Enlightened Economics

Economics for an Enlightened Age

Posts Tagged ‘unemployment’

• Debt/Bailout Bubbles May Burst. Brighter Future Beyond 2012!

Posted by Ron Robins on July 19, 2009

A stressed American consciousness focusing on material acquisition to the virtual exclusion of satisfying higher inner values has given rise to an unwieldy debt mountain. Now the U.S. government is borrowing and spending massively as it tries to pump-up the economy while backstopping much of the countries debt.

Consumers and companies have largely hit a ‘debt wall.’ And with a possible derivative meltdown and the recognition of enormous unfunded U.S. liabilities, we may see the U.S. government itself hit the debt wall in the not-so-distant future. The subsequent reaction would topple the debt mountain and pop the bailout bubble. But I believe a new higher consciousness will arise from these extraordinary events creating a truly enlightened economy mirroring our higher, inner human values.

Bailouts, guarantees, and write-offs galore
So far in this phase of the crisis the U.S. federal government and Federal Reserve have already guaranteed or spent around $13 trillion! And the current 2009 U.S. federal budget deficit will top $2 trillion, or about 14% of U.S. GDP. More stimulus packages are likely and massive deficits for years into the future are projected as it is unlikely that the economy will gain self-sustaining traction to stop unemployment from increasing. Economists such as 2008 Nobel Laureate Paul Krugman and others in the Obama administration are already discussing the possibility of another huge stimulus package.

Furthermore, the International Monetary Fund (IMF) on April 21, 2009, estimated global financial system write-offs to exceed $4,100 billion. The write-offs to-date are not anywhere close to that figure therefore, enormous additional financial system losses are yet to come.

A two-phased crisis
I see two phases to the U.S. financial crises. Each alone is capable of bursting the bailout bubble. Phase 1, which we are currently in, involves the write-offs of bad mortgages, loans, deleveraging, extraordinary U.S. government and Federal Reserve guarantees and financing, and a potential derivative implosion. Any sudden interest rate hikes and/or currency movements could trigger an implosion in the $450 trillion (ISDA April 22 press release) derivatives market and cause further financial chaos.

To enable U.S. government bond sales, it is probable that the U.S. federal government will, if it is not doing so already, pressure the banks with whom it has ‘invested in,’ to purchase considerable amounts of its bonds. The banks in turn will get substantial loans from the Federal Reserve for these purchases. In essence this is back-door ‘monetization’ (read ‘quantitative easing’) of U.S. government debt. Monetization simply means the printing of new money by central banks to purchase assets, in this case, U.S. government bonds.

Of course the U.S. Federal Reserve, the Bank of England, and other central banks have already engaged or have announced significant monetization efforts. The central banks claim that they will be able to drain this liquidity (excess money) out of the system as their economies recover. Unfortunately, historical examples do not give much reassurance that this can be done, especially in a global trading environment and where the major countries have amassed such extraordinary levels of debt.

Deeply indebted governments and societies have the choice of trying to reduce their debt levels—which can produce a potentially deflationary recession/depression—or they can encourage central bank monetization efforts that offer a ‘chance’ to get the economy rolling and create sufficient inflation, thus lessening the relative debt load. However, once started hefty monetization efforts often prove impossible to contain, leading to uncontrollable inflation—and even hyper-inflation. Subsequently, interest rates soar, the countries currency plunges in value, its debt mountain topples, and bailout bubbles burst.

Adding to the impetus for monetization will be when Phase 2 of this crisis kicks-in in 2010 as the U.S. begins to face its looming, huge, unfunded liabilities for medicare and social security. These are estimated by Shadowstats at $65.5 trillion. To properly fund this liability would require the U.S. government to put aside trillions of dollars yearly. Clearly, the U.S. government has no possibility or desire to put aside such funds. In addition, the current proposals for health care reform may add considerably to these numbers.

Taken together, these two phases of economic crisis make it unlikely that the U.S. can escape its fate of the bursting of its debt and bail-out bubbles.

Beyond 2012 a brighter future
I believe the underlying collective consciousness of U.S. society is moving toward higher values, and the more balanced approach to consumption and savings is evidence of this. However, in the course of these changes the likelihood of the debt mountain toppling, the bailout bubble bursting, and the onset of high or hyperinflation are real possibilities. By the end of this process, sometime around 2012, the American collective consciousness will have sufficiently evolved to begin the path of developing a truly sustainable economy mirroring the values of an economics based on our higher inner human values and consciousness—and that path is the realm of Enlightened Economics.

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© Ron Robins, 2009.

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• Unethical US Job Numbers?

Posted by Ron Robins on December 6, 2007

The business world waits with trepidation, the first Friday of each month, the release of the US unemployment/employment numbers. Stock, bond, currency and commodity markets often swing wildly with their release. The media focus on the numbers presented, and discuss their relevance to economic activity. But where is the analysis, the critique, of how these numbers are generated — or of their actual reliability?

Do all economists really believe that the US government’s unemployment data (and other statistics too) are beyond reproach? Are the big banks’ economists too afraid to dig into the numbers for fear of offending or confusing employers and clients? Where is the role of honesty, of ethical responsibility, to the publics these institutions serve?

Fortunately, discussion concerning the ethics and reliability of economic statistics does occasionally appear.

For instance, last year Philipp Bagus asserted in an article, The Problem of Accuracy of Economic Data, August 17, 2006, (http://www.mises.org/story/2280) “[That] we … face the question of why the problem of accuracy of economic data is rarely mentioned or passed over in silence in economics, while in the physical sciences this problem is widely acknowledged.” Further, “In contrast to physics, there is still no estimate of statistical error within economics. The various sources of error that come into play in the social sciences suggest that the error in economic observations is substantial… Economic statistics cannot be accepted at face value.”

In my research on US unemployment data, I have discovered some disquieting information. First of all, they concern the elimination of ‘discouraged workers,’ who used to be in the figures.

Discouraged workers are those who have been looking for employment for more than a year and have given-up looking for a job. They used to be included in the main unemployment numbers, but are now, conveniently left out! John Williams, statistician and economist, believes that when ‘discouraged’ workers and other ‘distorting factors’ are accounted for, then the true unemployment rate, measured in much the same way as it had been historically, would be closer to 12%! (See Welling@Weedon, February 21, 2006, Shadowing Reality interview with John Williams). At the time of Mr. Williams citing this, the US February 2006 unemployment rate was 4.7%, which is the same as for November 2007.

The second major concern is the inclusion in the non-seasonalized data — which influences the media headlined seasonally adjusted numbers — of escalating theoretically derived employment numbers from the business ‘Birth-Death Model.’ This model created by the US Bureau of Labor Statistics (BLS), tracks the purported, yet hypothetical, net employment changes caused by business births and deaths.

Notice how the job gains in the Birth-Death Model have grown from less than half in 2004 to almost equalling the total employment gains in 2007? It begs the question as to how much of 2007’s employment gains are theoretically derived from the Birth-Death Model, and how much are real? The BLS appears silent on this point. With regard to the Birth-Death Model, the BLS states, “[The] BLS will continue researching alternative model-based techniques for the net birth/death component; it is likely to remain as the most problematic part of the estimation process.” Yes, it is certainly problematic.

The lack of analysis of jobs and other US economic data by mainstream economists and media is abysmal. Let economists and business journalists especially, take a lead in an illuminating debate around the make-up and ethics of such economic statistics. So far these individuals have really let down the publics they serve in this regard.

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