Stephen Foley: Jobs woe that shines a light on lack of relief

US Outlook No relief for the sluggish US economy this week, not from the Obama administration, not from Congress, not from the Federal Reserve.

The jobs numbers for July were better than expected, but the fact that the economy created 163,000 posts last month instead of the forecast 100,000 is a pretty small fillip in the context of 12.8 million unemployed. The unemployment rate, admittedly based on an imprecise survey of households, even ticked up from 8.2 per cent in June to 8.3 per cent.

The biggest disappointment of the past few days has been that the administration has failed to persuade the regulator of Fannie Mae and Freddie Mac, the taxpayer-owned mortgage giants, to bring relief to millions of Americans struggling with negative equity in their homes. This has emerged as a major problem. People whose homes are worth less than they owe cannot refinance to take advantage of record-low mortgage rates, and they can't sell up. That means Federal Reserve monetary policy is much less effective than in normal times, and reduces the flexibility of the labour market, entrenching unemployment.

The Federal Housing Finance Agency, which controls what Fannie and Freddie can do, has long opposed debt forgiveness for underwater borrowers on the grounds of moral hazard. It ignored the administration's entreaties, even after finding the plan might save taxpayers money by cutting defaults. And it did not even consider the wider economic benefits.

Meanwhile, Congress punted on a budget deal that might have given businesses some clarity on tax rates and government spending levels beyond the end of the year, instead choosing a politically expedient six-month fudget. And the Federal Reserve chose to keep its powder dry on new monetary stimulus in case of a deeper crisis later in the year.

Instead of providing comfort that they were not worse, these new jobs numbers ought to be a stark reminder to the do-nothings on all branches of government here: unemployment is unconscionably high in the world's largest economy.

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