Ominous Economic Signs

by Sal on May 8, 2009

in Economy,Politics

Two stories today paint a rather dire picture of the current economic situation.  First, jobless numbers were released today, showing the economy losing another 539,000 jobs in April.  Since Inauguration Day, the economy has lost 2,585,000 jobs, bringing the unemployment rate up to 8.9%, the highest in over 25 years.  The loss of private-sector jobs, however, is more troubling.  In April the private sector actually lost 611,000 in April, only to be offset by a mere 72,000 newly-created government jobs (66,000 of which were temporary census department jobs).

Second, at a bond auction yesterday, the Government had to raise the interest offered on Government Treasuries in order to get them to sell.  It seems buyers were reluctant to invest in U.S. Debt at the going interest rates.  This is much more problematic than it may seem at first glance.  First, since bonds are the way that we finance our spending, the fact that demand for U.S. Bonds is down when they have been considered a safe investment since World War II is troubling.  It could signal an inevitable problem with the massive amounts of spending being proposed by the Government.  Second, and related, is the fact that Obama’s budget predictions, along with the CBO (pictured below) were based on certain assumptions.  Among them was that the stimulus bill would slow down economic decline in Q1 to 4.6%, when in actuality the economy contracted 6.1%.  Another assumption was the price of bonds.  Because the budget has to factor in interest on the debt, the fact that the treasury had to raise the price of debt in order to fund the government blows Obama’s already scary-looking budget out of the water.

What we are seeing is absolutely the worst economic fiscal policy enacted since World War II.  It makes the Great Society look supply-side, and will dwarf Carter’s stagflation.  You can’t just put this much stress on an economy and expect a recovery.  There may be a brief one (much as there was in during the Great Depression) but the government action taken in the last 100+ days is likely to suck the lifeblood out of this otherwise robust economic engine.  It will take real reform to get it back in line, and that means a serious reduction in the scope and size of government — and this time, there may not be a choice.

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