Unemployment - The Ticking Time Bomb

The following is a summary of an article written by Ambrose Evans-Pritchard from the Telegraph. Essentially, he is not from the "green-shoot" camp and has warned of further hardship and gloom.

In the article, Ambrose warned that "the unemployment time bomb is ticking away". In his past work as a news reporter, covering the US in the early 1990s, he has visited numerous militia groups that sprang up in Texas, Idaho and Ohio, in the aftermath of the 1990s recession. All were early victims of the global labour arbitrage. Then, these people were angry enough with Washington to spend weekends in fatigues and armed with M16 rifles. One fringe group even blew up the Oklahoma City Federal Building in 1995. Fortunately, the protests gradually dissipated once the recovery fed through the system.

This time, however, the job recovery could be non-existent. Capacity has fallen to record lows of 68% in the USA and 71% in Europe. And the deeper purge in labour has yet to come. And if the May US payroll number of -467,000 was sobering, then the total full-time job losses of 9,000,000 so far this cycle must be extremely worrying.

Combined with the drop in time worked, to 33 hours per week, or 6.9% lower from a year earlier, wage deflation could be setting in. Earnings, for example, declined 1.6% (annualised) in the last 3 months. Moreover, some of the wage cuts have been disguised with workers having to take compulsory leave without pay. There is now an increased risks that other countries may set off a ruinous spiral by chipping away at wages to gain "beggar-thy-neighbor" advantage.

More ominously, the situation could be worse than anticipated. Published US unemployment rate stood at 9.5% while some studies have put the number as high as 18%, if counted the old-fashioned way. In addition, 20,000,000 US home-owners are already in negative equity and evictions could increase at a terrifying pace. Already, some state police, such as in Michigan and Illinois, are quietly refusing to toss families out into the streets. A social disorder in the making?

In the meantime, Ambrose, taking a dig at the fat-cats, suggested that Bankers take a teacher's salary for a few years, while tax-payers pay for the bankers past mistakes. Otherwise, Bankers should expect a ferocious backlash (In December 2008, Royal Bank of Scotland (RBS) staff had to be police escotted, as they were hurled with snowballs by angry tax-payers).

Maybe, prices of rotten eggs and tomatoes will be in hot demand soon.