Historically, small businesses have been the creators of most jobs, but unable to gain those loans that have in the past been used to create jobs, or new businesses, job creation has fallen dramatically. Thus, we have the highest unemployment rate in more than 26 years. Not since Mr. Carter's recession of the late 1970's and early 1980's has unemployment been so high, nor is it likely to end in the near term.
Small businesses-especially new small businesses-account for essentially all net job growth. However, business creation and expansion requires capital, and more and more of the nation's capital is being commandeered by the U.S. Treasury in the name of "stimulus".So unemployment rates above 12% are not just likely, but will occur for much longer than had been forecast. Real jobless rates above 14% are more than just possible.
The FY2009 Federal deficit was $1.4 trillion. This was almost a trillion dollars higher than FY2008. The capital to buy this additional debt had to come from somewhere, and much of it was squeezed out of business. Here are some indicators, both statistical and anecdotal:
• During FY2009, "Gross Domestic Private Investment" fell by 25% (almost $500 billion/year). It would have needed to grow by 5% to keep the unemployment rate from rising from an already-too-high 6.2%.
• Many venture capital firms are informing entrepreneurs that there is no money available for new startups. The firms say that they must husband their capital to meet the needs of their existing portfolio companies.
• The 500 largest U.S. non-financial companies now hold more than $1 trillion in Treasury bills, amounting to more than 10% of their total assets. Corporate cash flows are rising, but the money is being invested in government bonds, rather than growth.
• Banks have cut credit card credit lines by 25%, or $1.25 trillion. Because small businesses are often financed with personal credit cards, this has a direct impact on small business survival and growth.
The "headline" (U-3) unemployment rate of 10.2% vastly understates the magnitude of the jobs crisis in America. John Williams' "Shadow Government Statistics" unemployment number for October is 22.1%. Williams estimates that we would have to create 22.6 million new jobs in order to get to "true" full employment. At $313,000 each, the private sector would have to invest an incremental $7.1 trillion to accomplish this.Thus the Stimulus Package hasn't just been an object failure, it is causing much higher unemployment now. When you consider adding in a $1.3 trillion dollar Health Care seizure as well as a $1.5 trillion dollar "Cap & Trade" program, the economy will probably take at least a decade to recover, if then. At this point radically reducing Federal spending and cutting taxes, as Mr. Reagan did in the early 1980's is the only real solution to this depression. FDR's programs didn't end the Great Depression, World War 2 did, but at a cost to the world that is unimaginable today.