Global Economic Crisis

If any further proof is needed that the U.S. economy is headed towards a double dip recession, the latest statistics from the Labor Department provide it. The most recent figures, just released, show that initial jobless claims have risen to 500,000. This is the third consecutive week of rising unemployment claims, and the worst numbers in nine months.

In March 2008, initial jobless claims rose to a peak of 651,000. By July 2010 they had dropped to 427,000. The green shoots corner over at the Federal Reserve and U.S. Treasury were celebrating the “success” of the Obama stimulus spending, and expected the figures on initial unemployment claims to soon drop below 400,000, a sign that the job market in America was recovering. Instead, however, this figure has soared to 500,000. The reason is simple. There has been no recovery or end to the economic crisis. All that has been accomplished is that Wall Street was bailed out, at the cost of transferring vast amounts of debt from the private to the public sector.

And what are the august politicians of Washington DC doing while the U.S. economy continues its implosion? Surely they must be working night and day trying to salvage the fast eroding American economy. Perhaps they would, if they had not found other fish to fry. For instead of addressing the nation’s profound economic crisis, they are obsessed over the proposed location of a new Islamic Center in Lower Manhattan  and whether or not it should be moved a few blocks, as well as the vital existential question of President Barack Obama’s religious identity (some on Capital Hill feel he is not really a Christian, and might actually be a secret Moslem).

It would appear that the American political establishment has gone deeply insane, and its collective madness will accomplish nothing constructive on behalf of the U.S. economy.

Contrary to the expectation of pundits and economists, May’s employment numbers released by the U.S. Labor Department are an unmitigated disaster. At first glance, though, the uninformed would think that the vast deficit funding on economic stimulus by the Obama administration was working. Supposedly, “employers” added  431,000 jobs, and the overall U3 unemployment rate dropped to 9.7%. However, the so-called “employers” consisted almost entirely of the U.S. federal government, which added  411,000 temporary census jobs in May. These jobs, which will disappear in a few weeks, are responsible for about 95% of the claimed job creation in May in the United States.

In May, according to the government’s own data, private sector job creation was statistically insignificant. I personally believe, based on past patterns, that  the U.S. government statisticians consistently over-report private sector employment in most of the initial monthly tabulations.

One other factor should be noted. The drop in unemployment from 9.9% to 9.7% was due not to vast job growth in the U.S. economy, but rather due to the fact that 322,000 unemployed workers were eliminated from the officially counted workforce. In fact, when one counts this category of so-called discourage workers, in addition to part time workers unable to find preferred full-time employment, the more inclusive U6 unemployment rate is close to 20%, or one in every five U.S. workers.

With continuing high rates of unemployment, it is clear that there will be no consumer-led economic recovery in major advanced economies. This means that massive government deficit spending is the only means of propping up national economies. However, with the global economic crisis rapidly mutating  into a virulent sovereign debt crisis, the option of public pump-priming clearly has its days numbered.

When President Obama trumpeted the first “decline” in the national unemployment rate in more than a year, I thought for a moment that the 44th U.S. president was residing in an alternative universe. How can you lose a quarter of a million jobs in a month, and simultaneously witness the unemployment rate actually post a  decline from 9.5% to “only” 9.4%? However, on reflection, it is I who reside in an  alternative universe. For if you decide to remove a whole chunk of discouraged workers, those whose long-term unemployment is deemed more or less permanent, from the official workforce count, then you can  absolutely post a reduction in the national unemployment rate while still shredding jobs, courtesy of the statistical wizards at the Department of Labor. Easy as toast.

So it is I who must apologize to President  Barack Obama for having committed the heresy of screwing up with logic my understanding of official statistics on employment in America . Of course, it makes perfect sense. Now, let’s just go ahead and save a whole lot of stimulus money by deducting everybody who is unemployed for more than a month from the official national workforce number.

If this pearl of economic policymaking is indeed valid, why not go the next step, and completely solve the problem of our national debt. Even with rising yearly deficits, we can actually reduce the total national debt by just removing a whole category of IOUs that no one seems to be worrying about at the moment. That way, Treasury Secretary Timothy Geithner can withdraw his request before Congress to increase the national debt ceiling to above $12 trillion, or nearly triple the total it was back in 2000. A brilliant solution to the nation’s fiscal imbalance, so it would appear.

But wait a moment. It seems we already are doing that. According to David M. Walker, who served as the Comptroller-General of the United States from 1998 to 2008, if the U.S. were following general accounting rules that are applicable to businesses in the private sector, it would be posting a far higher figure for the national debt. How much higher? According to Walker, there are more than $50 trillion in unfunded liabilities the U.S. government has incurred regarding future Medicare and Social Security obligations.

Fortunately, a high official with the Federal Reserve disagrees with David Walker. Unfortunately, that official, Richard W. Fisher, President of the Dallas Federal Reserve, revealed in a speech delivered in May that the actual national debt of the United States, accurately tabulating all the nation’s obligations, is a cool $100 trillion.

Now maybe all this statistical manipulation being conducted by our government officials is meant to serve some useful purpose, such as to artificially boost investor confidence and create a new stock market bubble. Perhaps Obama and his Wall Street coterie of advisors really do know what they are doing, and sceptics such as myself are just panicky doomsayers. However, I really do hope America’s foreign creditors are blissfully ignorant as to the true state of the U.S. economy and its fiscal reality. Heaven help us if they stop believing Washington’s math.