Even if the economy starts to turn up the headwinds will be formidable, [the company's CEO] warned. "The green shoots are short in duration and you need to be cautious about interpreting them. Even if growth returns, unemployment will rise for some time afterwards ... [20]Because of the lag time between conditions in the economy and unemployment, we have to ask the following two questions in order to forecast future unemployment trends:
1) How bad were conditions in 2008 and early 2009?
and
2) What will economic conditions be like in the future?
How Bad Did It Get?
Unfortunately, many experts - including the following people - have said that the economic crisis which started in 2008 could be worse than the Great Depression:
- Federal Reserve chairman Ben Bernanke said on July 26, 2009:
A lot of things happened, a lot came together, [and] created probably the worst financial crisis, certainly since the Great Depression and possibly even including the Great Depression. [21]
- Economics
professors Barry Eichengreen and and Kevin H. O'Rourke said that
world-wide conditions are worse than during a comparable period during
the Great Depression [22] (updated in June 2009 [23])
- Investment advisor, risk expert and bestselling author Nassim Nicholas Taleb said that the current crisis could be "vastly worse" than the Great Depression [24]
- Former Fed Chairman Paul Volcker believes the current crisis may be even worse than the Depression [25]
- Nobel prize winning economist Joseph Stiglitz said "this is worse than the Great Depression" [26]
- Economics scholar and former Federal Reserve Governor Frederick Mishkin said that conditions were worse than during the Depression [27]
- Well-known PhD economist PhD Economist Marc Faber believes this could be far worse than the Great Depression [28]
- Former Goldman Sachs chairman John Whitehead thinks that the current slump is worse than the Depression [29]
- Morgan Stanley's UK equity strategist Graham Secker predicts economic collapse worse than the Great Depression [30]
- Former chief credit officer at Fannie Mae Edward J. Pinto said in January 2009 that the current housing crisis was worse than the Depression, and that current efforts to rescue the mortgage industry are less successful than those used during the 1930s. [31]
- Billionaire investor George Soros said in February 2009 that the current economic turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union. [32]
As of this writing, the fact that unemployment will substantially increase is quite controversial. Most people still assume that the benefits of the government's policies will soon kick in, the economy will recover, and then jobs will recover soon afterwards.
In order to accurately determine how bad general economic conditions - and thus unemployment - might be in the future, it is necessary to look at a variety of trends, including residential real estate, commercial real estate, toxic assets held by banks, loan loss rates, consumer spending, age demographics, the decline in manufacturing, and destruction of credit.
Residential Real Estate
Citigroup is projecting that unemployment in Spain will rise from its current 17.9% to 22% next year. [33]
Spain's unemployment is largely driven by the bursting of its housing bubble. [34]
Housing bubbles are now bursting in China [35], France [36], Spain [37], Ireland [38], the United Kingdom [39], Eastern Europe [40], and many other regions. [41]
Unfortunately,
while the peak in subprime mortgages is behind us, many analysts say
that Alt-A mortgage defaults have not yet occurred (as of this
writing), but will not peak until 2010.[42]
Former chief IMF economist Simon Johnson notes that a vicious cycle also exists between unemployment and property foreclosures:
Unemployment is always a lagging indicator, and given the record low number of average hours worked, it will turn around especially slowly this time. Until then, people will continue to lose their jobs and wages will remain flat, and any small rebound in housing prices is unlikely to help more than a few people refinance their way out of unaffordable mortgages. So unless the other part of the equation " monthly payments " changes, the number of foreclosures should just continue to rise. [44]
Indeed, the Washington Post notes:
The country's growing unemployment is overtaking subprime mortgages as the main driver of foreclosures, according to bankers and economists, threatening to send even higher the number of borrowers who will lose their homes and making the foreclosure crisis far more complicated to unwind. [45]Commercial Real Estate
Moreover, a crash in commercial real estate is now picking up speed. Unlike the
subprime mortgage meltdown - which affected mainly the biggest banks -
the commercial meltdown will apparently affect a huge number of small
to medium-sized banks. [46]
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