Unemployment

Unemployment in the UK is about 2.5 million according to offical figures. Which are always rather conservative. That is a rate of around 7.6%. According to recently leaked figures, the Treasury estimates additional job losses over the next five years, due to austerity measures, to be around another 1.3 million. An increase of about 50%! A total of nearly 4 million or 10%. unemployed.

Increased unemployment hits the economy adversely in four ways. 1 )Unemployed people will not be earning and so will not be spending. 2) They wil not be paying tax. 3) They will be drawing benefits. 4) For many of those people benefits are unlikely to enable them to keep paying their mortgages. They will default.

The Treasury estimates were for a little more than half of these job losses to be in the private sector. A little under half in the public. The estimate is for the losses to come steadily at around 100-120K per year public and 120-140 per year private. Think about that. If you believe the Treasury estimates, I don’t, but if you do, then for the next five years, solid, unemployment will go up. How secure does that make you feel that your job won’t be one of them?

So for five years things get worse year on year. The what? The estimattes say nothiing about the other side, the recovery side. How many years will it take for unemployment to start going down? Growth starts slowly and the Treasury isn’t even looking at growth for jobs to start for five more years. If it takes five years to reach bottom will it be faster going up? Why should it be faster? So it could well be be at least another five years after that to get back to where we are today. that’s 10 years of unemployment higher than it is today. WIll you survive that? ANd all the time the banks will continue to suck up public money.

But wait, there’s more, as the advertisers love to say.

All these Treasury estimates are based on growth estimates. And therein lies my problem with these figures. I don’t believe the growth figures. I think they are as bogus as all the ones we have seen for the last two years. They have all been fictions designed to protect ‘confidence’. Or in plain speaking, lies.

There are domestic and international reasons why growth will be less than forecast.

Domestically, every one of those unemployed people will not only be without a job but will be looking for one. For evey job there will be 10 people willing to do it. They will be the tool used by employers and government, to keep wages not only low but below inflation. Real wages will decrease. We will get poorer. We will have less to spend and the economy will therefore, NOT grow as fast as currently predicted.

Internationally, none of the regions we export to is going to grow either. Europe is looking at very low growth and high unemployment. Spain has just had its sovereign rating downgraded and this morning 5 of its regional banks had their rating lowered because of, ‘low growth prospects’. The same is true for Portugal and eastern countries.

And then there is China. Chinese growth has been revised down in the last few days. More interstingly there is the news today that China has for the first time become one of the main countries bond dealers are buying CDS protection for. What that means, is that those holding Chinese debt are increasingly thinking it worth paying for insurance against those debts not paying up.

I think that tells you the market no longer sees China as the great hope for growth. Instead they are seeing it as an increassing risk of bad debts. In place of optmism is a realism about the state of China’s banking and property bubble. Banks are stuffed with loans that will not be paid. Local government finances are a horror story and several major property companies are NOT on a sound financial footing. China can ddeal with these things. But world saving growth as well? No.

China has suddenly become the country for whom the third largest amount of CDS insurence is being bought. France is number one. Which tells you how worred the markets are about Credit Agricole’s and other French bank’s exposure to Greece and Spain.

In America investment funds have seen their eigth week in a row of funds being withdrawn. So far, in only 8 weeks, $32 Billion has been withdrawn. Not a tiatnic amoutn but not chicken feed either for the funds involved. Does that soundlike a market confident of growth or people heading foer the exits? At some point those funds will have to start forced selling of assets to cover the withdrawals. At whch point you have a self re-enforceing loop of withdrawal, selling to cover the redemptions, causing price declines, causing more withdrawals and round and down.

Unemployment is giong to be high, and syat high because growth is not going to pull us up any time soon. Is that a recovery? Or is it a plan to save the banks at the cost of your long term impoverishment?