Janaury, 2014 Economic Crisis Update, Part 1: The Dwindling Working Class, The Growing Washington Economic Ineptness

We will move beyond the past week or so of depressing news about political class insanity, idiocy, and wasteful spending and move onto depressing news about the economy. As a quick recap, consider the general economic and employment trends we have had to endure over the past five years or so:

• There are a record number of Americans, over 20 million, that are either unemployed or under employed.
• There are a record number of Americans that are receiving food assistance from the Federal government, almost 50% more than when Obama took office.
• Over half of the recent college graduating classes could either not find a job or could not find a job in their area of interest.
• A very high percentage of jobs created over the past few years have been only part time or temporary jobs.
• Household income has dropped steadily over the past five years despite the fact that the recession ended well over three years ago.
• Until recently, official national unemployment levels (U3) had been at record highs for record lengths of time.
• Increased costs of health insurance as a result of Obama Care will likely result in less disposable household income available in the coming years to expand the economy.
• The national debt has jumped to about $17 TRILLION, up over six TRILLION dollars since Obama took office in 2009.
• Monthly trade balance deficits with other countries continue at very high rates.

Not a pretty picture. These dismal economic realities occurred even though:

• The Obama administration spent over $800 billion on an economic stimulus program.
• The Federal Reserve has kept interest rates at record low levels for a record length of time.
• The Federal Reserve flooded the market with over three TRILLION dollars worth of printing press money via its Quantitative Easing Programs. 
• The country is in the midst of an energy revolution, generating record amounts of lower cost domestic energy.

Despite these four incredible economic drivers and positive circumstances, the ineptness of the Washington political class when comes to economic policy, strategy, and planning is incredible, given the poor economic results listed above. Never have so many in political office done so little with so much going for it.

And last week’s economic results from the Federal government are not much better:

• Only 74,000 jobs were created last month despite it being the busiest retail shopping month of the year. 
• This is the smallest monthly increase in jobs since the beginning of 2011.
• Almost three times as many jobs were expected according to most economic forecasts.
• While the unemployment rate dropped to 6.7%, the lowest level it has been in years, the drop was due almost solely to the fact that many more people stopped looking for a job vs. those Americans who actually landed a job, distorting the true economic picture of the country.
• This is because the labor participation rate dropped one fifth of a percentage point to its lowest level since 1978.

Unbelievable. Massive Federal Reserve stimulus, massive Federal government spending stimulation, and massive energy industry expansion and all this administration and Congress can accomplish with those tools is a measly growth of 74,000 jobs in a country of well over 300 million people. Pathetic.

Let’s look into some of the details of this economic malady. First, is the unemployment rate really down to 6.7%? If so, that would be great news since at one point in the past few years it was up around 10%.

Well, the official unemployment rate, the U3 unemployment rate, is really down to 6.7%. But that is only because some Americans have become so frustrated in their job search that they have stopped looking for a job, not becuase we have a robust economy generating oodles of jobs. Consider a simple hypothetical example of how the math works for the U3 unemployment calculation:

1. Assume you live in a nation with 100 working age adults.
2. Assume that 90 of the 100 adults have a job, 10 are actively looking for a job, and none have become frustrated in their search for a job and have stopped looking.
3. In this scenario, the unemployment rate is 10% = (the number of people looking for a job)/(the total number of people looking for a job and those that have a job) =10/100 = 10%.
4. But assume that five of those unemployed people stop looking for a job out of frustration that they were unable to find a position. This reduces the number of people actively looking for a job to five.
5. The recalculated unemployment rate is no longer 10% but 7.69% = (the number of people looking for a job)/(the total number of people looking for a job and those that have a job) = 5/95 = 7.69%.
6. Thus, in the U3 calculation, even though in both scenarios the number of people working and the number of people not working remain the same, the unemployment rate is actually lower.

In this hypothetical example, nothing has changed as far as an improvement in the economy via this measure of unemployment: ten people still do not have a job and ninety do, and the same thing is going on in the real economy. With only 74,000 hobs created last month but hundreds of thousands of Americans dropping out of the workforce from frustration of their job seeking, the U3 unemployment rate did drop to 6.7%. not because of economic improvement but strictly because of the math technique employed.

