Saturday, June 6, 2009

How OFF are Economists??????

As this is written, the government published U3 unemployment rate is 9.4%.....the U6 rate exceeds 16%. Many economists are predicting unemployment to peak at 11%.


The U.S. labor force is a bit over 150 million people. About 21 million are employed by Federal, State and Local Governments who are generally paid better than average private sector workers.

Many were hired in the last eight years as tax receipts to government gushed in from revenues, profits, and incomes generated in the credit bubble years. Taxes were flowing and government was unprecedented rates. According to recent data, TOTAL government spending approached $6.5 TRILLION put that number in approximates half of our total GDP.

With the growing number of government workers also came growing government spending on practically everything including technology and supplies, real estate, and health care. The Ponzi like boom in the private sector created fantastic prosperity in the public sector which in turn drove revenues back into the private sector........and we could go on and on and on......

But as too many borrowed too much.....the accumulated debt became a crushing burden and borrowers started to default and banks slowed lending. The party came to a halt and revenues evaporated all over the place. Nowhere more obvious than new home construction with sales down over 75% from peak. Auto Sales are down over 50% and retail sales are evaporating as thousands of stores are shutting down around the nation.

As sales and profits slowed, businesses started reducing workforces and millions of workers went from being taxpayers to unemployment recipients. In addition, millions of formerly highly paid workers in real estate sales, mortgage/finance sales, and construction saw their incomes contract dramatically.

FACT: The top 5% of taxpayers pay about 60% of the taxes.....and many of these taxpayers have seen their incomes drop materially in recent years without much prospect of returning to the good old days anytime soon.

Tax receipts to government declined sharply this year through April, Federal Income Tax receipts are DOWN 44%.....and state and local governments are not doing much better with collections.

In the next few weeks....state and local governments are going to have to make some very difficult decisions regarding budgets and labor reductions. 20% cuts are being routinely contemplated.

So let's think about this for a second.....if government cuts 20% of its labor force.....that alone will increase unemployment by about 3% taking the U3 rate to over 12%....WITHOUT factoring the impact of MASSIVE government spending cuts on the private sector.........which will likely take U3 to over 15% without too much effort.

A 15% unemployment projection fails to account for likely additional deterioration as more and more individuals and businesses get Zombulated......a term we will define in a future blog.

If you think a 11% peak unemployment projection is reasonable based on the currently known have little appreciation for Alstrynomics......the practical application of facts to economics.

Economists better wake up......because the economy just may shock them in the very near future!!!!!!

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