Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The Problem With Deleveraging

By

What happens when a debt-happy nation starts to save?

PrintPRINT
In general, we consider saving money a good thing. But what happens when a debt-happy society wakes up and decides that saving is a good for everybody? What happens when banks and hedge funds decide (or are forced) to reduce their debt? What happens when businesses of all sizes find it harder to get loans to operate?

Let's find out.

1.2 Million Jobs and Counting

The unemployment numbers came out last week and they were ugly. October showed a loss of 240,000 jobs. But the really bad news was the negative revision to August and September numbers by a further loss of 179,000. Unemployment estimates are largely based on recent past performance. There is no way the models can catch a change in the overall trend.

The data shows that the economy has lost 1.2 million jobs since December, with over half of those losses in the last 3 months. While two-thirds of the losses are in manufacturing and goods production, the service economy is also starting to show signs of strain. 1 in 5 lost jobs are from the retail sector.

Philippa Dunne of The Liscio Report writes:

"A stunning fact: yearly job losses in private services, 0.4%, now match the worst of the 1982 recession and exceed the worst of 1975; once upon a time, the service sector wasn't very cyclical. Now it is."

Equally disturbing is the jump in the unemployment rate. It leaped to 6.5%, far above even the most dismal expectations. It's likely we'll see another 1 million jobs lost over the next year, with the unemployment rate headed up as high as 8%. There are now 10 million unemployed Americans. You have to go back to 1982 and a double-dip recession to find an 8% unemployment rate. Very few people under 50 remember what that's like.

Look at the chart below. Notice how swiftly unemployment rises both during and after a recession. Since I don't think the current recession will be over until the 3rd quarter of next year, we could see unemployment continue to rise for the next 8-10 months.


Click to enlarge.


Be Careful of Geeks Bearing Recovery Data

Going forward, you are going to hear all sorts of analysts (including sometimes even this humble analyst!) quote statistics that in general sound something like: "Since the end of WWII, average recessions have lasted X months, and thus we are almost through the current one, so buy what I am selling." Or the ever popular "Stocks tend to find the bottom in the middle of a recession, so now is the time to buy."
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE