Since the financial crisis started in 2008, the U.S. policies of the government and the Federal Reserve have simply acted to “kick the can” further down the road. More people have become dependent on government handouts over the past four years than ever before and a vast amount of “created” money has been pumped into the financial system.
The October 2012 unemployment rate in the U.S. economy was 7.9% compared to 10% in October of 2009. (Source: Bureau of Labor, November 6, 2012.) On the surface, it looks like the unemployment rate has declined, but in fact it’s only a speaking point for the politicians.
The labor market in the U.S. economy is far from running at its full potential. The labor force participation has been in a severe decline since the beginning of the financial crisis, falling to only 63.8% in October of 2012 compared to above 66% prior to the financial crisis. ( Source: Bureau of Labor, November 6, 2012.)
Americans are staying unemployed longer than normal. The average duration of unemployment from 1967 to October of 2012 has been about 8.2 weeks. If we shorten the timeframe to from the time the financial crisis struck the U.S. economy up to the end of October, the median unemployed period has been 19.6 weeks. (Source: Federal Reserve Bank of St. Louise, November 2, 2012.)
As people have stayed unemployed for a longer period of time, they have become more dependent on government. For example, the use of food stamps in the U.S. economy has increased 46% since the beginning of 2009 until July of 2012! In January of 2009, 31.98 million people were on some form of food stamps. Now the number sits around 46.68 million. (Source: U.S. Department of Agriculture, September 28, 2012.)
Those who believe the U.S. unemployment rate in the U.S. economy has improved need to realize that the basic structure of the labor market has been tormented. I have talked rigorously in these pages about how the jobs created during President Obama’s first term were in low wage paying sectors.
We need to realize that there are more than 12 million people unemployed less than 27 weeks, another five million who are unemployed for more than 27 weeks and another large group that has been working part-time because they can’t find full-time work.
Sure, the “official” unemployment rate has come down. But the real unemployment rate, when you include those who have given up looking for work and those that have part-time jobs who want full-time jobs, is a catastrophe…
Eurozone trouble strikes once again! Even though the European Central Bank (ECB) has announced it will buy unlimited bonds, the prospects of any improvements are still bleak. And countries are suffering, as no real solution has been implemented.
The root cause of the credit crisis in the eurozone can be traced to certain governments not being able to repay the debt they issued due to a confidence crisis. The governments then sought a bailout from the ECB. In return, ECB imposed austerity measures on the countries who wanted bailouts.
Those austerity measures failed miserably and the debt-infested troubled eurozone countries deteriorated further. Now another round of trouble is brewing and Greece is at the forefront of it again. Greece needs to pay 5.0 billion euros on November 16 to investors who bought the government’s treasury bills. The problem this time around is very similar: the government doesn’t have the money to pay. (Source: The Wall Street Journal, November 5, 2012.)
With that said, other eurozone governments and the ECB know that the money they give to Greece will most likely never come back to them. In that regard, the International Monetary Fund (IMF) is suggesting the ECB and eurozone governments write off some of the loans they have given to Greece.
I’ve recently returned from Europe. The people I spoke to while I was there told me they see Greece exiting the eurozone as a 90% foregone conclusion.
Looking at the bigger picture, writing off loans to Greece is more likely to lead to more problems than to a solution. Instead of just one country falling behind, the entire eurozone will get into further trouble.
If all of this actually occurs, prepare for an even greater global economic slowdown than we’ve already experienced. Yes, the Greek economy is small. But if Greece exits the eurozone, what country is next? Spain is a much bigger economy and a bigger potential problem than Greece. The ECB is running out of options. It can’t print money like the Federal Reserve, as not all eurozone countries (especially Germany) are onside with money printing.
We have been reading and hearing about the eurozone crisis for years now and nothing seems to be getting done about it. Austerity measures have not worked, the IMF thinks the ECB and countries that lent money to Greece should write off those loans. Spanish banks are in big trouble. The real estate market has not improved in the troubled eurozone countries and unemployment in large eurozone countries is a nightmare.
My answer? Just have Greece exit the eurozone. Ten years from now, they’ll be better off for it.
Where the Market Stands; Where it’s Headed:
It looks to me like 2013 will be the turning point for the stock market. That bear market rally I have been writing about since 2009…I doubt very much 2013 will be a part of it. The year 2013 will be when Phase III of the bear market that started in 2007 gets underway.
What He Said:
“There is no mixed signal about this: Foreclosures in the U.S. will continue to rise, the real estate market will get weaker, and the U.S. economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.” Michael Lombardi in Profit Confidential, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.