When you look at the current unemployment rate of 5 percent, you would think that our economy would be humming along. Yet the way that they calculate the official unemployment rate is such a joke, you are almost left guessing how many people are really out of work. Are you looking for work […]
Related Posts:
■Credit Crisis Part Deux: The Noise in the Housing Attic.
■The Short Sale Report: Volume 1 – The True Barometer of the Housing Market
■A Bubble That Broke the World: Lessons from the Great Depression Part IX. When Credit is Debt.
■The Menace of Mortgage Debts: Lessons from the Great Depression Series: Part IV: Where do we go After the Housing Crash?
■Sheep Back to the Slaughter: Lessons from the Great Depression Part VIII: All the Change and Bear Market Rallies.
When you look at the current unemployment rate of 5 percent, you would think that our economy would be humming along. Yet the way that they calculate the official unemployment rate is such a joke, you are almost left guessing how many people are really out of work. Are you looking for work and simply can’t find a job and gave up? Consider yourself not counted in the numbers. Are you working part-time although you want full-time employment? Guess what? You are not counted either! It is patently absurd and frustrating to see what kind of gimmicks the government uses to massage the unemployment data.
Mish over at Global Economic Trend analysis on a monthly basis has to dig into the data to point out the stupidity of the unemployment numbers:
It is such an utter disturbance that people are quoting 5 percent as the unemployment rate when 9.2 percent of our population is either underemployed, working part-time, or flat out given up and not working. Also, what about all the people in finance, construction, lending, or any fields associated to the credit bubble that are now receiving a lot less simply because they are commissioned based or depend on their being easy credit? These people are still hanging on by a thread with a massively reduced income yet they are still counted as fully employed. That is the issue with our current unemployment rate. So if our current rate is closer to 10 percent, wouldn’t that change the perception of our current economy?
This is part X in our continuing Great Depression series:
1. Personal Story by a Lawyer from a Previous Asset Bubble. Can we Learn from the Past and How will the Housing Decline Impact You?
2. Lessons From the Great Depression: A Letter from a former Banking President Discussing the Bubble.
3. Florida Housing 1920s Redux: History repeating in Florida and Lessons from the Roaring 20s.
4. The Menace of Mortgage Debts: Lessons from the Great Depression Series: Part IV: Where do we go After the Housing Crash?
5. Business Devours its Young: Lessons from the Great Depression: Part V: Destroying the Working Class.
6. Crash! The Housing Market Free Fall and Client #10 Contagion.
7. Winston Smith and the Bailouts in Oceania: Lessons from the Great Depression Part VII.
8. Sheep Back to the Slaughter: Lessons from the Great Depression Part VIII: All the Change and Bear
Market Rallies.
9. A Bubble That Broke the World
It may help to take a look at the unemployment rate during the Great Depression:
*Soucre: Gold Ocean
“The Great Depression began in 1929 when the entire world suffered an enormous drop in output and an unprecedented rise in unemployment. World economic output continued to decline until 1932 when it clinked bottom at 50% of its 1929 level. Unemployment soared, in the United States it peaked at 24.9% in 1933. It remained above 20% for two more years, reluctantly declining to 14.3% by 1937. It then leapt back to 19% before its long-term decline. Since most households had only one income earner the equivalent modern unemployment rates would likely be much higher. Real economic output (real GDP) fell by 29% from 1929 to 1933 and the US stock market lost 89.5% of its value.”
The chart above is disturbing. Yet you also need to remember that the job losses came fast and furious during this time. If you were unemployed, you were unemployed. In today’s market, anyone can get a minimum wage job with our so-called service industry yet struggle along as a walking zombie. What happens when you go from a $100,000 a year real estate career to earning $9 an hour in a service sector job? If you dig into the previous jobs report from the BLS you’ll notice that the larger increase of jobs is in service oriented jobs that pay less than the other important sectors such as finance and manufacturing. Either way, the sham of the current job report is that it covers up the true reality of the situation.
You may also be shocked to hear that California now has the nation’s third-highest unemployment rate only behind Michigan and Alaska:
“(LA Times) Although April’s unemployment rate was unchanged from March, it represented a full percentage point increase above April 2007. Almost 200,000 more people were out of work than last year, giving the state the third-highest unemployment rate in the nation, behind Michigan and Alaska.
California lost 800 nonfarm jobs in April from the previous month. But seasonally adjusted numbers for the month were up slightly — 0.2% — over a year earlier, according to the Employment Development Department.”
The Great Depression also hit hard throughout the country on farmland that was mortgaged and many local banks going into default. But we had a backup plan then. We were a lender as a nation! Now we are a massive debtor. We also witnessed deflation during the Great Depression which we are already seeing asset deflation with real estate:
“Another unusual aspect of the Great Depression was deflation. Prices fell 25%, 30%, 30%, and 40% in the UK, Germany, the US, and France respectively from 1929 to 1933. These were the four largest economies in the world at that time.
To put the severity of the depression in modern perspective, consider the following. Real US GDP went down 4.4% in the five years that it declined since 1959, all added together! Unemployment has never exceeded 9.7% and we have not had one year of deflation. Maybe you’re thinking, “what’s wrong with a little price deflation?” Depending on how much and how unexpected, deflation can be a devastating economic event. Imagine wages falling by 30% and the value of debts simultaneously increasing by that much.
