published Wednesday, May 2nd, 2012

Economic pressure cooker

In days gone by, it was not uncommon to hear a "spit-spat" and a whistling coming from a kitchen as a metal disc jiggled on top of the stovetop pressure cooker, allowing steam and pressure to escape the big pot cooking under enormous force.

Sometimes those occasions ended with food on the ceiling, floor and every nook and cranny in between when the pressure cooker exploded. The jiggling and whistling was not followed by a quick-enough reduction of the heat applied.

It's funny to think back on and was a tremendous sight to see, but the danger of the situation overshadowed the mess.

America's economy is a pressure cooker, with all the warning signs of a spewing, hissing and jiggling commotion that already should been addressed. Soon we may require a clean-up crew to assess the damage.

UNEMPLOYMENT

If the unemployment rate from the inaugural month of President Barack Obama's administration through March 2012 was plotted, the data from the Bureau of Labor Statistics would show that the low of 7.6 percent unemployment of January 2009 was followed by the administration's highest level of 10.2 percent in October of the same year, and it now is holding at 8.2 percent. This "improvement" in unemployment is the result of three years of "stimulus" spending, automaker bailouts, a takeover of our nation's health care commerce, excessive regulation that overwhelms businesses and tax increases, just to name a few actions.

The U6 rate is a measure not only of the unemployed but of those who have given up on finding jobs. The March 2012 U6 rate is 14.5 percent, not 8.2 percent.

In 1990, just before that economic recession, the labor force participation rate, the percentage of the population ages 16 to 79 who are employed, was 66.5 percent. Twenty years later, in 2010, America's labor force participation rate is dramatically reduced to 64.7 percent. The size of our labor market has shrunk.

Based on analysis by the Federal Reserve Bank of Chicago, the job market and the contraction of the labor market are influenced by shifting demographics and an aging population, but the impact of the "recent deep recession and lackluster recovery" shares significant responsibility.

INFLATION

When purchasing power is decreased by increased prices and coupled with too much money being in circulation, the economy experiences inflation.

Our government has responded to the economic downturn by "printing money" on several occasions.

An item purchased in 1990 for $20 would cost $35.10 in 2012, for a rate of inflation change of 75.5 percent, according to the U.S. Inflation Calculator. The $20 item purchased in 2000 would cost $26.64, a rate of inflation change of 26.64 percent.

Sound monetary policy to protect the value of our dollar and its role as the world's reserve currency has been placed on a shelf and is collecting dust.

DEBT

Excessive spending yields an annual deficit. Years of annual deficits are added to form our national debt. Our federal government owes almost $15.7 trillion to our own Treasury and other nations, particularly China at more than $1 trillion. The interest the United States paid on our debt in March alone was $24.68 billion.

This debt now exceeds our gross domestic product, our entire economy.

The excessive spending that feeds this fatal debt, the inflationary pressures that prevent our hard-earned money from purchasing at its fullest value, and the labor market that sees fewer jobs and fewer workers are signs of disaster in our economic pressure cooker.

The cooks tending to the kitchen now are preoccupied with the election cycle of 2012. The political chefs who've created this stew are ignoring the urgency involved. The Obama administration and the Democrat-controlled U.S. Senate must present a budget that cuts spending. There have to be policies that address the more than $50 trillion in unfunded liabilities for future promised spending such as Social Security and Medicare. Our government, finally, has to flatten the tax structure, incentivize saving and work versus entitlement, and address the health of our currency.

Jiggle, jiggle, hiss, hiss ... It's not looking very promising.

13
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nucanuck said...

With population stalled, real earnings flat to down, debt loads near capacity, commodity prices rising, good jobs in a structural decline, and taxes about to head higher...a realist can see that growth may not be possible for many years to come. Our debt based economy requires growth to be able to repay our debt. Without that growth we will go into deflation which will mean falling prices, reduced employment and many debt defaults to clear away the mal-investment of the past decades.

That would actually set us up for an eventual economic revival, but at the cost of enourmous pain and suffering by many in order to reach that point of revival. Pension funds would collapse, entitlements would be drastically cut back, and unemployment would go through the roof. Because the pain would be so great, our politicians are terrified of allowing the unpayable debt to be cleared through default and because the debt-holders are the most powerful political force in the country.

