Real Americans must create the Real Deal...
One of the major problems our country will be facing for the long term is not just unemployment but also underemployment. The two other major complications to our economy, the mortgage/foreclosure crisis and the personal and national debt problem are linked to them. Also in the combustible mixture is low Gross Domestic Product (GDP or simply "production") and a global currency crisis, creating an economic policy dilemma beyond the abilities of the current political and bureaucratic classes. In actuality they are exacerbating the situation.
Employers are reluctant to hire for a several reasons. Primarily it is the uncertainty of where the economy is heading in general, since 2010 appears to have been a mild recovery respite and we are headed for a Double Dip recession this year. The other is the uncertainty of what the Federal Reserve, Treasury, Administration and Congress is going to do. In the Great Depression employers were reluctant to hire because of so much unpredictable government interference, which is where we are today. What employment needs companies have, they are tending towards temporary or part-time employment to avoid long-term commitments to employees. Health Care Reform also has a lot to do with this, since they are unsure of what the voluminous regulations mean and if they are going to stand the way they are. It creates a reluctance to provide full-time employment with benefits within the country.
There are almost 17 million people who have been unemployed for 27 months or longer. Their unemployment insurance, if they were eligible for it, has been exhausted and since they have been out of the workforce for so long, the chances of them locating a job is not very high. Nineteen percent of the workforce, nine million people, is underemployed, working part-time or temporary jobs. There are 139 million people employed full-time, 58% of employed people, in the non-farm private sector and their average hours is now around 34 hours a week. Statistics are always suspect and can be skewed but there is every reason to believe these are in the ball park.
United States employers have been creating jobs but the vast majority of them have been in emerging economy countries such as India, Brazil, Malaysia, Indonesia and the Philippines. One problem that is a potential liability for work created offshore, is with the uprising in Egypt and other countries along with global inflation, these jobs may disappear from these locations. If they are necessary jobs then they may be brought to the US but Americans will have to accept one cold reality, they will be working for lower wages than accustomed to.
Inflation is increasing because Bernanke made a bumbling professorial miscalculation. He did a second Quantitative Easing based on no-to-low inflation statistics that, well known now, were incorrect and based on inflation numbers adjusted downward by the federal government for at least 15 years. That means that inflation was much higher than stated by the government and QE2 is creating inflation as the Fed, Treasury and Administration wanted but at a much higher rate than they expected. In fact, we risk hyper-inflation, the very thing that started the Depression in Germany prior to the Great Depression in the United States, that conversely was caused by deflation. To put it simply, Bernanke feared deflation since it caused the Great Depression, wanted to create inflation but based it on incorrect data, now putting us at risk for an economic demise due to thoughtless unintended consequences. Worse, he was warned and arrogantly, as all Keynesians do, waved off those signalling trouble.
A real life example of hyper-inflation is the current US stock market that is at an all time high when the underlying economic fundamentals are all wrong. The stock market is manipulated by the Fed and Treasury buying stocks and bonds, in a fairly predictable fashion, inflating it out of proportion to actual price to earnings ratio and other indicators of individual stocks real worth. It is not a matter of if the market crashes but when and in what fashion since this is a new era. It is likely to be a cascading crash, with mini-crashes and mini-rallies over a period of several months until it reaches its natural bottom.
The combination of inflation and low production creates an economic conundrum that is difficult to get out of and usually creates stagflation as happened in the 1970s and we are probably already there. The unemployment and underemployment problem also creates a very low tax base and is translating into low revenues for all levels of government. Most state and local governments have budget problems and many are technically insolvent. Compounded with the out-of-whack stock market, the mortgage/foreclosure crisis, high personal, national and global debt ratios and international currency clashes, deeper trouble clearly lays ahead. There are those who refuse to believe it is very serious, some who are doomsayers, with many others in between.
My thought is that in the US we can expect significant stagflation for a long period of time (5-10 years) far deeper than the 1970s. We should be prepared for high inflation with a possible brief period of hyper-inflation and long term unemployment and underemployment. It is also my belief that this country will be able to pull out of it, unlike some other countries who will never fully recover, but it will require an awakening of a large segment of the population and some sacrifice and hard work. It is clear, as I've written before, that the government cannot pull us out of this, history indicates they actually make it worse, neither can corporations nor the uber-rich who have little incentive to do so. One clear advantage of low tax revenues is it creates a condition that makes it difficult for the government to operate and specifically to interfere with onerous over-regulation. This should make it easier for the American people to work for themselves, create their own businesses or become free agents to employers.
Theodore Roosevelt created his Square Deal, Franklin Roosevelt made a New Deal, Truman had the Fair Deal and now the American people must create the Real Deal.