Monday, July 6, 2009

14% Unemployment on the way?

The economic illiteracy of the Obama team is almost as frightening as the illiteracy of the media covering his administration. This article uses basic economic relationships to show that it is likely that unemployment will soar as the Obama bogus stimulus approach causes further reductions in private business investment.

"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...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.

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 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...

'Stimulus' is based upon the superstition that government borrowing and spending creates 'demand'. In reality, it does no such thing. 'Stimulus' is like trying to raise the level of the Hudson River by dipping out a bucket of water, walking five feet downstream, and pouring it back in...

While doing nothing to boost demand, Obama's "stimulus" will depress PBI, and therefore employment. This is because the "stimulus" plan requires selling an additional $787 billion in government bonds. 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. Indeed, the bonds will have to be priced so that this risk-free investment is more attractive to investors than their other alternatives.

In the fourth quarter of 2008, the Federal government ran a deficit of $303 billion (and therefore had to sell $303 billion of new bonds) and business investment fell by 21.7%. In the first quarter of 2009, the Federal deficit was $650 billion and business investment fell by 37.3%. The economy is being forced to invest in Barack's Bailout Bonds rather than in businesses that create jobs.

Virtually everything the Obama administration wants to do will have the effect of increasing unemployment. As bad as joblessness is now, be prepared for it to get much, much worse."

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