Want a truer picture of how badly managed the political class has managed the economy? Consider a recent analysis that appeared in The Federalist. In that example, they kept the labor participation rate where it was at the end of the recession in June, 2009 and then recalculated the U3 unemployment rate with a constant labor participation rate. They explained their methodology and logic as follows:

• In June of 2009, the labor force participation rate was 65.7 percent (by way of comparison, the average over the last decade is 65.1 percent, while the peak was 66.5 percent in June of 2003). Since the end of the recession, that number has nose-dived. At the end of last month, it hit 62.8 percent — on par with what the U.S. experienced in the late 1970′s (although at the time, the number was on the upswing).
• What does this all mean? Rather than being the sign of a vibrant economy, the falling unemployment rate is actually an arithmetic artifact of the BLS head-counting process. If the labor force participation rate had held steady since 2009, the number of people in the labor force today would total nearly 162 million people. Instead, the Federal Bureau of Labor Statistics reports the official number to be just shy of 155 million.
• And thanks to how BLS calculates and reports the official unemployment rate, those 7 million people are not included among the ranks of the unemployed. Add them back in and you have an unemployment rate that averages a very high 10.8 percent since the end of the recession.
• Pictorially, their depressing but more realistic analysis looks like the following:



Thus, our economy is performing so poorly under poor management from Washington that our true unemployment rate is probably 50% than the unemployment rate Obama and the Federal government is publishing, 10.8% vs. 6.7%.

[Note: I will make one concession. While I also believe that the 10.8% is much closer to reality, it might be a little high. Since a lot of baby boomer adults are retiring every day, it might be a little unfair to hold to the same labor force participation rate that was in place in June of 2009. That rate might have deteriorated a little due to baby boomer retirements. However, the analysis is sound and I doubt that the results would have been significantly below 10.8% if baby boomer retirements had been considered, certainly nowhere close to 6.7%].

Consider another view, another analysis but basically the same results. The following graph contains the official government U6 unemployment rates over the past years. The U6 government unemployment rate calculation tries to take into account those Americans that have dropped out of the actively searching for a job mode because of frustration:






A few observations:

• The U6 shows a much higher more realistic view of unemployment than the official U3 rate.
• Even during the recession after the 9-11 attacks early in the Bush Presidency, the U6 rate never stayed above 10% vs. the U6 during the Obama administration that has always been above 12%. And Bush did not have an $800 billion stimulus program, record low interest rats, record Fed paper money, or an energy revolution to help him control unemployment.
• The Clinton demonstration also was able to keep the U6 unemployment rate at a much more reasonable level without all of the stimulus that Obama has had.

The bottom line is that this administration and recent sessions of Congress, along with those sitting in both institutions, have done a pathetic job in creating economic hope and opportunities for Americans. Given the current rhetoric and cluelessness from Washington, it is also unlikely to change anytime soon.

Einstein once said: “The definition of insanity is doing the same thing over and over again and expecting different results.” The current American political class is doing just that: the same tired, ineffective economy policies and tactics that have failed every time. That is why we still have a true picture of unemployment that is well north of 10%, why we still have over 20 million Americans unemployed or under employed, and why we have nothing to show for a national debt of $17 TRILLION. Insanity.

If you are as frustrated by the economic ignorance of Washington as many other Americans are, please consider joining our drive for term limits at:

www.howmuchworsecoulditget.com

Because really, from an economic perspective, how much worse could it get if we replaced every member of Congress with new folks who might at least have a chance at understanding economics?

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

Term Limits Now: http://www.howmuchworsecoulditget.com
http://www.reason.com
http://www.cato.org
http://www.robertringer.com/
http://www.youtube.com/watch?v=08j0sYUOb5w

Latest Economic, Trends, Opinions, And Statistics, October, 2012 - Part 2: Too Much Uncertainty, Too Many Regulations and Taxes, Too Little Leadership

Yesterday we reviewed the latest economic and financial trends using Associated Press reports and Bankrupting America’s website, focusing on the latest unemployment numbers. While the typical, limited measure of unemployment surprisingly decreased by .3%, there were many other reasons for concern.

For instance, this measure of unemployment does not account for those Americans that have become so discouraged from their job hunting that they dropped out of the workforce or take into account Americans that are underemployed relative to what they want to do. That measure is almost 15% and is higher now than when Obama took office and since the recession ended.

There were other stats and trends we covered yesterday from these two sources that were also trending down or poorly. Today, we will focus on the opinions and views of those in the economic and financial industries to see what they are forecasting and touch on some other sources of economic dodata:

- Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland confirmed some of our discussion points we made yesterday regarding the latest unemployment results. While the economy added a net 114,000 jobs in September and the Bureau of Labor Statistics reported that total employment rose by 873,000 in September, much of that increase was because 582,000 Americans took part-time positions because of slack business conditions or those jobs were the only work they could find.

