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.

Obamanomics - What happens when Inflation Meets Deflation? Carter revisited.

According to the
Bureau of Labor Statistics Inflation Calculator, $100 in 2007, had the buying power of $103.84, however, when updated to reflect the first three quarters of 2009, $100 in 2008 has the same buying power as $98.80 – indicating a rise in the price of consumer goods combined with a drop in the worth of the dollar – or a slight rise in inflation.

Inflastion, in simple terms happens when the price of goods and services raises - the cause- an increase in government spending.
Deflation, is the opposite, (this is where recession and depression occur) – this is caused by an increase in taxes and a rise in the unemployment rate.

According to these two definitions, the U.S. is currently or about to experience both. We have a rise in the rate of inflation due to increased government spending, and a rise in taxes, and a rise in unemployment. In other words, Jimmy Carter’s Misery Index (the combined unemployment and inflation rate) run amok.

The St. Louis Federal Reserve’s latest publication on National Economic Trends is interesting in that, as of May, the Consumer Price Index has fallen, Read GDP growth has taken a dive (to minus 6.14), industrial production is down , non-farm payrolls are down, unemployment rate shows a steep increase, interest rates have fallen (rock bottom), the duration of unemployment has risen, and government expenditures have substantially increased. The only component missing that would send the current economy reeling is an increase in taxes – so far.

The Federal Government (IRS) has recently decided that the “Make America Work” tax credit ($13 per week) already in paychecks nationwide, must be repaid due to an error on the part of the IRS, and next April, penalties are in the wind for many currently receiving the credit in other words, the first tax increase (or backhanded tax cut). Those most at risk of having to pay taxes are individuals who hold more than one job, retirees who have federal income tax withheld from pension checks and Social Security recipients who must work to make ends meet. The IRS has generously provided a Calculator (here)to help individuals avoid paying in April, 09.

Congress is doing its part in ensuring that the economy continues to spiral downward - proposals include: a raise in the capital gains tax from 15 to 20%. The general consensus is that Capital Gains occur only in the Stock Market, or for those who can “afford” to pay a bit more, however, that is not entirely the case. Capital Gains occur anytime a taxpayer makes a profit without incurring a loss. Items on this list include real estate sales, lottery winnings, any monies or assets one receives from an estate. (For example: A $2,000 check that Aunt Ethel left in her will is a Capital Gain.) In other words, an Increase in the Capital Gains Tax affects every rung on the economic ladder. Additionally, an increase in the Federal Gas Tax is on the table.

How to stop the madness? Cut back government spending, revise the current budget system for all government departments (the government penalizes agencies that do not spend every dime they receive by cutting funds) issue across the board tax cuts (industry reacts by hiring and consumers react by spending) and really make work pay – a program similar to Franklin D. Roosevelt’s, by creating a Federal Work program for able bodied American’s currently receiving State and Federal assistance, subject of course, to every tax enjoyed by those working in the private sector.