Numbers from the Wasteland
“Fear In A Handful of Dust” - All those missing jobs aren’t coming back any time soon.
Article by: By John Schettler

APRIL is the cruelest month, breeding  Lilacs out of the dead land, mixing  Memory and desire, stirring  Dull roots with spring rain. Winter kept us warm, covering Earth in forgetful snow, feeding A little life with dried tubers… What are the roots that clutch, what branches grow Out of this stony rubbish? Son of man, You cannot say, or guess, for you know only A heap of broken images, where the sun beats, And the dead tree gives no shelter, the cricket no relief, And the dry stone no sound of water. Only There is shadow under this red rock, (Come in under the shadow of this red rock), And I will show you something different from either Your shadow at morning striding behind you Or your shadow at evening rising to meet you; I will show you fear in a handful of dust. T.S. Eliot – From: The Waste Land

April may be the cruelest month for some, perhaps those squinting at piles of wrinkled receipts, long columns of numbers in excel spreadsheets, with the glow of TurboTax running on their monitor screen into the wee hours of the night. Most hourly wage earners will be eagerly anticipating a tax refund from Uncle Sam, but many self-employed people and small business owners find April a grueling time.  If you are one of the unfortunate getting ready to write a check to the IRS this month, it must also be particularly galling to realize where your money is headed—into the coffers of the big banks and insurance companies, all virtually bankrupt, but deemed “too big to fail” by the industry insiders who now set government policy. So while they have taken enormous risks, reaped enormous profits in the manufactured housing boom, they now have deeply wounded securities positions that make them effectively insolvent, and equally massive losses they want transferred to the public. Trillions have already flowed to the banks, both directly and by way of conduits like AIG and even more stealthy pipelines from “The Fed” the greatest misnomer in the financial world, a consortium of private banks that have managed to seize the power to create money and credit at their whim, and lend it all out at interest.

You wonder, as you write your check to the IRS, how many new suits and ties it will buy for CEOs and executives at the big banks. They were so reckless in their lending and securities game that the only way to “save” them seems to be to send the bill to you, and every other taxpayer this year, and for generations to come. Add to that the astounding recent announcements concerning accounting rules changes. The old “mark to market,” which said that assets had to be valued by their prevailing market worth was quietly tossed out the door. Care to try that with your house? It seems only your property tax has retained its full value, while the bricks and boards themselves have lost 40% of their equity in many regions. Bernanke tried to put lipstick on that pig by claiming America’s homeowners still had 43% equity, but he cleverly counted all those who own the house in outright, with no mortgage. The number of homeowners who still have mortgages are therefore estimated to have an average of only 15% equity remaining. They are that close to all being “underwater,”  and slowly falling behind on payments across the credit spectrum from prime on down. Thus all the CDOs bank securities rest on continue to erode and lose value. Yet the banks remain in abject denial. They prefer to assign higher values to their “toxic” assets than anyone in their right mind would ever pay for them—anyone who had to use their own money, that is. But “investors” now get to use someone else’s money, (yours and mine), to pay for 95% of the cost of acquiring these bad securities. And the banks can ignore the market price and value them any way they see fit, using “internal models” that no one is ever allowed to see.

“With most of America's biggest banks insolvent, you have, in essence, a multi-trillion dollar cover-up by publicly traded entities, which amounts to felony securities fraud on a massive scale.” - William Black

In fact, just about everything concerning this whole banking mess has been kept hidden away from public view--everything but the foreclosure signs. Once upon a time there were audited quarterly reports that investors could rely on to take the temperature of the companies they were bankrolling. Now the results of the “stress test’ financial health checkup for banks are being kept secret, to prevent any sudden downward move in stock prices. The government is now complicit in the same deception perpetrated by the banks themselves, and promises of “transparency” have become simple election rhetoric. Just how bad is it, doc? Henry Blodget of the Business Insider put it this way: “The charitable explanation is that Tim Geithner is paralyzed by fear of triggering another post-Lehman credit meltdown and has convinced Obama that that's what will happen if the government holds banks and their bondholders accountable or just comes clean about the shape that banks are in.” Fear. If we tell the truth, all hell might break lose. What happened to the hope and change President Obama promised this nation last November?