He also reported that if the same number of Americans were still in the job market today vs. January, 2009 rather than having dropped out of the job market because of discouraging job hunt results, we would be at 9.7-9.8% unemployment, not 7.8%. 

- According to a Moneynews October 5, 2012 article, BlackRock CEO Larry Fink does not expect a full blown real estate housing recovery until later in 2013 despite the latest small, but encouraging signs in the industry. However, the fast approaching fiscal cliff and other economic maladies could delay the recovery even more.

- An October 3, 2012 Bloomberg news article quoted Nobel laureate Paul Krugman’s assessment “the United States and the European Union are “nowhere close to ending” the financial crisis and German-led austerity efforts may lead to a 1930s-style economic depression.”

- In an October 3, 2012 Moneynews article, John Berlau a senior fellow for finance and access to capital at the Competitive Enterprises Group, asserted his opinion that the third round of the Fed’s quantitative easing effort is very dangerous and could lead to higher unemployment and soaring inflation. As you may know, the first two rounds of quantitative easing, the equivalent of printing money out of thin air, injected $2.3 TRILLION into the economy without making much of a dent in unemployment or economic conditions.

The Fed is now pumping upwards of $40 billion a month into the economy with its latest easing program. Berlau believes that even if money is available to lend by the banks as a result of the easing efforts, it will not find a home since there is not $40 billion worth of loans and mortgages to be found each month. As a result, the money stays in the banks’ reserves.

He attributes a lot of this lack of demand to the fact that legislation like Dodd-Frank, Sarbannes-Oxley, and Obama Care have injected so much uncertainty and over regulation into the market that people are not sure what the future holds and are holding back from spending, investing, opening new businesses, etc.

He worries that these TRILLIONS of dollars could spike inflation and weaken the dollar so much that investment and economic growth, and the related employment picture could all hit us at the same time, resulting in the stagflation scenario of the Carter era: high inflation AND high unemployment. His remedy: delay or repeal Obama Care, Dodd-Frank, and other regulations to allow the economy to have some certainty and some freedom to grow on its own.

- In a Bloomberg news article from October 3, 2012, also related to the Fed’s quantitative easy, Lawrence Goodman, president of the center for Financial Stability, stated that “the Federal Reserve’s promise to hold borrowing costs at record lows into 2015 risks a loss of its credibility and a downward spiral in financial markets.”

He went on to say: "If rates edge higher due to factors such as inflation or credit issues, then the Fed will suffer a loss of its reputational state and that could have complications all across the yield curve. That can happen quickly and can unleash a forceful slide in the market and could thrust the economy back into recession.”

Seems there is a whole lot of downside to this third round of quantitative easing with little or no long term upside being espoused by anyone. It comes off as a desperation move by the Fed in the absence of the political class doing their job of managing our economic policies and affairs.

- In an October 3, 2012 article from Reuters, the world economy will take at least 10 years to emerge from the financial crisis that began in 2008, according to an International Monetary Fund Chief Economist Olivier Blanchard interview. He probably correctly pointed out that Japan’s economy will need decades to heal, the United States has serious fiscal problems, the Chinese economy is slowing, and in order for Europe to get out of its economic funk, Germany and its citizens will have to make some serious sacrifices on inflation and bailouts, not necessarily a guaranteed outcome.

- In an October 2, 2012 Moneynews interview, real estate billionaire Sam Zell asserted that the stock market, as measured by the Dow, should really be at the 9,000 level, not the current 13,000+ level because of the following negative factors:

• The Fed’s quantitative easing is giving stocks a temporary boost, as expected, but that effect will wear off shortly.
• The Fed’s printing of money is stoking inflation fears, causing potential home owners purchases and business expansion efforts to be delayed.
• The uncertainty about future tax levels and the so-called fiscal cliff are giving consumers and business no confidence in the future, restricting spending and investment.
• Investors are chasing a small number of stocks, e.g. Apple, which is driving up the overall stock market indices, but that limited range of stock options is also risky and could result in a significant drop if and when enthusiasm for those stocks wavers.
• Too many regulations, both now, and planned by the Obama administration if it stays in place, are also stifling business and economic growth.

Are we starting to see a pattern here? Too many taxes. Too much uncertainty. Too many regulations. Too little confidence in what the political class and the Fed are doing?

- In an October 2, 2012 Reuters article, Bill Gross, founder and co-chief investment officer of bond giant Pimco, stated that he believes that the United States could soon look like Greece in a few years if it does not get its fiscal house in order.

