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The Depression Thread
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Hater Depot



Joined: 29 Mar 2005

PostPosted: Fri Mar 06, 2009 4:05 pm    Post subject: Reply with quote

http://www.businessinsider.com/new-low-on-shiller-pe-12x-normal-trough-low-is-8x-2009-3

Henry Blodget all but predicts the S&P to drop another 55%.
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Jeff's Cigarettes



Joined: 27 Mar 2007

PostPosted: Fri Mar 06, 2009 4:06 pm    Post subject: Reply with quote

Can somebody tell me how far down the shitter does this country have to go before we all wake up from our “American Idol” stupor, realize that our future has been sold into slavery and remember why the 2nd Amendment was actually put in the Constitution?

Anybody?

OINK if you love Obama
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Fri Mar 06, 2009 9:04 pm    Post subject: Reply with quote

So, who benefits from the bailout to AIG?

Rhymes with holdman sacks.

http://www.calculatedriskblog.com/2009/03/wsj-aig-aid-went-to-goldman-others.html
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Ya-ta Boy



Joined: 16 Jan 2003
Location: Established in 1994

PostPosted: Fri Mar 06, 2009 11:02 pm    Post subject: Reply with quote

bucheon bum wrote:
651,000 Jobs Lost in February

Quote:
In a stark measure of the recession’s toll, the Bureau of Labor Statistics reported on Friday that the national unemployment rate surged to 8.1 percent last month, its highest in 25 years. The economy has now shed more than 4.4 million jobs since the recession started in December 2007.


The closest thing to good news:

Quote:
Although the tally of February’s losses was grim, the 651,000 jobs lost last month were actually fewer than the number in each of the last two months, according to revisions reported Friday.


And the numbers would have been even worse if the Stimulus Bill hadn't passed. State gov'ts are starting to spend money that saves jobs. No doubt it's hard to quantify exactly how many jobs were saved, but it's a good thing anyway.
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Robot_Teacher



Joined: 18 Feb 2009
Location: Robotting Around the World

PostPosted: Sat Mar 07, 2009 3:19 am    Post subject: Reply with quote

The stimulus bill is only temporarily staving off the inevitable. It's a huge price to just keep a decreasingly low performing market from crashing and then it'll probably still crash anyhow. The numbers would be worse today had the stimulus not been passed, but the numbers and dire situation may be even worse when the stimulus monies are all gone later this year. 2 points if you can guess where most of that money ends up.

I say instead of borrowing tons of money from China to use as a band aid that the next generation will be saddled down with and very well possibly lose ownership and control of the USA itself, go ahead and let the market and economy act on it's own. By taking out a huge debt that will only burden the next generation, it worsens the situation in the long term. The government really needs to let the market correct itself on it's own and then everyone will have to chip in to pick up the pieces and restart anew. Who knows, if the current economic system dies, maybe we'll get some competent business leaders within an accountable system who can actually lead a company to profitability and create good jobs?
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On the other hand



Joined: 19 Apr 2003
Location: I walk along the avenue

PostPosted: Sat Mar 07, 2009 3:23 am    Post subject: Reply with quote

Jeff's Cigarettes wrote:

Quote:
Can somebody tell me how far down the shitter does this country have to go before we all wake up from our “American Idol” stupor, realize that our future has been sold into slavery and remember why the 2nd Amendment was actually put in the Constitution?


Well, why are you waiting for others to get the ball rolling? Is there anything stopping you from starting your own revolutionary militia group right now?
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Ya-ta Boy



Joined: 16 Jan 2003
Location: Established in 1994

PostPosted: Sat Mar 07, 2009 4:28 am    Post subject: Reply with quote

Quote:
It's a huge price to just keep a decreasingly low performing market from crashing and then it'll probably still crash anyhow.


I disagree. Money's only money. People's lives are more important. When 651,000 people lose their jobs, that's something like 1,000,000 people (counting spouses and kids) who just lost their income. That's that many fewer consumers. Their friends, relatives and neighbors also get scared and stop spending.

The function of the gov't is to protect the people of the country. That does not mean only buying guns to shoot foreigners. It means plugging the leaks when the ship of state springs a leak. People who have hope do not get out their pitchforks and torches. The 'do nothing' approach is far more dangerous.

