The Exuberant Accountant - Scott Heintzelman

 Two things my blog readers seem to always like, pretty charts and posts regarding Gov’t spending/tax updates. Well today is your lucky day!

The good folks at MyBankTracker have created a very cool chart that shows just how our government spends our tax dollars. This chart shows the areas of spending, discretionary and mandatory. What is key to note here is that our mandatory spending is almost twice what our discretionary spending is. That means when it comes time to cut spending, so much of our budget is fixed and not able to be cut without some major changes (i.e. social security, medicare…). Click here to view a larger version.

One thing is certain, we may need a chainsaw to fix this problem and not a scalpel.

 It was 20 months ago that congress “speed rushed” the $787 billion stimulus package through congress with a goal of creating jobs. In fact, several in Washington told us that unemployment would not exceed 8% if this was passed. Well, how effectively was the money spent?

If you base the result simply on unemployment, not very well. As everyone knows, the U-3 unemployment is currently at 9.6% (and the less publicized U-6 underemployment is at 17.1%) and many jobs were lost in the months after the bill was passed. But let’s suppose we give them the benefit of the doubt that the recession was worse than they knew (I know, but just go with me on this). How well did the stimulus money work at “creating” jobs?

 I get this question a lot and my standard answer is, “If I knew that, I would be a very rich man.” In all seriousness, it is difficult to predict and no one knows what will happen. However, in trying to read the tea leaves, it would seem the answer is yes it is coming and probably in the not too distant future.

On Friday, our Federal Reserve Chairman Ben Bernanke gave a speech and openly discussed that inflation at less than 2% is too low and why the Fed must encourage greater inflation to reduce our huge jobless rate. "Inflation is running at rates that are too low relative to the levels that the (Fed Open Market) Committee judges to be most consistent with the Federal Reserve's dual mandate in the longer run," he said. That dual mandate is to maintain stable prices and low unemployment.

With the U-6 unemployment rate at 17.1% the Fed is clearly concerned about jobs and the short term pain associated with it. We currently are in a flat or deflationary period – meaning the price of goods and services are falling or staying flat. The problem with low inflation or deflation is that it is not just a sign of a weak economy. It can actually make a weak economy even weaker.