Wednesday, May 1, 2013

Real Unemployment 14.5%, GDP worst in 83 Years, Money Losing Value

Yesterday, we wrote about regional unemployment in the Scranton/Wilkes-Barre region.  Today, we are looking at other economic indicators – and they aren’t pretty.

GDP:
Gross Domestic Product (GDP) is the market value of all officially recognized goods and services produced within a country over a period of time.  The GDP of the USA is about $15 trillion.  That sounds good until you consider the rate of growth, or, more directly, the lack of serious growth.  Our economy hasn’t had more than 3% growth in GDP since 2005 and is presently projected to be about the growth rate we had in 1929 – that’s Great Depression numbers.

Unemployment:
In it’s most basic sense, unemployment numbers are derived by dividing the number of unemployed workers by the total labor force.  There are however six different ways to figure out the top number, the number of unemployed workers.  Likewise, we have six different unemployment numbers.  They are:
·         U1 Unemployment: %of labor force unemployed 15 weeks or longer.
·         U2 Unemployment: % of labor force who lost jobs or completed temporary work.
·         U3 Unemployment: % of labor force without jobs and have actively looked for work within the preceding  four weeks.
·         U4 Unemployment: U3 Unemployment plus those who have stopped looking for work because they believe that there is no work available for them.
·         U5: U4 Unemployment plus those who would like to work, are able to work, but haven’t looked for a job recently.
·         U6: U5 Unemployment plus part-time workers who would like to work full time, but cannot find a job.

When the press reports on unemployment numbers, they typically report only the U3 Unemployment numbers.  That is, those that are unemployed and are have tried to find a job in the last four weeks.  The better, more accurate calculation is the U6 unemployment figure.  The most recent U6 calculation is 14.5%. 

Currency:
There are two major forms of currency, fiat currency and representative currency.  Representative currency is tied directly to something of intrinsic value – like gold, for example.  Fiat currency is tied to nothing of value.  Instead, it is declared by law to be legal tender.

In the United States, we use fiat currency.  “Dollars” are not tied to a commodity.  As such, their value or purchasing power is easily manipulated by inflation or deflation.  Since we used 1929 previously, let’s look at that again.  Between 1929 and 2013, annual inflation was a little over 3%.  That means, whatever you could buy for a buck in 1929, would cost you a little over $13 today.
 
So let’s tie it all together.  In order to earn dollars, you have to have a job.  But, the economy is growing too slowly to replace the jobs that are lost making it hard to find a job.  And, if you have a job, the dollars you are being paid with are losing their purchasing power over time so you can buy less goods or services with each dollar that you make which again, makes the economy sluggish.  It’s a vicious cycle – and one that normally precedes serious economic difficulty for any nation.

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