The road to an 8.8% unemployment rate is paved with unintended consequences!Yes, a drop of .01% in the unemployment rate reported yesterday cannot be termed a bad thing. Anytime unemployed and struggling U.S. workers find a job it is only good.
The question that needs to be asked here on Final Four weekend however, is whether the road to that result is actually a toll road that in the end will cause the country an immense amount of pain?
Federal Reserve money infection (oops, injection) into the system and massive U.S. government spending needed to get us to where we are today can most likely spell one thing for the future: I-N-F-L-A-T-I-O-N and lots of it.
From Walmart yesterday: "... Wal-Mart CEO Bill Simon said that rising inflation in the United States is "going to be serious" and that Wal-Mart is "seeing cost increases starting to come through at a pretty rapid rate." For many years Wal-Mart has been famous for their "low prices", so for the head of Wal-Mart to publicly warn that much higher prices are coming is more than a little alarming..."
"... Hershey has just announced price increases of about 10 percent on their entire line of products...."
"... Aaron Smith, the managing director of Superfund Financial, believes that coffee, sugar and cocoa will all be five to ten times more expensive by 2014 than they are today..." (Benzinga)
Remember that one commonly used definition of inflation is that too many dollars are chasing too few goods. So given the level of money that has been injected into the system, should the official unemployment rate actually be lower? Instead, according to a Gallup poll, the number of unemployed plus the number of part-time or discouraged workers desiring full-time work actually rose to 20.3% in March.
This year the U.S. government will be running a deficit of $1.6 trillion dollars. This move into record deficit territory has stimulated the economy some, but the bill that will have to paid to the piper down the road by our children and their children will be massive and potentially unsustainable.
When the Congress debates the fact the cutting the federal budget deeply in the short-term will hurt our extremely fragile economy (and possibly inhibit re-election chances) they are right. However, to not do so will mean "kicking the can down the road" that will at some point be the size of an oil tanker, impossible to kick or move anymore.
So while simply printing more money simply seems like a painless way to work the country back into fighting shape, it is not.
The U.S. National Debt and higher interest rates
The chart in the growth in U.S. debt above tells the tale and shows the scope of the problem that the country faces. We now have a national debt of over $14 trillion dollars. Think for one moment about the yearly cost to service that debt today with interest rates at and holding steady near historically low levels.
Consider what would happen if buyers no longer wanted to buy our debt, if inflation drove up interest rates or if a country like Japan needed to sell their massive US treasury holdings to raise money needed to rebuild the country.
The cost would increase in terms of the yields our government needed to offer in order to get buyers to buy, and the new, higher interest payments would consume larger and larger amounts of federal government revenues until most of it was being used just to service this debt. Now how would the country finance other critical needs like national defense and other obligations like Social Security?
On a smaller scale imaging that a homeowner was just covering their costs with their mortgage at 5% when it then gets adjusted to 8%. This has happened to many homeowners holding adjustable mortgages with the result being a default on the loan.
While the U.S. government won't default on its debt (most likely), they will need to get the additional money from someplace and that would be in the form of new taxes and in budget cuts. At that time however, the budget cuts would have to be even more draconian than the ones being proposed today.
Politics versus reality
While our politicians in Washington seek to politicize this problem in order to satisfy their constituents ahead of the 2012 elections, this is not a political problem. It is purely one of dollars and cents!
By the way, they love to report the consumer price index (CPI) ex-food and ex-energy because as they say these are volatile components. The last time I looked my largest expenses revolved around food and energy so put them back in!
CYA
Don't miss any new articles from The Political Commentator!
Subscribe for free email or feed delivery of new articles here and if you like what you read please hit the green retweet button below:
Subscribe in a reader
0.01% Decline in the unemployment rate, God help us , what is the Government doing ?
ReplyDelete