By his estimation, the U.S. must cut spending or raise taxes by 11 percent of gross domestic product over the next five to 10 years in order to preserve its role as financial safe haven or suffer some dire financial pains and anguish: "If we continue to close our eyes to existing 8 percent of GDP deficits, which, when including Social Security, Medicaid and Medicare liabilities, compose an average estimated 11 percent annual 'fiscal gap,' then we will begin to resemble Greece before the turn of the next decade.

While he feels that the U.S. is the best of the bad investment options in the world today, he did have two good visuals to represent where we are today and where we might be going from an economic perspective. Regarding today’s investment environment, the U.S. is the “cleanest dirtiest” shirt on the investment rack. We may not be good, but we are at least temporarily the best.

However, is we continue with our “crystal meth-like” addiction to out of control spending, someone, somewhere is eventually going to clean their shirts and leave the U.S. for better investment opportunities elsewhere in the world.

- In a September 28, 2012 Reuters article, Dallas Fed President Richard Fisher stated: "We've had a recovery that is quite disappointing.” The man is good at stating the obvious but went on to say why the recovery from the recession has been so bad. He attributed the bad economic news and recovery to the uncertainty on tax policy and regulation, "All the monetary accommodation in the world" will not get businesses hiring again.

Are we really starting to see a trend here among the experts? Too much uncertainty. Too little confidence in our economic, financial, and political leadership. Too many taxes. Too little clarity on taxes. Too many regulations. Is it any surprise that most of our economic performance, outlook, and confidence is so sour?

- The website, Bankrupting America, correctly reported on October 2, 2012, that the Federal government should have passed the standard, annual twelve appropriations bills that are needed to fund the Federal government by October 1. October 1 is important because that begins the government’s fiscal year.

Unfortunately, Congress fell a little short of that mandated goal of twelve, having passed exactly none. The House of Representatives, under Republican control, managed to pass six of the twelve. The Senate, under Democratic control, managed to pass none. Thus, the government will continue to limp along with a “continuing spending resolution” but without a budget for the next six months.

Is it any wonder that American citizens and American businesses have so little confidence in our political leadership of today, a group of people that cannot even pass a budget? And with little confidence comes little spending and investment and less economic growth.

Pathetic bunch of so-called leaders. No wonder we have a national debt of over $16 TRILLION, the politicians in Washington cannot even agree on a budget, never mind living within one.

That’s enough bad news for now. Despicably bad economic behavior and performance from everyone in Washington. Three steps from “Love My Country, Loathe My Government are needed to get this fiscal house in order:

Step 1


We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of our times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedomfor both yourselves and others everyday.

Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment

More Economic Amateur Hour Antics In Washington: Never Retiring, Unrelenting Unemployment Benefits Applications, Our Kids' Dismal Future and More

Late last month, we analytically showed how well President Harry Truman successfully handled the economic transition from a war time economy to a peace time economy after World War II. He understood that minimal government intervention in the free market, non-deficit spending by the government, and minimal tax levels is the best way to create a robust growing economy. We contrasted that with the failed Obama approach to economic management which involves extensive government interference in the free market, record setting deficit spending, and back breaking tax burdens.

How is the Obama approach working out? As we do on a regular basis, let's look at the latest statistics, trends, and opinions of those who work in the economic area of our nation:

- According to data from the Department Of Labor, in the week ending August 25, the estimate for seasonally adjusted unemployment initial claims was 374,000, unchanged from the previous week's revised figure of 374,000. The 4-week moving average was 370,250, an increase of 1,500 from the previous week's revised moving average of 368,750. Thus, as the weekly number of claims continues to hover between 360,000 and 380,000 for what seems like forever, there does not appear to be any relief on the way from an unemployment perspective.

- According to a recent New York Times report on the findings from  the society of Actuaries, "2011 Risks and Process Of Retirement Survey Report," 35% of Americans don't expect to ever retire, up from 29 percent two years ago. 40% of the survey's so-called pre-retirees say the will not retire simply because they are financially unable to do so since they need either the income or their employer's benefits. The study also found that 51% of those surveyed who had already retired did so before age 60, but just 12% of today's pre-retirees think they will be able retire that early.

How sad are this statistics. Three years into this tepid economic recovery that the Obama administration has managed, the American dream of working towards a comfortable retirement is now looking less and less possible.

- A recent Rasmussen report also contained some bad opinions on what the future might hold, this time relative to the survey respondents' children:

• The survey found that only 16%  feel that today’s kids will be better off than their parents.
• This is slightly up from July’s all-time low of 14% and back to the levels found in May and June but probably within the same low, statistical sampling range.
• Since early 2009, the statistics had hovered in the low to mid-20s.
• 64% now say today’s children will not be better off, compared to 47% who felt that way in January 2009.
• Thus, despite the economic recovery, opinions have gotten worse, not better since the Great Recession ended.

