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The Number One Point in Obama State of the Union Speech is the Economy

As with any State of the Union speech delivered by a President, there is always much "progress to report". In President Obama's 2013 State of the Union speech there is actually much progress to report on the economy. In his opening comments the President said "After years of grueling recession, our businesses have created over six million new jobs. We buy more American cars than we have in five years, and less foreign oil than we have in twenty. Our housing market is healing, our stock market is rebounding, and consumers, patients, and homeowners enjoy stronger protections than ever before."

The President went on to say "Our economy is adding jobs – but too many people still can’t find full-time employment. Corporate profits have rocketed to all-time highs – but for more than a decade, wages and incomes have barely budged."

One of the surprising policy initiatives mentioned was increasing the federal minimum wage from $7.25 an hour to $9.00 an hour and indexing the minimum wage to the cost of living, an idea GOP presidential nominee Mitt Romney also backed. Increasing the minimum wage would lift millions out of poverty but on the other side of the argument is the increase in wages would force business to hire less.

Plus indexing the minimum wage to inflation could be an issue if the economy ever got back into a period of high inflation, just like we saw in the 1970's and early 1980's. During these periods of high inflation, the economy gets in this cycle of both prices and wages moving higher until the Federal Reserve increases interest rates to high levels there is recession.

Back in 1980, the inflation rate was 13.58 percent which caused the effective fed funds rate to increase to 19.08 percent in January 1981. During that time 12 month CD rates were also was high very high around 13 percent. of course the economy fell into a recession in 1981 and interest rates fell soon after.

Another big economic point in the State of the Union was mortgage rates and the affect on the housing market. President Obama said "But even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected. Too many families who have never missed a payment and want to refinance are being told no. That’s holding our entire economy back, and we need to fix it"

The housing market is recovering but if these homeowners were able to refinance and if lending restrictions were loosened the economy would be much stronger than it is. There are bills pending in Congress that would make refinancing easier, whether or not they are passed remains to be seen.

Speaking of Congress the President also said "The greatest nation on Earth cannot keep conducting its business by drifting from one manufactured crisis to the next." The point is right on the mark, the fiscal cliff has already put downward pressure on the economy and actually made the economy contract in the 4th quarter. Congress and the President have to come together and resolve all the fiscal cliff issues once in for all.

You can view the entire 2013 State of the Union Speech Here:

Author: Brian McKay
February 14th, 2013