It was Marie Antoinette who said, "Let them eat cake". That's all well and good as long as it isn't you getting her kind of haircut.
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Rteacher



Joined: 23 May 2005
Location: Western MA, USA

PostPosted: Sat Mar 07, 2009 6:25 am    Post subject: Reply with quote

This article - by a respected economonic prognosticator - is more in line with the spirit of very deep depression ...

What's Dead? (Short Answer: All Of It)

By Karl Denninger

Just so you have a short list of what's at stake, if Washington DC doesn't change policy here and now (which means before the collapse in equities comes, which could start as soon as today, if the indicators I watch have any validity at all. For what it's worth, those indicators are painting a picture of the Apocalypse that I simply can't believe, and they're showing it as an imminent event - like perhaps today imminent.)

* All pension funds, private and public, are done. If you are receiving one, you won't be. If you think you will in the future, you won't be. PBGC will fail as well. Pension funds will be forced to start eating their "seed corn" within the next 12 months and once that begins, there is no way to recover.

* All annuities will be defaulted to the state insurance protection (if any) on them. The state insurance funds will be bankrupted and unable to be replenished. Essentially, all annuities are toast. Expect zero, be ecstatic if you do better. All insurance companies with material exposure to these obligations will go bankrupt, without exception. Some of these firms are dangerously close to this happening right here and now; the rest will die within the next 6-12 months. If you have other insured interests with these firms, be prepared to pay a LOT more with a new company that can't earn anything off investments, and if you have a claim in process at the time it happens, it won't get paid. The probability of you getting "boned" on any transaction with an insurance company is extremely high - I rate this risk in excess of 90%.

* The FDIC will be unable to cover bank failure obligations. They will attempt to do more of what they're doing now (raising insurance rates and doing special assessments) but will fail; the current path has no chance of success. Congress will backstop them (because they must, lest shotguns come out) with disastrous results. In short, FDIC backstops will take precedence even over Social Security and Medicare.

* Government debt costs will ramp. This warning has already been issued and is being ignored by President Obama. When (not if) it happens, debt-based Federal Funding will disappear. This leads to....

* Tax receipts are cratering and will continue to. I expect total tax receipts to fall to under $1 trillion within the next 12 months. Combined with the impossibility of continued debt issue (rollover will only remain possible at the short duration Treasury has committed to over the last ten years if they cease new issue) a 66% cut in the Federal Budget will become necessary. This will require a complete repudiation of Social Security, Medicare and Medicaid, a 50% cut in the military budget and a 50% across-the-board cut in all other federal programs. That will likely get close.

* Tax-deferred accounts will be seized to fund rollovers of Treasury debt at essentially zero coupon (interest). If you have a 401k, or what's left of it, or an IRA, consider it locked up in Treasuries; it's not yours any more. Count on this happening - it is essentially a certainty.

* Any firm with debt outstanding is currently presumed dead as the street presumption is that they have lied in some way. Expect at least 20% of the S&P 500 to fail within 12 months as a consequence of the complete and total lockup of all credit markets which The Fed will be unable to unlock or backstop. This will in turn lead to....

* The unemployed will have 5-10 million in direct layoffs added within the next 12 months. Collateral damage (suppliers, customers, etc) will add at least another 5-10 million workers to that, perhaps double that many. U-3 (official unemployment rate) will go beyond 15%, U-6 (broad form) will reach 30%.

* Civil unrest will break out before the end of the year. The Military and Guard will be called up to try to stop it. They won't be able to. Big cities are at risk of becoming a free-fire death zone. If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go "feral"; witness New Orleans after Katrina for how fast, and how bad, it can get.

The good news is that this process will clear The Bezzle out of the system.

The bad news is that you won't have a job, pension, annuity, Social Security, Medicare, Medicaid and, quite possibly, your life.

It really is that bleak folks, and it all goes back to Washington DC being unwilling to lock up the crooks, putting the market in the role it has always played - that of truth-finder, no matter how destructive that process is.

Only immediate action from Washington DC, taking the market's place, can stop this, and as I get ready to hit "send" I see the market rolling over again, now down more than 3% and flashing "crash imminent" warnings. You may be reading this too late for it to matter.


www.harekrsna.com/sun/editorials/03-09/editorials4152.htm
http://market-ticker.denninger.net/
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Sat Mar 07, 2009 8:05 am    Post subject: Reply with quote

I like Karl Denninger some. He really needs to tone down the caps, bold and underlining in his writing though.