Another American dream shaken to its core, the faith that the American dream would become more realistic, more robust, and attainable by our kids.

- According to an August 31, 2012 Moneynews report, between June 2009 and June 2012, the median income for an American family fell nearly 5 percent, to $50,964. That’s an average loss of $2,548.20. This is the period of supposed economic recovery that the Obama administration has presided over. Tough to blame this performance on a former President who has been out of office since January, 2008.

- The Commerce Department recently updated its estimate of economic growth in the second quarter, raising it from 1.5% to 1.7%. Although somewhat good news, certainly a less than robust growth rate, especially a growth rate when coming out of a recession. A growth rate that continues at such a low rate will never be able to make a substantial dent in the country's unemployment rate.

According to an April 2, 2012 article in the Wall Street Journal, the average annual U.S. growth rate over time is about 3.4% so the economic growth rate during the past three years of the Obama administration has been far below the average rate. The article also reviewed the economic recovery statistics during the 1930s when the Great Depression started with major economic recessions in 1930, 1931, and 1933.

In the three following years, the economy rebounded strongly with annual growth rates of 11%, 9% and 13%, respectively. In the 1980s, the economy experienced a double-dip recession, with economic shrinkage in both 1980 and '82. However, economic growth rates in the following two years averaged almost 6%.

Thus, despite a failed economic stimulus program that pumped an unheard of $800 billion into the economy, a Federal Reserve that has pumped TRILLIONs of dollars into the economy and financial system via bailouts and "quantitative easing," record low interest rates for record lengths of time, and the historical trend of strong recessions being followed by strong recoveries, the Obama administration has somehow managed to produce a very, very weak economic recovery of less than 2% GDP growth.

- Getting back to the $800 billion economic stimulus program, let's recall what Obama promised in order to get the program passed: unless he got the program passed, unemployment could go as high as 8%. If it was passed, unemployment would drop down to 5.6%. Despite getting the program passed and the $800 billion spent, the unemployment rate has been above 8% for 42 months despite coming out of the economy three years ago.

Enough bad news for today, too depressing. Unfortunately, we still have a lot of bad economic news to review so we will continue this discussion tomorrow. Makes you wonder, and hope, if we have a Harry Truman of our generation lurking somewhere out there.

You know, the type of person that was never scared to make the tough calls, a person that was never scared to be honest and forthright with the American people, a person that knew how basic economics worked and applied that knowledge to the greatest economic miracle and transition in our history, a person, who knew that minimal government intervention, minimal deficits, and a freely operating free market was the best economic strategy.

Compare that to the current buffoons that have given has the weakest economic recovery every, high unemployment for a record three and a half years, skyrocketing deficits, TRILLIONs of printed money that at some time will unleash terrible inflation.

Term limits for these people currently ruining the economy and American dreams, as outlined in Step 39 of "Love My Country, Loathe My Government," cannot be implemented fast enough.

We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment

Fun With Math, Part 2 - How Bad Could Life Get With A $16 TRILLION National Debt?

Last week we dedicated a post to doing some simple math to try and get our hands around how big our $16 TRILLION national debt really is. We calculated how many times we could circle the globe if we laid 16 trillion one dollar bills end-to-end (60,000), how far out into space we could go if we laid those same bills end-to-end (back and forth to Mars about 2,100 times), etc. The other examples and subsequent discussion can be found at:

 http://www.loathemygovernment.blogspot.com/2012/09/fun-with-math-making-our-16-trillion.html.

Although having a debt of $16 TRILLION is really, really bad, saddling each American family with about $140,000 each, it could get much worse before it gets better. We started doing that calculation last week when we used Obama's White House budget website, which shows that the $16 TRILLION is expected to grow another $3.4 TRILLION by 2017 under Obama's current budget assumptions. This would bring the total national debt to just under a whopping $20 TRILLION.

However, Obama's budget calls for some unbelievably aggressive growth rates in government tax revenue in each of the next five years, growth rates that have never been sustained over a five year period in the history of the country. Thus, we found the $3.4 TRILLION increase to be unfounded and highly unlikely not to happen. Using the long term average growth rate of the U.S. economy, around 3%, we recalculated the next five years' worth of tax revenue, keeping Obama's government spending assumptions unchanged. This results in another $7 TRILLION being added to our burdensome national debt, not his overly optimistic $3.4 TRILLION increase.

An additional $7 TRILLION in national debt theoretically adds another $61,000 or so to each American household's share of the Federal government debt. This would bring the total household debt responsibility to $200,000, a level that would never be sustained.