Neither party will have the courage to address the debt build-up except to continue borrowing until we hit a Soviet style catastrophic collapse. We don't know when that will come, but we see more and more signs of systemic fragility that would lead us to believe that our tipping point may be within the next 24 months.

What should we do? What can we do? If we allow a catastrophic collapse, as now seems likely, the ensuing deflation will be harshest on debt holders. Getting out of debt should be job one. Consider selling your house and renting if you think you might be squeezed by your mortgage. Pay off all credit debt possible. Find ways to reduce your monthly out-go. Cancel or reduce cable, phone, and internet service. Conserve gasolene. Don't heat or cool unused rooms. Consider renting out extra bedrooms. Buy gold and silver if you have any money to invest.

After the deflation we will likely have massive inflation. That's a whole other issue to deal with later. GLTA

May 2, 2012 at 1:21 a.m.

Too bad this article left out CEO compensation.

But honestly? Saving? What is this obsession with hoarding? Is it part if your austerity mindset? How are things looking in Greece and Spain?

May 2, 2012 at 8:23 p.m.
joneses said...

Another example of obastard's failed policies. What is amazing all his policies have failed and stupid ass people like happywithbeingafool still support this pathetic communist pos to be reelected. It is proof obastard and these liberal fools want the country to collapse economically. why else would these liberal fools support these failed obastard policies?

May 3, 2012 at 6:41 a.m.
conservative said...

Lots of facts and common sense here.

The writer....."The U6 rate is a measure not only of the unemployed but of those who have given up on finding jobs. The March 2012 U6 rate is 14.5 percent, not 8.2 percent."

Now if we had a Republican president would there be any doubt the Lieberals in the mess media, Congress and even here on this website and others would constantly echo that the real unemployment rate is 14.5 percent?

May 3, 2012 at 7:50 a.m.

HWNB, Saving is just the intelligent man's way of preparing for the future. Spending everything you have including your future is just plain stupid. Don't come begging when there is no food to buy. You will have prepared for the future you deserve.

May 3, 2012 at 10:35 a.m.
nucanuck said...

con-man,

What do you think Ronmey would/could do different with the economy? What would you like to see Romney do if he is elected?

I don't see either party doing anything much about spending because it would push us into deflation...which scares them all to death.

May 3, 2012 at 10:52 a.m.

What happened nucanuck? You are speaking sense today. I can't find one thing you have said in the above comments that I disagree with.

May 3, 2012 at 11:38 a.m.
Plato said...

Inflation - "Sound monetary policy to protect the value of our dollar and its role as the world's reserve currency has been placed on a shelf and is collecting dust."

False.

Under George W Bush, using the year 2000 as a base line the dollar declined in value by about 15% through 2008. Since Obama took office in 2009 the dollar has dropped by only 4% through the worse economy since the 30s and is now rising.

Why would we want to return to the policies that lead to a weakening dollar through good times, when the current policies are working?

http://www.tradingeconomics.com/united-states/currency

May 3, 2012 at 12:10 p.m.
Plato said...

UNEMPLOYMENT:

This puts unemployment in it's proper context:

http://secure.assets.bostatic.com/frontend/projects/postcard/postcard-front.png

Why would we want to return to polices that lost jobs when we have policies now that are creating jobs?

May 3, 2012 at 12:13 p.m.
Plato said...

DEBT:

"Excessive spending yields an annual deficit."

Federal spending went from $2 Trillion in 2000 to $2.7 Trillion in 2008 for a 35% increase. Spending increased in 2009 by .5 Trillion 22% due to the Bush TARP and the Obama stimulus. Spending from 2009 to 2011 actually DECLINED by .1 Trillion.

The Bush TARP and the President's economic stimulus kept us from falling into a more severe recession or depression according to virtually every economist that has studied the issue.

http://www.usgovernmentspending.com/spending_chart_2000_2011USk_13s1li011mcn_F0f

Why would we want to return to policies that increased spending virtually every year, when we have policies in place now that holds spending in check?

May 3, 2012 at 12:23 p.m.
nucanuck said...

FPSE,

I'm trying some new meds.

Actually I am more of a fiscal conservative than most any of the posters here. It's my views on other topics that drive you and many others up the wall. I try to never express a viewpoint that I haven't thought through carefully; I try to avoid labels and insulting language; and I try to provoke thought about the topic at hand.

The low thought, partisan comments that we see so many of, don't help us build upon ideas or gain consencus.

May 3, 2012 at 4:36 p.m.
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