Monday, June 08, 2009

U.S. Unemployment Rate Hits 25 year high - Obama Misery Index over 12% with No End in Sight

The U.S. Unemployment rate rose in May to 9.4%, and the administration is acknowledging that the economy is getting worse:

Austan Goolsbee, a member of President Barack Obama's Council of Economic Advisors:

"The economy clearly has gotten substantially worse from the initial predictions that were being made, not just by the White House, but by all of the private sector," said Austan Goolsbee.

Economists point out that the current jobless rate is already higher than the hypothetical rate that was used to calculate the health of banks and other financial institutions in so-called "stress tests" earlier this year. And, the upward unemployment trajectory is expected to continue in coming months, even if the overall economy begins to recover.

Additionally, the Stimulus is not having the intended effect (apparently, no one in the administration studied the economic policies of Jimmy Carter, and the nightmare that resulted when he instituted a stimulus, auto bailout, and big government programs that eventually led to a new economic term: “misery index” (combination of rate of inflation and rate of unemployment). Investors are now concerned about a rise in in interest rates and inflation, with good cause – the rate of inflation has risen, although slightly, to 3% in April.

That said, the rate of inflation is based in part, on the consumer price index, which has been kept steady due to the fall in oil prices last summer. As the consumer prices on oil and staples such as food (prices now increasing) increase, the rate of inflation will be driven upward.
The other factors used to forecast the fate of inflation include the GDP and the Prime Interest Rate.

The GDP decreased in the fourth quarter to -5.84% from a “real DGP of -6.1% in the 4th quarter of 09. The GDP is the Gross Domestic Output, based on industry – specifically the auto industry. Under the Bush Administration the GDP grew - tax cuts.
Therefore, adding the current rate of inflation (approximately 3%) to the current unemployment rate (9.4%) the Obama/Carter misery index is only 12.4% - as the price of oil rises, and the GDP declines (auto industry plant closings not on the radar yet), the prime will have to be adjusted (there go those interest rates), and by end of 2009, the economy will be in worse shape than it is today, perhaps surpassing the misery index under Jimmy Carter’s watch.

The only avenue available to put the skids on this entire fiasco would be for the current administration and simpatico congress to reign in spending – and that is not likely. At the peril of the economy, the President is pushing for Universal Health Care at a time, when the nation cannot afford to spend another nickel. Ironically, Obama is citing economics as the main reason that this bill should be rushed through the Congress and the Senate, however, rest assured it will include mandates that will further happen business development and growth. Senator Ted Kennedy (D-MA), has visions of forcing employers to pick up the tab on health care reform. However well intentioned this utopian socialist ideal may be; the end result will be fewer businesses able to afford to pay employees salaries, let alone extend benefits, and the only “job creation” in the health insurance industry will be at the Federal Level.

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