Global Economic Crisis

The U.S. Labor Department just released its weekly number of jobless claims, and in a mocking twist of painful irony, the figures were an exact match for the previous week: 6.6. million additional jobless applications. This means that over the past three weeks, 16 million Americans have filed unemployment claims, adding another 10 percent to the unemployment rate in the United States, which now stands at just under 14%.

Never in history, not even during the Great Depression of the 1930s, has there been such a rapid rise in unemployment. The collapse of the job market in the U.S. has been replicated in virtually every advanced economy. This means that the health crisis created by policy responses to the coronavirus pandemic has now unleashed a destructive global economic crisis of unparalleled dimensions. And this is only the beginning. In the weeks ahead, the economic news will only get worse.

Such a swift collapse in employment numbers mean two simultaneous tsunamis of economic doom have been unleashed: an unprecedented rate of demand destruction, combined with an implosion in governmental revenues across the globe. The latter trend, at a time of increasingly vast deficit spending by sovereigns, will in due course unleash another wave of economic calamity; a sovereign debt crisis.

Never before in human history has a public health crisis created in its wake such economic calamity, resulting in the Global Economic Crisis of 2020.

Contrary to the expectation of pundits and economists, May’s employment numbers released by the U.S. Labor Department are an unmitigated disaster. At first glance, though, the uninformed would think that the vast deficit funding on economic stimulus by the Obama administration was working. Supposedly, “employers” added  431,000 jobs, and the overall U3 unemployment rate dropped to 9.7%. However, the so-called “employers” consisted almost entirely of the U.S. federal government, which added  411,000 temporary census jobs in May. These jobs, which will disappear in a few weeks, are responsible for about 95% of the claimed job creation in May in the United States.

In May, according to the government’s own data, private sector job creation was statistically insignificant. I personally believe, based on past patterns, that  the U.S. government statisticians consistently over-report private sector employment in most of the initial monthly tabulations.

One other factor should be noted. The drop in unemployment from 9.9% to 9.7% was due not to vast job growth in the U.S. economy, but rather due to the fact that 322,000 unemployed workers were eliminated from the officially counted workforce. In fact, when one counts this category of so-called discourage workers, in addition to part time workers unable to find preferred full-time employment, the more inclusive U6 unemployment rate is close to 20%, or one in every five U.S. workers.

With continuing high rates of unemployment, it is clear that there will be no consumer-led economic recovery in major advanced economies. This means that massive government deficit spending is the only means of propping up national economies. However, with the global economic crisis rapidly mutating  into a virulent sovereign debt crisis, the option of public pump-priming clearly has its days numbered.

The Department of Labor’s report on unemployment for September was just released, and it came as a dismal surprise to those proclaiming an end to the recession. Instead of a further reduction in lost jobs, the number actually increased in September.

According to the Department of Labor, a net total of 263,000 Americans jobs disappeared in September, taking the official U.S. unemployment rate to 9.8%, its highest level since 1983. In addition, the average workweek was reduced to 33 hours, the worst showing since the end of World War II. Those are the official numbers.

However, when one looks at the real  unemployment numbers, factoring in discouraged workers and the underemployed, the numbers are in excess of 17%; some estimates rank as high as above 20%. While the government can manipulate the unemployment statistics all it wants to artificially deflate the actual rate of unemployment, there is one number that cannot be played with; tax receipts. Fewer employed Americans mean less tax revenue for Washington. The U.S. federal government’s tax receipts are down by more than 20%, while spending is soaring to record levels. If this is an economic recovery, it is heavily disguised.

It is precisely at this time of unprecedented job destruction, not only in the U.S. but also throughout the world, that stock markets are rallying. The Dow Jones actually rose the day the U.S. Labor Department released its grim jobless statistics. Again we see the opium of optimism pervading Wall Street, while the Global Economic Crisis continues to shred Main Street.

Amid all the uncertainty clouding the global economy and its fate, one thing is certain: the massive rise in unemployment rates throughout the world will facilitate further demand destruction, which in turn will lead to further job losses, as a vicious self-perpetuating engine of economic destruction runs amok. Recall that the initiation of the Global Economic Crisis began with a collective failure to pay the monthly bills on subprime mortgages, at a time when the United States enjoyed record levels of employment, and an official jobless rate below 5%. With the likely impact of rising levels of unemployment on the securitized bank assets based on near-prime, prime and commercial mortgages likely to be highly negative, it would appear that the current “sucker’s rally” on Wall Street is just another manufactured asset bubble waiting to implode.