Ben B. is acting like a thug:

http://money.cnn.com/news/newsfeeds/articles/djf500/200903031957DOWJONESDJONLINE000787_FORTUNE5.htm
Quote:

Calls increased Tuesday to reveal the financial institutions that got almost $ 40 billion in collateral from American International Group (AIG) shortly after the government first bailed out the insurer last year.

AIG almost collapsed in September after ratings agency downgrades triggered demands for billions of dollars in extra collateral from firms that had bought derivative-based protection from the insurer on complex mortgage-related products known as collateralized debt obligations, or CDOs.

AIG didn't have that much money and faced bankruptcy. But it was saved by an $ 85 billion emergency loan facility from the Federal Reserve.

By Nov. 5, the insurer had paid out $37.3 billion of that money to counterparties who had purchased a certain type of derivative-based protection from AIG called multi-sector credit-default swaps, according to the company's third-quarter regulatory filing.

Since then, AIG and the Federal Reserve Bank of New York have unwound most of these contracts. To do this, they offered to buy the CDOs that were originally insured by the agreements. The counterparties sold these assets at a discount, but were compensated in full in return for allowing AIG to extricate itself from the obligations. The counterparties also got to keep the $37.3 billion in collateral, according to The Wall Street Journal.

The counterparties have never been disclosed publicly. However, banks that sought and received collateral from AIG included Goldman Sachs, Merrill Lynch, UBS AG and Deutsche Bank AG, The Wall Street Journal said in November.

Now that the government's bailout of AIG has ballooned to more than $160 billion, some politicians want to know which financial institutions benefited from taxpayer support provided to the insurer.

"AIG has given the counterparties $20 billion. Those people could be just about anybody in the world. Why won't the Fed disclose who those are?" Sen. Ron Wyden, D-Ore., asked Fed Chairman Ben Bernanke during congressional testimony on Tuesday.

Bernanke said the counterparties made "legal, legitimate, financial transactions" with AIG and presumed at the time that the contracts would remain private.

"That is a consideration we have to take into account," he added.

Sen. Mark Warner, D-Va., suggested that AIG's counterparties should have to take a "haircut," rather than be made whole, because some of them probably didn't do enough due diligence on whether the insurer was financially strong enough to be selling such protection.

"In effect, what we're saying is, consequently, folks who bought these instruments and that, at some point in their process, should have been doing some level of credit analysis of what AIG was selling who didn't do that credit analysis are going to still come out whole for their lack of appropriate due diligence or responsible behavior," he said.

"I'm as unhappy as you are about that, senator," Bernanke replied. "I just don't know what to do about it."

Full disclosure of all AIG's CDS counterparties isn't needed, but the major counterparties that benefited from government support of the insurer should be disclosed and a fee should be assessed "for the benefit their shareholders received from the U.S. taxpayer," Joshua Rosner, a managing director at research firm Graham Fisher & Co., said Tuesday.

"If the government's AIG support provided protection to Goldman to the tune of $20 to $25 billion, then shouldn't they pay the taxpayer something for the utility expense of that protection?" he added.

Goldman has said several times that its exposure to AIG isn't material and is offset by collateral and hedges. A spokesman for the firm reiterated that on Tuesday, but declined to comment further.

An AIG spokeswoman said Tuesday that the insurer hasn't disclosed its major CDS counterparties and that the information is confidential.

The insurer's portfolio of credit default swaps was still notionally worth $ 302.2 billion at the end of 2008, despite government-supported efforts to aggressively unwind it during the fourth quarter.

AIG estimated Monday that another downgrade by ratings agencies would trigger $8 billion in collateral and termination payments to counterparties on these contracts.

Some of AIG's CDS give counterparties another right to terminate the contracts if the insurer's ratings fall to BBB or Baa2. The notional value of these derivatives was more than $38 billion at the end of 2008.


I don't think the Fed understands how hostile the public has become to it, and to Benny's buddies on Wall Street. This idea that he can hide where public money is going is insane from the standpoint of public confidence in the Fed institutions.

