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Federal Reserve expects high unemployment until possibly 2015

Federal Reserve Chairman Ben Bernanke announced today that the improvements in the economy seen in the 4th quarter of 2012 were temporary. At the same time there is continued improvement overall, but will result in a decrease of only .4% to the unemployment rate by the 4th quarter of 2013. Unemployment rates of 6.5% are not expected until sometime in 2015.

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Key points to consider that Fed Chairman Bernanke addressed are housing, and the unemployment rate. The data, while improving, is not as positive as the Chairman's statements might lead one to believe.

According to RealtyTrac, 154,281 foreclosure proceedings were started in the month of February 2013. This is a 2% increase after declines from the 4th quarter 2012 and January 2013. This coincides with the statement from Bernanke that the 4th quarter improvement was temporary. But there is more to this.

RealtyTrac also notes that in 32 States foreclosures were up from the prior month and in 16 of those States the number of foreclosure proceedings were up versus a year ago. Most notably 4 States had increases above 100% - Nevada at 334%; Maryland at 314%; Washington at 172%; New York at 139%.

In addition, currently 1.4 million homes are in a foreclosure proceeding while home sales as of January 2013 are down 25% from December 2012 and down 9% from the prior year. Again this coincides with the statement by Chairman Bernanke, and directly offsets any positive outlook in housing markets if this trend continues.

As for unemployment the laborforce figues, as of the most recent Bureau of Labor Statistics data, shows a continuing and troubling decrease since 2009 (currently at 63.7%). Workforce figures are not keeping pace with population growth (142.7 million workers vs. average pop growth of 2.49 million). The number of people working 2 part-time jobs as they cannot find full-time employment (which positively influences the official unemployment rate, but is a negative on the unofficial unemployment rate) has increased 19.3% since 2008. At the same time there are fewer 1.3 million small business owners since 2008 - with February (8.5 million self-employed) showing that all gains made in 2012 (143,000) were lost and a continuing decline in this figure (300,000 fewer self-employed than the average for 2012).

Overall the data, as we read it, indicates that the economy is virtually at a stand-still. None of this takes into account the effect of the Sequester, which began on March 1st and will result in $85 billion in spending cuts across the Government for the year of 2013. This is why, in the very best estimate of the outlook of the Fed (without accounting for the Sequester) growth for 2013 is 2.8% and will grow to 3.7% in 2015. The worst case scenario is 2.3% for 2013 growing to 2.9% in 2015. Net growth of .6% to .9% in 2 years is not sluggish but virtually non-existent.

Perhaps the most troublesome fact from Fed Chairman Bernanke is the acknowledgement that these figures are only possible via the manipulation of markets by the Fed. Currently the Fed has frozen rates at .25%, and is actively buying $85 billion in Government securities each month to create an artificial environment preventing the economy from reflecting its true status.

That does not count the fact that the entire amount of mandatory Sequester cuts for the year 2013 ($85.4 billion) were spent in January and February each; and are planned to be spent each month potentially until 2015. That's $2.04 trillion spent (without including interest) assuming that there is no further need on Jan 1, 2015 - which the data, and projections from the Fed do not support.

Given all the data, the projections from the Fed, and the spending that is contributing to the debt problem for the benefit of negligible growth, one thing can be clearly and we believe unquestionably stated - the economic policies of the Obama Administration, in conjunction to the actions of Congress, are a failure. They will remain a failure for years to come.


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