets lined by Goldman Sachs, the insurance companies, or the real estate industry. When it comes to real reform the status quo is still here even after the near implosion of the markets. The U.S. Treasury and Federal Reserve are showing us that when push comes to shove, they are servants of the banking elite and protecting the financial health of American people is simply a secondary consideration.

If this is the start of the recovery it sure seems funny. A federal judicial panel has given California 45 days to clean up its inmate overcrowding problem. Of course, this might take two years to implement if things go through but apparently this is how the recovery will look like in the state. Another wonderful story showing us the new economics of the recession, banks are set to collect some $38 billion in overdraft revenues. Good times. Once again, people struggling to buy food with their WaMu Chase debit card need to be careful since they may be slapped with an additional fee. Apparently peak overdraft fees are a leading indicator of an economic recovery. Another fascinating story we keep hearing about is the greatness of a jobless recovery. Too bad that earnings are off from depressed levels a year ago and people forget that losing a big fixed expense like say, an employee, will actually help your bottom line in the short-term. These are three of the stories we are going to talk about in today’s article.

40,000 Inmates or 40,000 New Potential Home Buyers?

As we all know, California is in a dismal state of affairs. In this year alone the state has had to balance some $60 billion in budget deficits including our latest battle with the $26 billion monster. The disturbing thing is much of these cuts are going to be felt at a deeper level in the months to come as the cuts are enacted. We will see this in less state spending but also with thousands being furloughed, you can expect people to be cutting back on purchasing goods and services. The federal judicial panel is looking at the troubling state of the California prison system. In California we have 155,000 inmates with 12,000 being housed in out-of-state institutions. The 33 prisons in the state system were designed to hold 85,000 inmates but like our housing bubble, we like to overdo things a bit.

“(WSJ) California Attorney General Jerry Brown has said he plans to appeal to the U.S. Supreme Court. The order comes just two weeks after Gov. Arnold Schwarzenegger signed a budget deal that includes a $1.2 billion cut to the state prison system.

It is unclear how officials will execute the court’s decision. The California Department of Corrections and Rehabilitation said it is working on proposals to reduce the prison population, but those plans need to be approved by the legislature. If the state doesn’t comply with the order, it could be held in contempt and fined.”

The state has two years to do this but given potential litigation, who knows if this will happen. Yet the fact of the matter is cuts are being made and these are the implications:

Clearly this was unsupportable given the California budget situation. Let us assume these inmates are released in the next year. What work will they find? Ironically, this would only add to the high 11.6% unemployment rate that the state currently faces. Aspiring positive realtors will probably tell us that we will have 40,000 more potential homebuyers. Maybe if we still had the subprime infrastructure in place they would qualify for $500,000 for a Real Home of Genius of their choice. Apparently this is the sign of economic recovery here.

Over Draft This!

Banks now have to resort to higher and higher overdraft fees to find additional revenues. It isn’t enough that their crony capitalist system is rolling out trillions in rescue funds; they now have to squeeze their much poorer client base with the Vise-Grip of money sucking vampires. You might search in the seams of your couch for additional change but the bank is going to find additional methods to screw you each and every way without even thanking you for the generous life saving bailout. Most of the headlines on Monday read:

“Americans pay $38 billion in overdraft fees a year.”

Which is stunning in itself. But when you run the numbers, it becomes downright shameful

“(The Atlantic) There are 300 million Americans, and, the FT reports, 130 million checking accounts. $38 billion divided into 130 checking accounts puts the average yearly overdraft total at $300 dollars, which is the equivalent of 9 overdraft charges from large banks like Bank of America. How many Americans really overdraft 9 distinct times a year? Moebs Services discovers, however, that one bad day for a consumer can mean gangbusters for the banks:

At BofA, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realise they have a negative balance and continue spending, they could incur that fee as many as 10 times in a single day, for a total of $350.”

Many of you have experienced this once in your lifetime. You decide to put the $10 sushi roll on your debit card and get reamed for $35 because you used the wrong card. Most of us would suspect that this only happens once or twice in our lives. But to account for $38 billion in fees? Why not deny the transaction? Clearly there is a systemic problem here. I once had this occur and had to go through a long wait to talk with a bank representative to simply block any charges beyond the zero point. The bank rep kept insisting the “just in case scenario” but given my love of paying the $35 fee, decided to simply block this by opting out. Charging this kind of penalty is like having a loan shark pounding your knees for not coming up with the additional points. So when you hear about those wonderful bank profits, just think of all those overdraft fees that are part of the new economic recovery.

No Jobs = 50 Percent Stock Market Rally

During the housing bubble one comment made me realize, “this is going to end badly in an epic way.” A homebuyer who happened to buy one year before the peak had his home “appreciate” by $50,000 in one year. What I thought was a joke was a serious contemplation on his behalf. He uttered, “with my home going up $50,000 per year, who needs to work anymore?” Indeed, in this recovery work seems to be optional like clothing at a nude beach.

If you haven’t noticed, we didn’t exactly add any jobs last month. The only significant improvement as you may have heard is that “things are getting less bad.” This is like getting kicked in the shins instead of the stomach. As the chart above highlights, job losses are still occurring. But a few things occurred last month that made the numbers appear better:

(a) Big government hiring – a jump in auto activity with the wonderfully named cash for clunkers helped spur back some growth but also, the increased hiring for the 2010 Census helped. Now you tell me, how many times are we going to do that 2010 Census?

(b) Minimum wage – the increase in the minimum wage pushed up the overall hourly wage rate. So those using this as a key point fail to miss a one-time gain.

(c) Seasonal adjustments – We are still adding jobs through the BLS Birth/Death model which has to do with new business growth. Now when you think of invisible recovery, this is your mascot.

And another key point is we have now lost nearly a decade of job growth. Even though we only had 247,000 jobs lost last month, we have now lost 6,664,000 non-farm jobs since the recession started in December of 2007:

In 2000: 131,785,000 (non-farm employed)

In 2009: 131,488,000 (non-farm employed)

Welcome to the new recovery. This kind of information is sufficient to cause a 50 percent stock market rally from the March lows. Even though most institutions are way off in earnings from 2008, they have revised their earnings to beat the street. Now you show me an analysis of what industry is going to create some 7 million jobs and then I might consider the recovery legit. Until then, let the invisible good times roll.

Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.