But it gets worse. Fortunately, for the political class and the country, the U.S. Treasury is paying record low interest rates to finance this ongoing and growing debt load. This is caused by what I call the "queen of the pigs" theory.

As most people know, many, many countries in Europe are economic basket cases. Greece, Spain, Italy, Portugal, etc. are having severe economic problems and their own outsized national debt difficulties, which has made their sovereign debt riskier. Riskier investments make it harder to get investors to buy your bonds and those that do buy, want higher returns for their risk. This has pushed the interest for some European sovereign bonds up into the 6-7% range.

The Chinese economy is slowing, the Japanese economy is still in a twenty year funk, the U.S. stock market has been volatile and generally providing low returns, and the U.S. housing market is still in the ditch. With so much economic uncertainty in the world, many investors are looking to park their wealth and money somewhere safe in order to not lose their principle.

The best place to do that recently has been with U.S. Treasury bonds. Basic economic theory prevails: high demand for a limited supply keeps your costs down. In this case, the demand is high for T-bills, the supply is limited, which pushes down the interest rates.

Thus, while we do have historically high national debt levels, the cost to service that debt is historically low. If you go to the official White House budget website and its EXCEL spreadsheets, you will find that the interest expected to be paid (about $224 billion) on the expected 2012 year end national debt level (about $16.3 TRILLION) is about 1.4%. Not a bad interest rate to be paying for such a large debt load.

Let's look at Obama's own numbers. By 2017, our national debt should be about $20 TRILLION according to the White House website. The cost of servicing that debt load in 2017, again, according to Obama's numbers, would be about $565 billion. This comes out to an overall interest rate of about 2.9%. Thus, our debt cost under this base case scenario will go from about $224 billion a year at a 1.4% interest rate to $565 billion a year at a 2.9% interest rate. Thus, Obama is planning to more than double the amount of taxpayer wealth diverted solely to interest payments and the interest rate we pay to service that debt in the next five years.

Hang in there, we are almost there from a math perspective. If you take Obama's 2012 expected tax revenue estimate and divide it into his expected interest payment budget line for 2012 you will calculate a number of 9.1%, i.e. about nine percent of Federal tax revenues will be used to pay interest. By 2017, he expects that number to increase by about 50% with about 14.4% of 2017 tax revenues to be used to pay for interest payments. All bad trends.

However, that debt load will have to be constantly serviced over time as the existing bonds are sold and new bonds issued. The very real concern is that at some point in time, the rest of the world's economic opportunities begin to improve. Let's say that somehow Europe struggles through its economic problems and gets itself on solid financial footing. Investors will start to look to Europe to increase their return on their wealth.

Let's assume that China gets out of its doldrums and with its large population starts humming again, from an economic perspective. An improving U.S. housing market and stock market may be better options for investors than getting 1.4% or so on its investment in Treasury bonds.

Thus, as the world's economy improves, including our economy, and the rating agencies, investors, and the rest of the world get more and more antsy about our ever escalating debt load, there is an excellent chance that there will be fewer and fewer investors willing to give the U.S. Treasury Department some of their wealth to invest. This will require that Treasury interest rates increase just to get money for servicing the debt and our deficit spending. Thus, those 1.4% and 2.9%interest rates may very soon be a pipe dream.

Let's assume that we start to look like Greece and Spain by 2017, given our ever rising debt load. Our interest rate would certainly no longer be so low. Let's assume that the 2.9% rate in 2017 is a more Greece-like 6%. Simple math would say that we would no longer be paying $565 billion a year to service our debt. At 6%, a $20 TRILLION debt financing cost would increase to $1.2 TRILLION a year, more than double up from $565 billion.

Under this scenario over 30% of the Federal government's tax revenue would go solely to servicing the $20 TRILLION debt.

If we assume that we are up to about 120 million households by 2017, on average every American household would have to pay $10,000 each just in 2017 just to pay for the debt servicing. Obviously, more taxes would then have to be collected to cover Social Security, Medicare, Medicaid, defense spending, and every other government function. Scary, scary numbers.

But we can make it worse without stretching the bounds of reasonability. We do not believe that Obama's revenue numbers are realistic, they are much too high. Let's assume that government revenue only grows around 3% a year for the next five years. Then, by 2017, the Federal government revenue stream is not $3.92 TRILLION, it is closer to $2.86 TRILLION. In this scenario, about 42% of every Federal tax dollar goes to debt servicing.