In the great depression it would have been nice if the suffering had been so evenly distributed. Instead the deflation caused bankruptcies, which in turn led to, more bankruptcies! Millions of people and companies were wiped out completely. The lack of adequate social programs left people of all social strata depending on relatives and friends for charity. Spending became paralyzed with fear as the downturn was so unexpected, so severe, and the bad news just kept coming for years.
Many did not realize how severe the downturn was until 1932 or 1933 when the economy had technically hit bottom and even begun to chug forward. People’s resources were depleted by then and so were many of their friends’. So the human misery caused by the Depression really started in the mid-1930s.”
The problem inherent in today’s market is as follows:
First - Unemployment is understated by underemployment and shadow workers (those that have given up looking for work). It also does not reflect the loss of income in once high paying jobs.
Second - The FDIC although providing protection to depositors has created a sort of moral hazard. If you look on sites like Bankrate, you’ll notice that the highest savings rates normally come from the most capital impaired institutions. Many on the list will probably go bankrupt in 1 or 2 years. Now why would anyone invest their money in these institutions if they knew that their money wasn’t protected? If it weren’t for the FDIC, these lenders would be bankrupt and rightfully so; they have horrible and flawed business models and should be allowed to fail. Instead, they offer you a nice yield on a 6 month CD.
Third - Underemployment is just as bad as unemployment. In terms of economic data and spin, it is probably worse since it gives many a false sense of security. We are not at a 5 percent unemployment rate. It is simply an absurd number and even the fact that the CPI told us last month that energy prices dropped, I think that even the lay person now gets that there is something rotten in Denmark. If you look at the report, how can you consider someone working part-time but wanting full-time employment as part of the official unemployment number? The current number that should be quoted is the 9.2 percent number. As we’ve gone along, we’ve managed to allow the Ministry of Truth to massage out every kink out of the most important statistics of our economy.
Forth - Banks are being propped up on a crutch. There will be more bank failures. Think this is just hyperbole? Then why is the FDIC bringing out folks from retirement who lived through the S & L collapse to gear up for the next phase of the debt crisis?
“(MarketWatch) He’d built a new home by a lake in Texas, bought a boat and was working on his golf game. While taking on some part-time work, Holloway also traveled for months across the U.S. with his wife, from Seattle to Washington D.C., catching up with old friends and family.
That life of leisure abruptly changed about six weeks ago when Holloway got a phone call from his former employer, the Federal Deposit Insurance Corp., or FDIC, which regulates U.S. banks and insures deposits.
Holloway, a 30-year FDIC veteran, had worked extensively with failed lenders in Houston during the savings and loan crisis in the late 1980s and early 1990s, when thousands of thrifts collapsed.
Earlier this year, the FDIC began trying to lure roughly 25 retirees like Holloway back to prepare for an increase in bank failures. It’s also hiring about 75 new staff.
Holloway quickly went back to work. ANB Financial N.A., a bank in Bentonville, Ark. with $2.1 billion in assets and $1.8 billion in customer deposits, was failing and an expert like Holloway was needed to value the assets and find a stronger institution to take them on.”
No problem folks! Any comparison to the Great Depression is doom and gloom. Listen. I know that folks like to make light of this but the problem of complacency and mind numbing control from drones on the media is that people are now content to be under slavery to debt. Do you really own that car? Try missing a payment. Do you really own that $700,000 McMansion? Try missing your mortgage payment. The false guise of security is that consumer inflation is non-existent (hello $4 gas!), that unemployment is at 5 percent (you mean I can kick back at home and watch Montel and not be considered unemployed?), and finally assuming that things from the past cannot occur again.
Simply from looking at the data it looks like we are going to have our own lost decade like Japan. The data has gotten so out of whack, that you have rely on other measures like income to triangulated your assumptions. If we are simply to look at the CPI and employment numbers from the government we’d assume the economy is perfect like a bowl of warm porridge.
I’m not the only one that is waking up to this insanity:
“(Harper’s Magazine) If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.
The corruption has tainted the very measures that most shape public perception of the economy-the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances-inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.”
So the most relied upon measures for the health of the economy are completed screwed up. Like the entire ownership society myth that was pushed (and by the way homeownership is now back to 2002 levels, pre-dating the ownership society speech in 2003). The problem that is going on is we have a silent destruction of our treasured U.S. Dollar and our productive base is being dismantled piece by piece. People were placated since they felt somehow that pushing papers around and flipping houses was somehow going to keep us competitive with nations that are pumping out engineers and scientist on an incredible basis. Time to rethink our numbers and demand the truth be reflected but it would appear that most folks simply want access to a credit card, a television, and a burger in the hand. Time to get real and focus on improving the balance sheet of our country.
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Related Posts:
■Credit Crisis Part Deux: The Noise in the Housing Attic.
■The Short Sale Report: Volume 1 – The True Barometer of the Housing Market
■A Bubble That Broke the World: Lessons from the Great Depression Part IX. When Credit is Debt.
■The Menace of Mortgage Debts: Lessons from the Great Depression Series: Part IV: Where do we go After the Housing Crash?
■Sheep Back to the Slaughter: Lessons from the Great Depression Part VIII: All the Change and Bear Market Rallies.
Via [DrHousingBubble]
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