"From Our President.... NUMBERS"

Numbers are
(a) plentiful
(b) confusing
(c) exciting
(d) manipulative
(e) scary
(f) detailed

Numbers are everywhere in our day to day lives and, most importantly, they can be used to manipulate and convince a point of view. Most of us take for granted the numbers that are thrown around without questions, just assuming that the numbers are accurate. From the point of view of the speaker or the writer, numbers can be swayed to make them appear accurate. I do not think this was the norm, but it appears to be becoming the norm, which is scary because that is when they become manipulative.

In order to understand numbers more easily, we find that it is best to ask a basic question: “Is that a big number?” Second, it is important to break the number down to a more personal statistic, such as time or distance, which helps understand how big the number is on a proportional basis.

UNEMPLOYMENT
Unemployment is calculated by the BLS (Bureau of Labor Statistics). It is a number that is published monthly and is
intended to show how many people in this country are working and how many are out of work. That is the simplest definition. However, there are weekly unemployment numbers and there are monthly unemployment numbers which vary a great deal. A few days ago, we read a headline that first time unemployment claims increased by about 424,000. The following week, we read that job losses were only about 20,000 for the month and the unemployment rate dropped from 10% to 9.7%. We need to analyze these numbers to truly understand them.

First, if we lost 424,000 or if initial claims increased by 424,000 then you would think that unemployment was not going down, it was going up. In addition, a loss of 20,000 additional jobs should not lower the unemployment rate as more jobs were lost. The statistic that reduced the unemployment rate percentage from 10% to 9.7% was a statistic that was calculated based on samples of households. First, pollsters from the BLS call and ask people if they are (a) employed or (b) unemployed. They then ask the unemployed if they are (a) actively looking for work or (b) not looking for work. If you are unemployed and not looking for work you are not counted as unemployed. If you have taken a lower paying or part-time job, you are employed. There is no statistic to measure the underemployed or how much your salary has been reduced from your previous position.

And quoting David Rosenberg, chief economic strategist for money management firm Gluskin Sheff & Associates: "While there will be many economists touting today's report as some inflection point, and it could well be argued that we are entering some sort of healing phase in the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And, during this 11-year span of Japanese-like labour market stagnation, the working-age population has risen 29 million. Contemplate that for a moment; fully 29 million people competing for the same number of jobs that existed more than a decade ago. That sounds like pretty deflationary stuff from our standpoint.

"Not only that, but consideration must be taken that in 2009, we had a zero policy rate, a $2.2 trillion Fed balance sheet and an epic 10% deficit-to-GDP ratio. You could not have asked for more government stimulus. Yet employment tumbled nearly 5 million in 2009."

Finally, another chart, courtesy of David: Those in the 25-54 year-old male category have seen their total number of jobs fall back to the level it was in 1996. Fourteen years later, and the "breadwinners" who are supposedly in their prime have seen an almost 10% drop in employment.

Yesterday I read that there are 30,000,000 people unemployed. That may or may not be an accurate number. However, given that the population of the United States is 300 million, that seems reasonable. But do all 300,000,000 work or are they eligible to work? Let’s assume that of the 300 million population there are 75 million (on average) families of 4 people. If both adults in the household are working then we have 150 million eligible workers. If we have a 10% unemployment rate, that would be 15 million people unemployed. But if we have 30 million unemployed we have 20% unemployed. Which is correct? Both depending on how you want to spin the numbers.

THE DEFICIT AND GOVERNMENT DEBT
President Obama recently sent the 2010 budget to Congress for approval. This is the beginning of the process as
Congress will make changes to the budget proposal adding and subtracting money from various programs. This is the normal process. The total budget for 2010 is $3.8 Trillion. Is that a big number?

According to Michael Blastland and Andrew Dilnot in their book “The Numbers Game”, a million seconds is 11.5 days and a billion seconds is almost thirty-two years. A trillion seconds is according to Wikipedia = 31,688 years, 269 days, 1 hour, 46 minutes, 40 seconds. So the budget of almost $3.8 Trillion turns out in time to be over 90 centuries. We are spending in one year the amount of time to live over 93,000 years. It sure seems like a big number to me. I have a hard time understanding the magnitude of this, and I am sure that most people do.

Let’s look at some other statistics to break these numbers down:
• A million minutes ago was – 1 year, 329 days, 10 hours and 40 minutes ago.
• A billion minutes ago was just after the time of Christ.
• A million hours ago was in 1885.
• A billion hours ago man had not yet walked on earth.
• A million dollars ago was five (5) seconds ago at the U.S. Treasury.
• A billion dollars ago was late yesterday afternoon at the U.S. Treasury. [Note: this was pre-Obama]
• A trillion dollars is so large a number that only politicians
can use the term in conversation... probably because they
seldom think about what they are really saying. I've read that mathematicians do not even use the term trillion!

Here is some perspective on TRILLION:
• Trillion = 1,000,000,000,000.
• The country has not existed for a trillion seconds.
• Western civilization has not been around a trillion
seconds.
• One trillion seconds ago – 31,688 years – Neanderthals stalked the plains of Europe.

The budget that President Obama has submitted (3.8 Trillion) $3,800,000,000,000, is not going to be paid for by revenue received by the government from taxes that we pay. There will be a shortfall. That shortfall is a called a deficit. The new budget has a shortfall of $1.2 Trillion. That means we are spending $1.2 Trillion (look at the examples above) more than we are taking in from taxes. This is a record amount and according to the president will increase until 2015 when the economic recovery will start to reduce the deficit. WHAT HAPPENS IF HE IS WRONG? WHEN DOES THE SPENDING STOP, OR BETTER YET, WHEN WILL WE NOT BE ABLE TO FINANCE THIS DEBT?

The current debt of The United States of America is over $12 Trillion. This is the money that we raise through the sale of Treasury Bonds to finance the shortfall in the budget. You can see the debt clock on line at www.usdebtclock.org. The debt keeps climbing and every time we have a shortfall in the budget the debit increases by the shortfall. And the debt compounds. The debt for 2010 is expected to rise from $12 Trillion to $14 Trillion. The debt is expected to rise to $20 Trillion in 2020 according to the Congressional Budget Office.

The message, as you can imagine from just reading the NUMBERS, is that this is unsustainable. As we saw this week with Greece, and previously with Iceland, there comes a time when all of this debt is too great a burden and cannot be repaid. It is time that we stopped spending and became
fiscally responsible.

I have talked with many of you over the past few weeks about the different scenarios that could occur in the coming years, deflation, inflation, stagflation and hyperinflation. In the short term, deflation is possible because of the rising unemployment. In the long term, however, inflation or hyperinflation are
probable. The time to prepare for these events is now.

Richard L. Kesner
The CommonWealth Group, Inc.

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