Quote:

$9.5 trillion of bailout money is enough to pay off every mortgage in the USA or write a check to every person on the planet for $1400.

http://jsmineset.com/index.php/2009/03/06/in-the-news-today-132/

Here's an excellent discussion of the AIG money, and what is going on there:

http://www.moonofalabama.org/2009/03/numbers-that-do-not-fit.html#more
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Sat Mar 07, 2009 8:08 am    Post subject: Reply with quote

Hater Depot wrote:
http://www.businessinsider.com/new-low-on-shiller-pe-12x-normal-trough-low-is-8x-2009-3

Henry Blodget all but predicts the S&P to drop another 55%.


If you stretch out that S&P chart the recent highs like very abnormal from a historical perspective.

http://www.google.com/finance?q=INDEXSP:.INX

(click "max")

If I'm right, and we're heading back to 95, before the era of funny money from Greenspan, the S&P will bottom around 550, though there is a significant risk of a large overshoot on the downside.
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Rteacher



Joined: 23 May 2005
Location: Western MA, USA

PostPosted: Sat Mar 07, 2009 4:50 pm    Post subject: Reply with quote

Not to unnecessarily incite more anti-Semitism than there already is, but if reports that Lehman Bros. execs transferred over $400 billion to banks in Israel (which doesn't disclose banking info and won't extradite) before declaring bankruptcy ...
http://groups.google.com/group/total_truth_sciences/browse_thread/thread/c8402ac77f91dd28
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Sun Mar 08, 2009 10:30 am    Post subject: Reply with quote

This is an brief but good article that starts with SG, but goes around the region too:

http://business.theage.com.au/business/globalisations-demise-sinking-singapore-20090308-8sfe.html
Quote:

Globalisation's demise sinking Singapore
Anthony Faiola, Singapore
March 9, 2009

THIS shimmering city-state was the house globalisation built. When trade boomed, Singapore's port, at the crossroads of East and West, became a hub for freighters and supertankers. Nearly everything manufactured here is made for export. One out of every three workers is a foreigner.

But Singapore is now a window into the reversal of the forces that brought unprecedented global mobility to goods, services, investment and labour. With world trade plummeting for the first time since 1982, the port has become a maritime parking lot in recent weeks, with rows of idle freighters from Asia, Europe, the US, South America, Africa and the Middle East stretching for kilometres along the coast. "We're running out of space to park them," said Ron Widdows, chief executive of Singapore-based NOL, one of the world's largest container lines. Thousands of foreign workers, including London School of Economics graduates with six-digit salaries and desperately poor Bangladeshi factory workers, are streaming home as the economy suffers the worst recession in South-East Asia. Singapore is an epicentre of what analysts call a new flow of reverse migration away from hard-hit economies, including Dubai and Britain, that were once beacons for foreign labour.

Economists from Credit Suisse predict an exodus of 200,000 foreigners — or one in every 15 workers here — by the end of 2010.

Singapore's exports collapsed by a stunning 35 per cent in January, mirroring much of the rest of Asia. The export boom here was tied to credit-fuelled buying sprees in the US that stopped abruptly and may take years to return, if ever.

Adding to growing fears of a years-long depression for exports is a rising tide of trade protectionism in countries including neighbouring Indonesia.

The scene in this port city illustrates the ebbing of a golden age of trade, innovation, wealth accumulation and poverty reduction through globalisation.

In four months, port traffic has fallen by double digits not only in Norfolk, Long Beach and Savanna, but in Pusan, Hong Kong and Bremerhaven.

Air hubs from London to Singapore that saw traffic soar as the world became more linked through business, investment and trade are seeing a sharp reversal of fortune. In January, global airline passenger traffic fell 5.6 per cent; air cargo nose-dived 23.2 per cent.

As exports crash worldwide, factories from China to Eastern Europe are closing. The World Bank estimates the crisis will trap at least 53 million more people in the developing world in poverty this year. Last week alone, a billion dollars fled emerging markets — the largest weekly loss since October, according to Merrill Lynch.

Some of the hardest hit are migrants and foreign contract workers.

Malaysia is expelling 100,000 Indonesians as part of a new policy to put Malaysian workers first as the recession sparks job losses.

In Britain, strikes broke out in protest at the hiring of foreigners at one of the country's largest refineries even as thousands of Eastern European immigrants headed home because they lacked work.

