NEOAVATARA

First, I have made clear that the job losses suffered since Barack Obama took office are not really his fault.  There was no way for him to avoid the continuing rise in the unemployment rate.  However, there are severe repercussions related to his policies and the ongoing recession that will have far reaching effects.

This week, the unemployment rate increased to 8.9%.  The amazing thing is that this is actually better than expected. Many feel that we are seeing a decrease in the rate of jobless claims increasing.  However, now the Administration is claiming that there will be no job growth for the rest of the year.  How bad is it?  First, you need a Joe Biden to actually make up numbers to find anything good being done by the government right now.  And the current unemployment numbers are well above those predicted by Mr. Obama’s economic team, and actually correspond with the exact numbers predicted if we had never passed the stimulus plan in the first place.  Glad to hear that the almost $800 Billion was well spent.  Of course, part of that is that only 6% of the monies have been spent…but what is the point of a stimulus if you don’t spend money?

The below chart comes directly from Mr. Obama’s own stimulus predictions:

Oh, and it gets scarier.

The nonpartisan Congressional Budget Office (CBO), which already disagreed with the White House on many predictions, now predicts that the budget deficit will be slightly larger than Obama said it would; in other words 50% bigger deficit.  In January, the CBO predicted a $1.2 trillion deficit; now, it is $1.8 trillion.  All I can say is, WOW.  The deficit is now four times last year, which was the biggest national deficit in world history.  Also, the new numbers would set close to all time highs in deficit as a percentage of GDP…over 4% (It did go over that level before…when we were fighting the Nazis and Japanese in World War II).  That is a level that even White House budget director Peter R. Orszag yesterday acknowledged would “not be sustainable.” Well, Obama said he would provide change…just didn’t know he meant pennies and nickels…

In reality, the longer term problem is the slowing rate of growth for the American GDP.

Today, despite encouraging signs that the economy’s recent disorienting plummet is slowing, the long-run picture is darker. “Potential real GDP growth has never grown as slowly during the history of the U.S. since 1875 as it is growing today,” economist Robert Gordon told a November conference at the Federal Reserve Bank of San Francisco.  Gordon, an expert on productivity at Northwestern University, says the economy’s potential growth rate for the next two decades will be no better than an annual rate of 2.35%, down from the 2.86% figure for the previous 20 years. As of January, the Fed’s official view was that the economy can sustain growth of 2.5% to 2.7%. An updated forecast is due within weeks.

So, at least there is growth, right?  Better than a recession, no?

Well, yes and no.

The biggest problem will be the Obama deficit.  Obama has a record $1.3 trillion deficit slotted for this year, and then proposes to cut that deficit by approximately one half in five years.

Here is the problem:  he can only do that with a much faster growth rate.

Obama’s budget, showing the cut in the deficit, is largely dependent on the economy growing at a rate more on par with the Bush and Clinton years…something economists are not predicting.

For example, Obama’s economists predict a 4.0% growth rate in 2010, and 4.5% in 2011.  The Federal Reserve and most economists are predicting a growth rate from 2-3%…much slower than Obama predicts.  Thus, the related tax proceeds should be much, much lower than predicted in the proposed budget, which therefore will drive the budget deficits much higher than expected.  And this doesn’t even begin to discuss the problem for entitlements.  Additionally, the divide between the White House and corporate America is widening.  Executives are becoming more and more disenchanted with Obama’s business policies.  Though, it is their own fault.  Mr. Obama has kept his word on what he was going to do.

That may not sound like a huge difference on an individual basis, but the lost output works out to roughly an annual $1,200 per U.S. household. “We’ll be growing two-thirds as fast as we were. If you want to know what that feels like, think back to the late 1970s, early 1980s,” says Adam Posen, deputy director of the Peterson Institute for International Economics.

The repercussions for such a reduction in long term growth is tremendous.  Obama is right now expecting the increase in GDP to narrow deficits that will allow him to pass health care reform, education, cap-and-trade, etc.  The problem is, it is fake monopoly money he is playing with.