Government Squeezed as Economy Collapses
Worst Economy Since the Depression and We Have not Seen the Bottom Yet
Apr 10, 2009 Jacqueline S. Homan
Both the IMF and the World Bank depend on the stability of the US Dollar. Leaders, including President Obama, discussed a plan which essentially entails demonetizing the US Dollar in exchange for some form of international currency. The stability of world's economy hinges on the stability of our economy.
Insecurity in the Homeland
On the domestic front, tremors of economic collapse are felt from Wall Street to Main Street as more and more people lose their jobs and their homes. The bottom has not yet been reached in what looks to be a recession more severe than any other. Many analysts and think tanks predict that the current global economic storm will be far worse than the Great Depression that began in 1929 and lasted until after the end of World War II.
Bob Schieffer of "Face the Nation" asked US Treasury Secretary Timothy F. Geithner if the Obama administration planned to ask Congress for more stimulus money because of rapidly rising unemployment. Geithner dissembled uneasily and declined giving a concrete answer.
Obama's Plan: A Band-Aid On A Gaping Wound
The President's stimulus package was based on assumptions of the official unemployment rate reaching 8.1% for 2009, dropping slightly to 7.9% in 2010. But the Congressional Budget Office (CBO) estimates are much higher. The carnage has just begun. The unemployment rate has already reached 8.5% as of March.
Since the beginning of 2009, the rate at which people are losing their jobs has accelerated. The "stress test" assumptions capped the predicted unemployment rate at 10%. And this is the ceiling on which bailouts and the stimulus plan was premised upon. At the rate which more and more people are let go from their jobs, the unemployment rate will easily surpass 10%.
However if the CBO estimates are off, then so are the economic "stress test" limits determining the degree and amount of bailouts needed to prevent more bank insolvencies. The official unemployment rate is the key factor used to gage the extent of cash transfusions needed by our government to remediate the hemorrhaging financial system.
As a result, the sums needed for TARP and other programs to prop up the US banking system can be expected to reach hundreds of billions of dollars - far more than what was originally planned. Therefore, the premise used to evaluate the strength of the US financial system's foundation is flawed. Obama's stimulus plan won't even put a dent in the problem.
Flawed Unemployment Measurement
Many argue that the official unemployment rate was flawed to begin with. The unemployment rate only counts those workers who are eligible for unemployment benefits after losing their jobs. This excludes a significant number of jobless workers aged 18-65 who are involuntarily unemployed, but for whom there are no jobs.
Many jobless include the long-term unemployed who have become discouraged after protracted fruitless job searches, and poor single mothers being purged from the welfare rolls after their 5-year lifetime benefit limit expired but who have not been able to get a job. Traditionally disadvantaged jobless workers have less and less of a chance as competition for the crumbs grows fiercer.
Another group of jobless workers that are not counted in the official unemployment rate are those who did not earn enough money in the correct quarter in order to qualify for unemployment benefits, and those whose work hours were only part-time. If these groups of the involuntarily unemployed were counted among the ranks of the officially unemployed, the true unemployment rate would be around 30%.
A flawed unemployment rate used as the gauge to measure market stability will yield flawed estimates and flawed recovery plans.
Jacqueline S. Homan
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