The good news, which is really really bad news, is that this may never happen. We may see an economic collapse long before we get to these 2017 numbers. If we get another recession within the next five years, highly likely, we may have such a suppression in government tax revenue that it cannot service the debt, leading to default. In that situation, any saving bonds or Treasury bonds that any American holds could be worthless, leading to economic hardship for many American families but especially elderly Americans who may have counted on those government securities for their retirement.

Going back to Obama's numbers, a 2017 best case scenario says that expected government spending, $4.5 TRILLION would quickly be reduced by $612 billion or 13% in order for actual tax revenue to equal actual expenditures, no more financing spending and deficit spending. Thus, best case in a default is that every government function, every Social Security check, every Medicare payment, every Federal employee salary, etc. would immediately be reduced by 13%. And I believe that the 13% is best case, it would likely be far worse.

There would be no immediate change/improvement in our economic situation after a default since no one would be willing to lend the Federal government any money. We would have to live only on what the government could tax collect with no deficit spending.

And these calculations do not even bring into account the likelihood of high or even runaway inflation. The Federal Reserve has done two rounds of "quantitative easing," which is nothing more than printing money and injecting it into the financial systems in the hope that it will eventually lead to economic growth.

The first two rounds of easing resulting in the printing of $2.3 TRILLION, money that is sitting somewhere in the banking system waiting for the right opportunity to be invested. If the Fed is not careful, if that investing comes all at once, inflation is likely to skyrocket, putting further pressure on the Federal government, raising interest rates dramatically, raising interest rates, and crushing individual household budgets and savings.

Not a pretty sight. But this is the path we are on. You may dispute some of my numbers, assumptions and calculations since I am not a financial or economics expert. I am just doing some simple, logical math with official government statistics and forecasts.

But I doubt anyone would arrive at a substantially different overall conclusion using any other approach. Using Obama's own numbers, we are heading for a fiscal meltdown that could happen within just a few years, taking our economic well being and our democracy with it. Using more realistic numbers than the official Federal government.White House view results in a much worse economic scenario.

Study Germany in the 1920s and Argentina a few decades ago to see what an economic meltdown and default looks like. Observe what happens to Greece and Spain in the next six months or so to see what is in store for us.

But there might still be time to get our outrageous Federal government spending habits under control. Tomorrow we will go through a detailed plan that will remove $9 TRILLION from our debt load. And best of all, it does that without raising taxes and with minimal impact to most American families.

It can be done. The question is whether it can be done by those sitting in the White House and Congress today. Their lack of courage track record says they cannot and thus, they need to all be removed from office on November 6, 2012 if we are to have any chance of avoiding what I have laid out above.

Note: for those of you who want to tinker with the Obama numbers we used above, go to the following web page for the original numbers and forecasts:

http://www.whitehouse.gov/omb/budget/Historicals

We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment

In Case You Were Starting To Feel Good About The Economy...More Bad News

Earlier this week we discussed how the economy was still in very bad shape even though there had been a smattering of good economic news recently (http://www.loathemygovernment.blogspot.com/2012/03/in-case-you-were-feeling-good-about.html). Unfortunately, it appears that we did not cover all of the bad news, trends, and economic scenarios that are going on right now:


1) Federal reserve Board Charmian Ben Bernanke spoke recently at George Washington University. Highlights/low lights of his perspectives include the following:

• According to Bernanke, there is still not enough spending and investment to sustain the economic recovery.
• He said consumer demand still remains weak relative to its level before the Great Recession.
• He also noted that major contributors to economic growth, borrowing and trade, have declined.
• He feels that consumer spending, the major driver in our economy, has not recovered and is still very weak relative to where it was before the Great Recession. As a result,  "We lack a source of demand to keep the economy growing."
• In his view, household income growth is barely keeping up with inflation and that trend is being aggravated by high gas prices.
• And finally, he owned up to the fact that the Fed was a major enabler of the Great Recession, stating he believes the central bank made mistakes in supervision and regulation that did play a role in banks making unsound mortgage loans.

Oh boy. Bad news on the horizon from what is supposed to be the head of the biggest and most powerful government organization the world, the Fed. Demand is weak, trade is down, spending is down, income growth anemic. This from the person with the most power to make the economy strong but who just admitted the Fed was a contributor to the situation we are in today. Nice job, Mr.Chairman.

2) Yesterday, the government announced that just under 350,000 Americans filed for unemployment benefits last WEEK, a typical volume over the past six months or so. Since the economy has averaged only about 245,000 jobs created per MONTH over the past few months, the math for an economic recovery is still looking bad.