Then we get more quiet talk about limiting short selling—particularly for bank and financial stocks. A rule change has been proposed to prohibit short selling of any stock unless the last reported price was on the rise. The “uptick rule” is meant to function as a brake on stock pricing slides by market gamblers who are basically betting stocks will go lower. It’s one of the real fun things you do in the casino called Wall Street—making money off the declining value of a company, instead of the inverse. This is the topsy-turvy world of day trading, where riding the market tick and moving in and out of positions is the great game. The uptick rule will also slow or halt the withering of share prices in the financials in hopes of being paired with bogus “profit” reports based on all the toxic assets being re-valued “to internal bank models.” The idea is that this little two step soft shoe will create yet another illusory rally on Wall Street so banks can raise more capital by selling shares. They want to get those prices back to the mid to high double figure range, and away from the Starbucks line, where our major banks have share values you couldn’t redeem for a cup of coffee. Yes, the financial powers that be, stunned to realize they are indeed insolvent, have simply decided to re-write the rules and rig the system in every way possible to avoid that admission. Delusion and denial continue to be the predominant mindset, which has now become “policy.”

Our financial crisis has therefore been painted over like bad graffiti, whitewashed, laundered, patched, but it has not been truly faced or fixed. The underlying reality of the staggering losses attached to securities, swaps, and derivatives remains. The banks have simply chosen to cook their books and continue the amazing illusion that we call “level three accounting” the great hidden landfill where they are hiding their mortgage backed securities.  But under the new rules—voila—they are no longer “toxic assets.” Now they are “magic assets” that can be valued in any way the banks desire. The sleight of hand of the banker magicians amazes and distracts the confused, angry public with financial mumbo jumbo. Bad debts are now something one holds to maturity, like grandma sitting out on the porch in an Alzheimer’s fog on her old rocker. She’ll get better one day, right? And the Fed monetizing the massive national debt to the tune of $300 billion, more money than is currently circulating in the whole nation, is given the erudite label of “quantitative easing.” Financial crisis? What financial crisis? You can’t have a financial crisis when you own a printing press for money, according to Fed Chairman Ben Bernanke.

The TALF program aimed at restarting consumer lending by sweetening securities in that arena has met a fairly cold start. Investors have been skittish, as the government seems to be changing the rules week by week. But beyond that, the lackluster start may reflect the simple truth that there is just no real market for the loans the program hopes to stimulate. Eventually the genius bankers will realize this. The present strategy of pouring money, by the trillions, in at the top of the financial pyramid and then hoping it will trickle down to stimulate spending on Main Street is foolish. The $300. “stimulus” check sent to Average Joe was equally ridiculous. The sad fact is that people are deep in debt and have no further appetite for more. Their salary raise last year was zero, they got no bonuses, what little they had in retirement savings is evaporating, the equity in their homes is negative, their credit cards are maxed out. They are struggling just to make ends meet, hoping they won’t lose their job, and there is no room in the budget for a new car payment.

Fear in a handful of dust...

Meanwhile, Average Joe and all the Soccer Moms know where the real crisis is. It’s out on the streets in a line at the unemployment office, getting longer week after week. This is reality. It can’t be hidden on level three accounting sheets, though the system tries desperately to mask the real truth of what is happening in the eroding job market by cooking the unemployment numbers as well. The “official” unemployment number of 8.6% is just another delusional denial of the real facts. The U-6 number, closer to the truth, is now 15.6%, (16.2% if not seasonally adjusted), and there are some analysts that believe that even this number is conservative. The stubborn fact, however, is that we are well ahead of Depression era statistics when it comes to unemployment, and we are on track to equal or exceed the total unemployment numbers of the 1930s. The chart below extrapolates what 2010 might look like...