Investors are fleeing South Korea so fast that its short-term debt may surpass dwindling reserves by the end of this year.
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Sun Mar 08, 2009 10:43 am    Post subject: Reply with quote

http://www.bloomberg.com/apps/news?pid=20601080&sid=aC8TYiXw0KZg&refer=asia

Quote:
March 7 (Bloomberg) -- India’s economy may grow at 7 percent this financial year and the next, said K.V. Kamath, chief executive officer of ICICI Bank Ltd., the nation’s second- largest lender.


Ha. And I'll grow three feet taller this year.

http://www.guardian.co.uk/business/2009/mar/06/imf-uk-bailout-gdp
Quote:
IMF: Fifth of Britain's GDP spent so far on bailouts

Alistair Darling has already spent almost a fifth of Britain's GDP on bailing out its shattered banking system – more than any other major economy, according to a grave assessment of the world financial crisis published today by the International Monetary Fund.


And the UK is just getting started. RBS could bring the entire house down, Iceland style.

http://www.funnyordie.com/videos/c130f64d6f/the-new-f-ing-citibank
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Sun Mar 08, 2009 10:56 am    Post subject: Reply with quote

http://www.businessinsider.com/how-the-us-is-less-leveraged-than-everyone-else-2009-3
Quote:


Guys like Peter Schiff argue that the massively leveraged US dollar is bound to crash, as the government is forced to run the printing presses in order to prop up ailing banks. It's a popular view among gloomsayers.

Kyle Bass at Hayman Advisors has been among the most negative guys out there on the global economy, but sees a somewhat different outcome, arguing instead that the US is relatively under-levered compared to others out there.

Sure, our banks are levered, as are households, but bank assets, as a percentage of GDP are "relatively" tame. We're no Iceland, and we're no the UK. Everyone will have to run the presses to avoid a banking collapse, but the US may have to run it less than others.
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Mon Mar 09, 2009 6:17 am    Post subject: Reply with quote

Prolly the worst day of financial/economic news I've come accross in my young life.

http://www.ritholtz.com/blog/2009/03/wall-streets-year-and-a-half-of-dangerous-living/
Quote:

* The current decline is worse than the 1929-1932 rout.
* Based on the Wilshire 5000 Index, the market-cap of U.S. stocks is down $11 trillion since the Oct. 2007 peak, Marketwatch says.
* U.S. stocks have lost $1.6 trillion in market-cap since Barack Obama’s inauguration, Bloomberg reports.
* Nearly 50% of all stocks in the Wilshire 5000, the broadest index of U.S. equities, are trading for less than $5 per share, and 37% are under $3.


Warren Buffett this morning on CNBC:
Quote:

Economy is "close to the worst case." Can't imagine it being much worse ... The economy "has fallen off a cliff."


http://www.nytimes.com/2009/03/09/business/09bank.html?ref=business
Quote:
WASHINGTON — In one of the bleakest assessments yet, economists at the World Bank predicted on Sunday that the global economy and the volume of global trade would both shrink this year for the first time since World War II.


It is nice to see the NYT and WB catching up to me.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4958395/Thanks-to-the-Bank-its-a-crisis-in-the-eurozone-its-a-total-catastrophe.html
Quote:
Spain's agony is already well advanced. Industrial output has fallen 24pc. Some 352,000 people have lost their jobs in two months. BBVA expects unemployment to reach 20pc next year, touching 4.5m. Premier Jose Luis Zapatero can do nothing as long as Spain remains in monetary union.


http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4958831/Overvalued-euro-set-to-plunge-within-months.html
Quote:
Overvalued euro set to plunge 'within months'
Spread betting companies have reported a huge wave of short euro trades in the last two weeks, leading to speculation that a significant correction in the currency will come in the next few months.


http://www.marketwatch.com/news/story/story.aspx?guid={6C30D9F2-62B8-4EDB-B1F8-DD53960B8528}&siteid
Quote:
Nikkei marks lowest close in 26 years


http://www.bloomberg.com/apps/news?pid=20601095&sid=agQF0X_OSyp4&refer=east_europe
Quote:
March 9 (Bloomberg) -- Latvia faces bankruptcy in three months if it fails to deliver budget cuts required by the International Monetary Fund and the next installment of its bailout is delayed, Premier-designate Valdis Dombrovskis said.


The race for the prize of "the next Iceland" continues..