3) According to David Rosenberg, an economist at Gluskin Sheff, this post recession recovery is the weakest recovery ever. Among his other conclusions:

• The current recovery is being driven by warm weather, not by fundamental improvements taking place in the economy.
• In his view, deficit spending and the Fed's loose monetary policies have propped up the economy, which is much weaker than otherwise improving economic indicators would suggest: "We've got four years of trillion-dollar-plus deficits, we have a Fed balance sheet that's tripled in size, zero policy rates for three years. Of course you're going to get some growth."
• As with other analysts, he believes it is an artificial or illusion of economic growth, not real, sustainable economic growth.
• His analysis shows that a lot of the recent favorable economic statistics are due solely to the good weather enjoyed across the country this winter since construction jobs started up sooner rather than later and consumer spending on heating fuel was less than average, which provided more disposable income for other economic activity.

4) Federal Reserve Bank of Chicago President Charles Evans recently told Bloomberg News that the Fed "needs to further ease monetary policy to fuel the U.S. economic expansion." In other words, keeping interest rates at record lows for years and adding about a TRILLION dollars into the banking system via two previous "quantitative easing" programs, (i.e. also known as printing money) did not work. This would seem to indicate that the Fed really has no clue on how to get the economy moving again, not very reassuring.

5) Famed international investor Jim Rogers warns that investors should enjoy 2012, as economic stimulus measures and illusions will prop up markets for this election year. However, he believes that world economies will tank in 2013 and in 2014 when they can no longer grow on ultra-loose monetary policies and government borrowing and government debt burdens will weigh heavily on economic growth.

6) The February 27, 2012 issue of Business Week magazine had a depressing article regarding student loans. Apparently recent college graduate are coming into the workforce, assuming they can find a job, with very high student loan balances, averaging about $25,000.

This debt load makes it difficult for them to attain a home mortgage which in turn depresses the already depressed real estate market which depresses the already depressed economy. According to the article, a Federal Reserve Board study found that only about 9% of 29-34 year olds obtained a home mortgage from 2009 to 2011. This compares to 17% who had obtained a mortgage by this age ten years earlier.

Also depressing, the article reports that 25 to 34 year olds made up 27% of all home buyers in 2011, the lowest share in the past ten years. This 27% is six percentage points less than the same measure in 2001, according to the National Association of Realtors.

Without a higher influx of first time, younger buyers into the home ownership market, those families that currently own a home but want to move into a bigger home cannot since they are having a harder time selling their smaller, current home which normally would have been easier to sell to younger workers. A vicious cycle that will not go away until the current crop of college graduates significantly work down their student loan debt in order to qualify for a mortgage. Since this cycle will not be broken soon, help for the housing market will not be immediate.

7) The average price for a gallon of gas this past week was still very high $3.88, double what it was at the start of the Obama administration.

Not a pretty picture, esepcially when you combine this new bad news with the old bad news from our post earlier this week. Our economic hole is even deeper than we thought just a few days ago. However, the recommendations on how to fix this mess are still the same:

1. This November, vote out all incumbents. They are only as good as their lousy fiscal and economic record and it is time to start anew with fresh people in Washington. New faces could at least give us a hope of true economic change, a reality we will not get with the incumbents who are "only as good as their abysmal record."


2. Longer term, we need to implement Step 39 from "Love My Country, Loathe My Government." Step 39 would implement term limits for all Federal politicians. Allowing our current politicians to stay in Washington ten, twenty, thirty years or more is obviously not working. (note: please visit the following site and sign our petition demanding term limits for all Federally elected politicians:
http://www.unitedstatesofpurple.com/united_states_of_purple_015.htm)


3. We also need to implement Step 1 from "Love My Country, Loathe My Government." This step would reduce government spending by 10% a year for five years in order to quickly reduce out of control government spending in an orderly way. We have previously shown how to get $9 TRILLION (see the following link for the details: http://www.loathemygovernment.blogspot.com/2012/02/united-states-of-purple-presidency-plan.html) of debt out of our lives so 10% reduction a year is very doable. Unless we get our economic and fiscal affairs in order and reduce our debt, the country's demise is all but determined. (what could happen under this plan already happened after World War II and it was prosperity, details at http://loathemygovernment.blogspot.com/2012/03/why-obamas-economic-policies-are-dead.html)


4. And finally, we need to implement an independent audit of the Federal Reserve Board. The Fed is basically accountable to no one, a situation that could certainly be abusive to the concept of freedom, a government agency answerable to no one. We need to more fully understand the workings and secrets of the Fed since their actions probably have the most potential for disaster, especially in the area of inflation.

Have a nice weekend.

We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/