Unemployment Screams Crisis Continues Despite Goldilocks Stress Test
Posted by Michael A. Kamperman on May 9, 2009
The official unemployment rate is now 8.9% and equal to the worst case assumptions for 2009 used in the Goldilocks stress tests of the banks. The tests were not too hot and not too cold for one reason and one reason only, so that more TARP money would not be needed in the near term. There is no clearer signal that the political will is lacking in Washington to confront this crisis head on. Treasury Secretary Geithner has been left with nothing more to work with than smoke and mirrors wizardry ala the Land of Oz. So what if no big bank is going under in 2009 or 2010. The banks accounted for only a fraction of the credit granted to the world economy over the last few years. The main driver for the rest of the creation of credit came from the asset-backed securitization market that relied on AAA ratings. It remains dead as a door nail if it doesn’t carry the implied or implicit backing of the U.S. Treasury. The source of the economic crisis was never the large commercial banks and declaring the banks alive and well has not resolved the problems in the economy. While the attempts to prop up confidence are necessary and admirable, confidence alone will not restore the loss of access to credit that like it or not is the lifeblood of our modern economy. As the banks rush to return TARP money they will have less to lend, not more.
It is shocking that the U.S. lost 539,000 jobs in April, with downward revisions to February and March, and people are saying it appears we are turning the corner and the worst may be behind us. President Obama should fire the political hacks who recommended he say ““the gears of our economic engine do appear to be slowly turning once again.” He should surround himself with advisors who have him declare the economic crisis continues and he will not rest until the country finds a way to get the gears of our economic engine to begin to slowly turn again. The latest weekly unemployment claims which will be part of the May unemployment report were 601,000. While that is down from the peak it still indicates more job losses are heading our way in May. We have yet to account for Chrysler closing all its factories a week ago and informing over 1,000 dealerships they will be permanently discontinued. A deeper look into the jobless numbers indicates the length of time out of work is rising. Also, if you work part-time you are counted as employed even if you would prefer full-time work but can’t find it. This number has skyrocketed in recent months. The point is not only are the total job numbers deteriorating, the quality of jobs is deteriorating too.
What sector outside of the federal government and perhaps healthcare will be adding jobs to this economy? Certainly not construction as the real estate market is overbuilt or manufacturing as the stunning contraction in the auto sector and other industries continues unabated. Exports won’t lead the way as our trading partners, especially Mexico, are in worse shape than we are. Retail is still contracting. The plan for the banks to raise earnings is more cost cutting. Even state and local governments are shedding jobs as their tax receipts whither and they do not have the power to print money. Our country needs a serious discussion of ways to escape the depression we are in rather than smoke and mirrors tricks designed appease the masses for the moment.
