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Let's skip biography and get to economy

No wonder both presidential candidates are promising change. Even the stupid don't need to be reminded that, yet again, it really is the economy that will dominate voters' concerns.

Especially the last couple of days. After a fortnight of diverting political froth in Denver and St. Paul, the economy has yanked our attention back to the world as it is.

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There are bright spots, and I'll get to those below. But many (including Wall Street economists, who are unlikely to be Democratic shills seeking regime change) believe the U.S. financial system faces its gravest challenge since the 1970s or maybe even the 1930s.

Doesn't that deserve our attention more than John McCain's military service or Barack Obama's community organizing?

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Yesterday's August employment news brings 2008's unblemished string of monthly job losses to a total of 605,000. The last time unemployment was as high as August's 6.1 percent was almost five years ago.

By historical standards, those figures aren't especially scary. The nation lost four times as many jobs, as a percentage of the economy, in the slump that began in 2001. At this point in the 1992 election timetable, when the economy was topic No. 1 and there wasn't a No. 2, unemployment was 7.6 percent.

Given that the Dow Jones stock average has fallen by a fifth since October and Wall Street has lost half a trillion dollars on defaulted mortgages, the job situation could be worse.

The worry is that it soon will be.

On Thursday, Bill Gross, the respected PIMCO bond manager, helped send the Dow down 345 points by warning of "a financial tsunami" if Washington doesn't step in soon with a huge mortgage bailout.

Evidence to back him up arrived as soon as yesterday morning, when the Mortgage Bankers Association reported miserable foreclosure results for the three months ending in June.

Levels of late mortgage payments, homes entering foreclosure and homes in foreclosure all set records. Nearly one in 10 Americans with a mortgage was either behind or in foreclosure at the end of June. Don't forget: This doesn't count people who have already lost their houses.

Gross thinks we're only halfway through the pain. He predicted a trillion dollars in total mortgage losses before the guys with the green eyeshades and the red Sharpie pens finish their work.

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That'll cause a further cascade of stock, bond and home sales that will amplify defaults and bankruptcies all across the economy, he said.

And that, of course would not improve the job situation.

Financial companies have already shed jobs in buckets. Led by carmakers, manufacturers trimmed 61,000 positions in August alone - enough jobs to staff a dozen big assembly plants.

Temp companies such as Manpower, which often are the first to feel economic changes, are shrinking. The number of people taking multiple jobs is rising.

And this won't help banking and finance. It's hard to make your mortgage when you don't have a job.

Every slump hits bottom. This one will, too. Watch and hope for a shrinkage in the inventory of homes on the market. A decline from the current 11 months' worth of supply, at prevailing sale rates, will be both a tonic and a symptom of improvement.

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Other medicine is already at work.

Energy prices have plunged since their peak in early July. Oil fell to close to $105 a barrel at one point yesterday. That'll help the whole economy but especially car companies and airlines and hotels.

The weak dollar (a result of the mortgage meltdown) has given U.S. exports their healthiest growth in years, although it doesn't seem to be helping factories as much as people hoped. (Much of the gain has come in grains and other agriculture.)

This week's productivity report might have been the best economic news all year.

The United States pumped out more haircuts, banking transactions, trucks and other products per worker last spring than at any time in history, the government said. The productivity increase hit its third-highest quarterly rate in five years.

Rising productivity fuels corporate profits and - in theory, anyway - provides leeway for companies to give workers raises. It releases inflation pressure and gives the Federal Reserve room to cut short-term interest rates - the most potent form of economic CPR.

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But even rock-bottom rates won't matter if nobody wants to lend and nobody wants to borrow.

Barack Obama and John McCain both have mortgage rescue plans. Obama's is larger, but even it won't be big enough if what PIMCO's Gross is warning about comes true.

Obama would let the Federal Housing Administration insure refinanced loans for troubled homeowners and appropriate $10 billion to bail out people with mortgage troubles. McCain talks about "government assistance to the banking system" and would allow subprime mortgage holders to modify their loan terms.

Now if everybody could start talking about this instead of candidate "biographies," we'd be closer to solving the problem.


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