There is a great call for optimism, with major newspapers and news magazines jumping on the bandwagon.  Federal Reserve chairman Ben Bernanke even said the recession was likely over.

I understand the importance of optimism but I also believe in being prepared. And I am concerned that the current river of hope flowing from the White House is smoothing over reality and leaving many unprepared for what may be challenging times ahead.

I am hearing from people “in the know” who say that it is about to get much worse, especially at the State level where they will likely call a special session of the Legislature to discuss options.  Tax revenue is down significantly yet spending continues.   Many more banks in our communities are not going to make it much longer – the Atlanta Business Chronicle reported that the Federal Reserve didn’t want any one area to have an excessive number of failures so they relaxed requirements somewhat in Georgia.  Without the hoped for recovery this leniency may come back to bite them with above average closings.  Then there is the looming crisis in Commercial Real-Estate to contend with.

The primary indicator of a recovering economy is employment. Most people don’t understand the fact that the government is monetizing the debt or what the cap and trade bill will do to our economy. And while they express concern about rising interest rates or bank failures around the office water cooler, once they are sitting at home all day reading the want ads things become much more serious.

So it was understandable for the administration to claim that their policies would keep unemployment under 8%. They may have even believed it. But now the rate is a minimum of 9.7%, and the administration is warning it will go higher.  In Georgia it already has, reaching a conservative 10.3% with unemployment in some counties as high as 21.7%.  Think about 10% unemployment – that means that one out of every ten people are out of work.

Five years ago the average taxpayer lived above his means – he had debt with no savings. Even if he has made adjustments he still has no safety net. A person in this situation who hears enough times that recovery is just around the corner may start to believe it. He may decide that he can take that vacation or buy that new television because his company will start to see growth in just a few months. Maybe if he could just borrow a little more money he can keep his lifestyle until the promised improvement happens. But what if the bottom is not a few months away, but 6 months, a year, or even more?

“Hope for the best but plan for the worst”. Your grandmother probably said the same thing. But a person who has been persuaded that the future is brighter stands a very good chance of being completely wiped out if it is not. With that in mind, here are some inconvenient truths about the economy that ought to be considered:

We were told that nationwide 466,000 jobs were lost in August, and unemployment rose from 9.4% to 9.7%. Although not widely reported, we were told in the same report that if you count those who are no longer looking for work, unemployment is actually 16.8%. Then add in those forced to take a temporary job (not counted as unemployed), or the small business owners who haven’t been able to take a salary for three months.

Think about this – even if we have a remarkable turnaround and lose “only” 400,000 thousand jobs in September, 350,000 in October and 300,000 in November the effect is still cumulative and the number continues to climb.

But wait – there’s more. In July the minimum wage went from $6.55 per hour to $7.25 per hour. Many states have minimum wages which went up as well. So when an employee is forced to give every entry-level worker an 11% raise what do you think will be the result?

A horrible spiral

When people lose a job they spend less – and this is where the domino effect kicks in. The office vacancy rate is now up to almost 16%, vacancy rates at strip malls nationwide are at 10%, and rent for both is falling. Cities and municipalities who can’t get away with taxing the voters are raising taxes on hotels, who have to either lower their rates or see rooms go empty. Restaurants are having to offer deals to fill tables, stores are having to discount items, contractors are not building, and on and on. This cycle is difficult to break quickly. Consider the restaurant that fails. All of his employees are out of work, his landlord has another vacant space (and less income), and his suppliers see reduced business. Even the other tenants in the strip mall suffer because of less traffic. And everyone who used to depend on this business now has less money to spend.

The administration says to give their programs more time. Time for what? The massive tax increases that everyone knows have to come? How will that help?

If the government could actually create jobs or increase wealth (without just printing money) then it would stand a chance of pulling us out of this. But all it can do is hinder business, and no matter how progressive the liberal he has to know that business is where the wealth is generated. Imagine what the economy would look like if a conservative had come in and on day one had cut the corporate tax rate to a flat 15%, eliminated the capital gains and estate taxes and began reducing government spending and regulations. The savior of the economy will not be a government. It will be the entrepreneur who is only asking for a chance to turn things around.

I hope the country can recover quickly in spite of what is happening, but as for me, I am planning for the long haul.

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