[OPE] Summer of unemployment

According to the BBC, Mr Bernanke told the Senate Budget Committee hearings that "We are better off moving aggressively today to solve our economic problems. The alternative could be a prolonged episode of economic stagnation that would not only contribute to further deterioration in the fiscal situation, but would also imply lower output, employment and incomes for an extended period." Wise words. http://www.federalreserve.gov/newsevents/testimony/bernanke20090303a.htm

But his own figures indicate the stimulus allocation cannot make much of a dent in the massive drop in employment, investment and output now occurring. The whole thing is spinning out of control. By the time this year is out, the US job losses due to the recession will be more than twice the number of jobs the stimulus package is supposed to create upon implementation. There is no way, that the stimulus package can prevent a permanently higher level of aggregate unemployment. The official world unemployment rate is set to reach one in 13 workers in the labour force, but it's going to go still more I think. We are now at the 1974/75 slump level, but it is going to get worse. Any chance that the recession would "bottom out" at year-end is receding. The models predicted that sort of thing on the basis of past experience, but it ignores the novelty of trillions of dollars of global buying power disappearing into thin air.

The Washington Post today http://www.washingtonpost.com/wp-dyn/content/article/2009/03/06/AR2009030601063.html?sub=AR judged that official US unemployment could rise to one in ten workers, already this summer - as I had anticipated last year to apply across a longer interval http://ricardo.ecn.wfu.edu/~cottrell/OPE/archive/0811/0245.html - which would imply an additional two million or so US job losses between now and August (about half a million job losses or so per month). If that devastating trend continued, we could even be looking at 12%+ official US unemployment at year end, i.e. one in 8 workers unemployed. On the broadest survey measure, already one in 7 US workers or so wants work or more work, but cannot get it.

This does not only force down real wages, but also, about one in four US owner-occupiers is then paying off a mortgage on a house that is worth less than they bought it for - one in ten mortgages are already delinquent or in foreclosure, and it is going to increase. All this creates more bad debts, write-offs and write-downs, it adds to fear and low confidence, which is sufficient to keep the whole downward spiral going, particularly given that foreign trade is also slumping, since other economies are likewise taking a nosedive. Out of that, you get a truly massive proletarianization process happening, and mass impoverishment.

The unemployment wrecks a lot of things socially - lives, homes, families, marriages, the social fabric, loan finance, and civilised behaviour. It worsens all the familiar social indicators. Mr Obama hopes to save the fabric of US civilization with the support of solidly conservative middleclass people, but my hunch is that there will be some kind of explosion of violent crime in the US among young adults who have nothing, and nowhere to go. Here in Europe, the official grand average unemployment rate is supposedly about 6%, but average youth unemployment is about 15.5% (in Spain, one in four young adults is unemployed).

Jurriaan

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Received on Sat Mar 7 19:30:45 2009