Barack’s Bailout Bonds
A really, really grim prediction from Louis Woodhill, a member of the Club for Growth’s Leadership Council (and a fellow engineer): Get ready for 14% unemployment. (Please stop reading if you are depressed. Seriously.)
The BEA numbers (which were revised slightly on June 25) show an accelerating decline in “real nonresidential fixed investment”. This measure decreased 37.3 percent in the first quarter of 2009, compared with a fall of 21.7 percent in the fourth quarter of 2008. Given that employment is a direct, linear function of private business investment (PBI), unemployment can be expected to rise much farther in the months ahead.
Here’s why. Because a lot of PBI goes toward offsetting depreciation and increasing productivity, it takes a 5% year-over-year increase in PBI to produce a 1% increase in the number of jobs. Correspondingly, a 5% decrease in PBI will yield a 1% reduction in total employment.
The unemployment rate a year ago was 5.5%. Because the potential labor force is growing, we need employment to increase by 1% annually to keep the unemployment rate from going up. The 37.9% investment decline reported by the BEA can be expected to eventually produce a reduction in total employment of about 8.5%. Accordingly, we can expect unemployment to rise to about 14% within a year unless the downward slide of PBI is reversed.
The current 9.5% unemployment rate is causing great economic pain, and life with a 14% jobless rate would be much, much worse. Unfortunately, almost everything that the government has done or is proposing to do to right the economy is actually counterproductive.
If the underemployed and the discouraged who have given up looking for work in Obama’s utopia are counted, we are already at 16.5%. Add another 4.5% to the “official” numbers and we are going to be facing 21% real unemployment – depression level unemployment.
And this is not an inherited problem - this is a direct result of the policies of the Obama administration. Investors are trying to buy whatever security they can for their money by buying Barack’s Bailout Bonds – and as a result, there is no money for creating jobs.
Government does not create jobs or wealth. It leeches off productive people and institutions. At the moment, the leeches are sucking the host dry and rapidly killing prosperity and wealth in this country. And dooming us to a much, much worse economy in the very near future.
Other Links to this Post
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The Strata-Sphere » I’m With Kristol On Palin - Kinda Of — July 7, 2009 @ 7:46 am
By crosspatch, July 7, 2009 @ 1:03 am
From the linked article “The money to buy these bonds will have to come from somewhere, and much of it will come from people who would otherwise invest in starting or expanding businesses. ”
That is true but the money comes from whoever we run a trade deficit with. If we start running a trade surplus, we are in deep doo doo. I know that sounds counter-intuitive but that is pretty much how it works. If you run a trade deficit, the money comes back in the form of investment in your debt. If you run a surplus, the money must come from domestic sources which clobbers your production. Deficit spending combined with a trade surplus is the recipe for certain disaster. This is old but it describes it better than I can:
http://www.freetrade.org/node/61