These last two articles are excellent, and should be read in their entirety.

http://www.ft.com/cms/s/0/27c46bec-0c0c-11de-b87d-0000779fd2ac.html?nclick_check=1
Quote:
An L of a recession – reform is the way out

By Wolfgang Münchau

Published: March 8 2009 18:15 | Last updated: March 8 2009 18:15

The US is dragging its feet over the financial sector. The European Union is doing the same, as well as failing to adopt policies that could shield it from an increasingly probable speculative attack. And judging by the state of preparations, the forthcoming Group of 20 summit is going to be a disaster.

So it looks like it is going to be an L – not a V or a U. I mean an L-shaped recession, one that starts with a steep decline, followed by very low growth for many years. In a V-type recession, the recovery is instant. In a U-type, it comes eventually. My guess is that we are currently somewhere in the middle of the vertical bit of the L, but it is the horizontal bit that is the scariest. History never repeats itself exactly, but we know from economic history that financial crises are surprisingly similar. This looks like Japan all over. Without financial restructuring, the economy is not going to recover. And Japan was lucky. It was surrounded by a booming global economy.


http://www.nakedcapitalism.com/2009/03/guest-post-more-debt-wont-rescue-great.html
Quote:
Policy-makers not only misunderstand the economic crisis, they continue to underestimate it. Consequently, solutions to date have not only failed to "fix" anything, they have made the problem worse. The problem isn't falling asset prices, it's not rising foreclosures, it's too much debt. With an assist from mark-to-market accounting,* too much debt inflated the asset bubble in the first place. Yves has it exactly right that the only "solution" to this crisis is price discovery, to allow asset prices to fall to whatever level they need to in order for markets to clear. This is bad news for over-levered balance sheets, but there's nothing else to be done.


http://www.cantonrep.com/news/x1569321039/Stark-s-hottest-job-Janitor
Quote:
Nearly 700 people have applied for a single job as a school custodian.


http://globaleconomicanalysis.blogspot.com/2009/03/deflationary-depression-returns-to.html
Quote:
David Rosenberg, North American Economist at Merrill Lynch is talking about a "Depression-Style Jobs Report"

We cannot rule out the loss of 1 million jobs in March

Judging by the leading indicators – 600,000+ jobless claims, Challenger layoffs up an eye-popping 158% from a year ago, the 78,000 plunge in temporary employment, the record-low workweek – suggest that we will have to endure an 800,000 employment slide when the March data roll out, and a 1 million loss cannot be ruled out. We may have to redefine yet again what a ‘new normal’ is at that point. The bottom line is that a recovery in domestic economic activity is, at best, a late-2009 story, but at this stage, even that could be a fairy tale.

One in seven individuals unemployed or underemployed

Suffice it to say that the unemployment rate that is most inclusive in terms of accounting for all forms of “underemployment” such as this shift toward part-time and away from full-time work is the U-6 measure, which soared from 13.9% in January to 14.8% in February, a record high for this particular series. So, we have a situation where not only 1 in 11 homeowners with a mortgage are now either delinquent or in the foreclosure process, but we also have 1 in 7 individuals who are either unemployed or underemployed. We’re not sure how to classify
such a macroeconomic backdrop, but it certainly is not a garden-variety recession.

How we get any sustained inflation is totally beyond us

In addition to credit contraction, asset deflation, profit compression and employment destruction, we are also in a vicious inventory reduction phase in the manufacturing sector. If our forecast is correct, this would then suggest that the capacity utilization rate in manufacturing will make a new all-time low of 66.6% from 68% in January. The employment data also tell us that there is a very high probability that wages and salaries deflated -0.3% in February as well. How we end up getting any sustained inflation pressure, or backup in bond yields for that matter, as the economy moves further and further away from any semblance of “full employment” in either the labor or product market, is totally beyond us.

Putting the reflation-deflation debate into perspective

Yes, the Fed’s balance sheet and the balance sheet of the federal government are expanding at record rates. But these reflationary efforts should be seen as a partial antidote, not a panacea, to the deflationary effects brought on from the unprecedented contraction in the largest balance sheet on the planet: The $55 trillion US household balance sheet. Based on what house prices and equity valuation have been doing this quarter, we are likely in for a total loss of household net worth approximating $7 trillion this quarter alone, which would bring the cumulative decline in consumer wealth to $20 trillion. This wealth loss exceeds the combined expansion of the Fed’s and government balance sheet by a factor of ten. That should put the reflation-deflation debate into perspective.
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