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The Unemployment Time-bomb Is Ticking

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http://www.telegraph.co.uk/finance/comment...ly-ticking.html

One of my odd experiences covering the US in the early 1990s was visiting militia groups that sprang up in Texas, Idaho, and Ohio in the aftermath of recession. These were mostly blue-collar workers, – early victims of global "labour arbitrage" – angry enough with Washington to spend weekends in fatigues with M16 rifles. Most backed protest candidate Ross Perot, who won 19pc of the presidential vote in 1992 with talk of shutting trade with Mexico.

The inchoate protest dissipated once recovery fed through to jobs, although one fringe group blew up the Oklahoma City Federal Building in 1995. Unfortunately, there will be no such jobs this time. Capacity use has fallen to record-low levels (68pc in the US, 71 in the eurozone). A deep purge of labour is yet to come.

Earnings have fallen at a 1.6pc annual rate over the last three months. Wage deflation is setting in – like Japan. Interestingly, The International Labour Organisation is worried enough to push for a global pact, fearing countries may set off a ruinous spiral by chipping away at wages try to gain beggar-thy-neighbour advantage.

Some of the US pay cuts are disguised. Over 238,000 state workers in California have been working two days less a month without pay since February. Variants of this are happening in 22 states.

The Centre for Labour Market Studies (CLMS) in Boston says US unemployment is now 18.2pc, counting the old-fashioned way. The reason why this does not "feel" like the 1930s is that we tend to compress the chronology of the Depression. It takes time for people to deplete their savings and sink into destitution. Perhaps our greater cushion of wealth today will prevent another Grapes of Wrath, but 20m US homeowners are already in negative equity (zillow.com data). Evictions are running at a terrifying pace.

Some 342,000 homes were foreclosed in April, pushing a small army of children into a network of charity shelters. This compares to 273,000 homes lost in the entire year of 1932. Sheriffs in Michigan and Illinois are quietly refusing to toss families on to the streets, like the non-compliance of Catholic police in the Slump.

Europe is a year or so behind, but catching up fast. Unemployment has reached 18.7pc in Spain (37pc for youths), and 16.3pc in Latvia. Germany has delayed the cliff-edge effect by paying companies to keep furloughed workers through "Kurzarbeit". Germany's "Wise Men" fear that the jobless rate will jump from 3.7m to 5.1m by next year. The OECD expects unemployment to reach 57m in the rich countries by the end of next year.

This is the deadly lag effect. What is so disturbing is that governments have not even begun the spending squeeze that must come to stop their countries spiralling into a debt compound trap.

French president Nicolas Sarkozy, with a good nose for popular moods, says: "We must overhaul everything. We cannot have a system of rentiers and social dumping under globalisation. Either we have justice or we will have violence. It is a chimera to think that this crisis is just a footnote and that we can carry on as before."

The message has not reached Wall Street or the City. If bankers know what is good for them, they will take a teacher's salary for a few years until the storm passes. If they proceed with the bonuses now on the table, even as taxpayers pay for the errors of their caste, they must expect a ferocious backlash.

We are fortunate that the US has a new president enjoying a great reservoir of sympathy, and a clean-broom Congress. Other nations must limp on with carcass governments: Germany's paralysed Left-Right coalition, the burned-out relics of Japan's LDP, and Labour's death march in Britain. Some are taking precautions: Silvio Berlusconi is trying to emasculate Italy's parliament (with little protest) while the Kremlin has activated "anti-crisis" units to nip protest in the bud.

We are moving into Phase II of the Great Unwinding. It may be time to put away our texts of Keynes, Friedman, and Fisher, so useful for Phase 1, and start studying what happened to society when global unemployment went haywire in 1932.

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Back in the Thirties the only form of communication for most people was the post. A few had phones. Now everyone is contected to the internet, the idea that this has been caused by greed, particularly on the part of a few is not going to be supressed this time. If it gets as bad as it did in the thirties then revolution is a real possibility.

Bet the Russian commies are wishing they could have hung on for a few more years...

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The Unemployment Time-bomb Is Ticking, AEP with more unadulterated grimness

Be careful what you use in your thread headings.

'Unadulterated' is an awfully big word for some HPC'ers.

Edited by needle

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Either we have justice or we will have violence

Sarkozy's comments suggest that he at least knows the score

It is difficult to imagine Brown or any other British politician being that perceptive but then most of them are mental midgets with the IQs of fence posts

Edited by stenosis

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It is difficult to imagine Brown or any other British politician being that perceptive but then most of them are mental midgets with the IQs of fence posts

I put it down to straightforward cowardice, and the corrosive effect of political correctness, which has neutered their ability to say anything which might be construed as honest or direct.

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Mr. Sarkozy seems to understand how things work. If nothing is done about this ever rising unemployment, and dire economic situation of average young men in Europe.. it will eventually lead to radical parties taking power. The far right parties are already quite close in Austria, a traditional hard right area.

I figure the UK will give the Tories one last chance to turn things around, but if things don't turn around I think people are going to get very angry at the mainstream parties. Of course the mainstream parties could modify their platforms to actually take into account the legitimate concerns of millions of people, but they are stubbornly sticking to their same policies.

Edited by aa3

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Sarkozy's comments suggest that he at least knows the score

It is difficult to imagine Brown or any other British politician being that perceptive but then most of them are mental midgets with the IQs of fence posts

I think as the French President he will be looking at history and seeing how the French dealt with it's leaders the last time. I suspect that Sarkozy is trying to position himself so he keeps his head. Far better to lead an angry mob than face one.

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French president Nicolas Sarkozy, with a good nose for popular moods, says: "We must overhaul everything. We cannot have a system of rentiers and social dumping under globalisation. Either we have justice or we will have violence. It is a chimera to think that this crisis is just a footnote and that we can carry on as before."

This is coming from a Frenchmen, and unlike us English the French have a proven capacity for revolution.

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This is coming from a Frenchmen, and unlike us English the French have a proven capacity for revolution.

The British do have rebellion in them it's just that poor leadership and indecisiveness get in the way.

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