October 13, 2010

On the Right Track?

By Vasko Kohlmayer

When discussing the American economy during his recent swing through Iowa, President Obama said, "We are on the right path. We're on the right track."

Not impressed with the president's assurances, Goldman Sachs is advising its clients that the economy is likely to be "fairly bad" or "very bad" over the next six to nine months. Looking at the data, one can only wonder whether that assessment is not too optimistic.

Consider this.

According to Gallup, unemployment stood at 10.1 percent in September. Among Americans aged 18 to 29, the figure was nearly 14 percent.

Noted Bloomberg, "The jobless rate would have equalled or exceeded 9.5 percent for 14 consecutive months, surpassing the 13-month period from mid 1982 to mid 1983 as the longest span of elevated joblessness since monthly records began in 1948."

Underemployment -- which includes those who would like to work full-time but can find only part-time work -- is at a staggering 18.8 percent.

Last year, Congress extended $160 billion in unemployment benefits. This was up 30 percent from the previous year.

Nearly 42 million people are on food stamps today. Each of the previous twenty months set a new record in terms of participation. This trend will continue. According to White House estimates, nearly one seventh of the American population will be receiving food stamps in this fiscal year. In New York City, the situation is even worse: one in five there relies on food stamps.

The Census Bureau reported that America's poverty rate was at a fifteen-year high of 14.3 percent in 2009. This means that one in seven Americans now lives below the poverty line. The figure represents the highest level since the 1960s.

Last week, the dollar tumbled to a fifteen-year low against the Japanese yen. This despite the fact that the yen itself is becoming weaker, as the Bank of Japan tries to hold down the value of the currency in order to encourage exports.

In the last six weeks, the dollar has declined 7 percent against a basket of major world currencies.

Spending by Americans dropped 2.8 percent last year. This is the first decline on record. Even as American consumers had to limit their consumption, spending on health care shot up by 9.6 percent.

In this calendar year alone, the U.S. has already racked up a trade deficit of more than $350 billion.

The federal budget deficit during the fiscal year that ended September 30 was nearly $1.3 trillion. This represents nearly 9 percent of GDP. This was the second-highest shortfall -- both in nominal terms and as a proportion of the whole economy -- since 1945. This year's figures are just a little shy of the record set during the previous year.

During the fiscal year that just ended in September, the federal government spent $3.45 trillion. This accounts for nearly 25 percent of the country's gross domestic product. One fourth of the U.S. economy is thus driven by government spending. This figures does not include spending by state and local governments.

America's national debt currently stands at $13.6 trillion. This is well over 90 percent of GDP.

According to White House's own projections, the national debt will exceed 100 percent of GDP during next fiscal year.

Two years ago, our national debt was $10.2 trillion. During those 24 months alone, we added more than 30 percent to our national debt.

Estimates of unfunded liabilities inherent in entitlement programs such as Medicare and Social Security range from $65 trillion to $200-plus trillion. Even if the lower-end appraisal is the correct one, the government is sunk in an insurmountable fiscal hole.

Last week, President Obama observed that the U.S. is facing an "untenable fiscal situation" and that we need to get serious about tackling our excessive spending.

A question for the president: Why, then, do you propose and run record budget deficits?

A question for the rest: To those who think the economy is on the right track, would you please raise your hands?