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Future Unemployment & The Economic Consequences

3 February 2010 No Comment

Following up on my look at unemployed Americans, I read a great piece over at Market Oracle on the future of unemployment benefits that I want to comment on.  This article gives a great look at the reality of unemployment and the large scale economic ramifications of the ugly situation we find ourselves in.  I will provide some of the highlights of the piece here.

The author poses the question, will unemployed receive benefits indefinitely while major employers continue to ship jobs overseas?  Then he goes on to observe the following:

There is nothing to stop these events because the public doesn’t understand what is going on and Congress answers only to campaign contributions and the call of re-election. The biggest insult is to expect Americans to believe unemployment is 10% under U3, never bothering to mention U6, which is 17.3% and climbing. Of course there will be more stimulus and Fed monetization of Treasury debt. They know if it is not forthcoming the economic and financial system will collapse. Can you imagine what would happen to the mortgage securities market if the Fed stops buying that toxic waste, or if Fannie Mae, Freddie Mac, Ginny Mae and the FHA stop buying subprime and ALT-A type mortgages? The stock market has slowly moved higher as the insiders in the market, who know what is going on, perceive what is in store for 2010. As far as the Fed is concerned they have to continue doing what they have been doing. The purchase of Treasuries, Agencies and toxic waste has to continue as we long ago pointed out. There isn’t enough dollars floating around the world to absorb this debt. That is why the Fed has to continue to create money out of thin air.

Pretty straightforward and simple… and scary.

With regards to gold, the author points out the following:

  • All major currencies have lost big over the past decade with regards to gold
  • Central banks are now buying gold when they used to sell gold

The author concludes with:

The longer government and the central bank interfere in the economy the worse the situation will be and the longer the recovery will be. In the meantime our government deficit increases as it fights a two-front war with no end in sight. Even with stimulus 2010 is going to be a very difficult year.

This statement is basically the core of what I believe about economic policy in this country.  Each stimulus enacted creates less and less impact while continuing to expand our deficit and/or debase the currency.  As I always say, there is no easy way out of our economic reality.  There is no pain-free strategy here.  The longer we refuse to acknowledge our irresponsible ways, the worse it will be.

What I Take From This Article

  1. This economic recession is going to last a long time
  2. There are major issues ahead: state budgets, lack of job growth, continued losses
  3. Quantitative easing is not going to end in March
  4. We should be buying gold on dips and managing our money as tightly as possible
  5. Stocks are risky

Whether you buy every point made in this article or not, it’s important for you to hear this side of the economy.  You should be preparing for the worst and hoping for the best.  The American economy isn’t doomed but it is definitely structurally broken right now.  A readjustment is possible with a new era of growth and prosperity, but quantitative easing isn’t the path to this growth and prosperity.

I recommend proceeding with extreme caution in the areas of finance.  Put as much money away as possible by being strict with your spending, get your costs down as much as possible, diversify into assets such as gold, consider exploring other options to protect yourself in the event of a major economic collapse or a massive inflationary environment.  Hey, if things turn out to be good, you’ll be fine.  You can sell your gold and start spending like a wild man again.  But, what if things do get bad and you’re not prepared?  That is the question that should keep you up at night.

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