After the 1929 market crash, unemployment began to increase in a slowly rising range of 3.2% to about 8% by the end of 1930. (It took twelve months to reach that level, a rate that, if reported using our methods today, would “officially” be only about 4.5%.) After our crash of Sept-Oct 2008, we have already exceeded that unemployment rate in four months time—and this is using the watered down “official” 8.6% number used today. If we used the U-6 number of 15.6%, which is much closer to the way unemployment was calculated in the Depression era, then we have nearly doubled the job loss rate of the early Depression in 1930, and did so 8 months sooner! And it could be much worse than that. 2010 could easily exceed unemployment figures from 1931-32. If we really look at the numbers honestly, it gets positively scary out there.  To quote Eliot: “Come in under the shadow of this red rock,  And I will show you something different from either Your shadow at morning striding behind you, Or your shadow at evening rising to meet you; I will show you fear in a handful of dust.”

Shadow Stats

If we accept the analysis of John Williams on sites like “ShadowStats.com,” which attempt to sweep away government sugar coating of numbers and eliminate the fudge, then let’s take a look at that handful of dust. Shadowstats counts people who’s benefits have run out, those who have stopped looking for work, those seasonally unemployed, those marginally and part time employed, unable to find a full time job. It also corrects errors such as simply counting jobs—because some people hold two jobs. The verdict: we are already at 19.5% unemployment.We’ve been losing over 650,000 jobs per month, and if this continues through April and May, and into June when thousands of teacher contracts expire, we will easily exceed 10% in the fantasy official stat, and push above 17% in the more realistic U-6 stat…all in just six months time. Shadowstats will have the number higher yet. Unemployment did not reach that level in the Great Depression until mid to late 1931, over 18 months after the 1929 market crash. The Main Street economy is simply getting hammered by job losses that will not come back any time soon.

The “recovery” everyone hopes for rests in those jobs. A blind man could see this. And it matters not a whit if the big banks get to rewrite their accounting spread sheets as they wish to pretend they are still solvent. Average Joe is out of work, on the street with his unemployment benefits clock ticking, getting hungry. Average Joe is 70% of the economy. What happens when the benefits run out? 2010 will see that happening for all the folks losing jobs this year, and there is no sign of any “recovery.” By this time in any normal “recession” we should be pulling out of the job loss nosedive, but look at the trend line now... (In green below)...

Here’s where the real pain is by state, with official (U-3), then the more realistic U-6, and finally a projection of the real shadow of unemployment. As you can see, the rust belt, Carolinas, and West coast are bearing the brunt of the depression thus far. And bear in mind that these figures are still rising. The figures below are for February. Oregon just posted its March U-3 number at 12.1%.

And here’s a graphical view of where the pain is county by county, from the Bureau of Labor. You can also see an excellent animated progression of how the job loss has grown in this article from Slate.

I have long held that the “Department of Homeland Security” was not set up to try and catch Osama bin Ladin slipping over the Canadian border with a band of thugs—but to keep an eye on us, on those disgruntled citizens, who have just lost the American dream, out of work, on the street, and well armed. James Kunstler said it well: “It doesn't take too many determined, pissed-off people to create a lot of mischief in a complex society.”

I look at these numbers and wonder how in the world Larry Summers can go on TV and talk about a recovery just around the corner. Hoover could not have done it better. Just where will the new jobs come from? And if we can’t put all these unemployed people back to full time work, how will the economy ever experience new “growth” from consumer spending? Are all these laid off workers going to start applying for mortgage loans, will they line up to buy new cars, hit the malls with the credit card in an orgy of new spending? These are people who, as their unemployment benefits run out, will soon be struggling just to feed themselves. You simply can’t have a recovery when 20% of your work force is unemployed. And if we add up the $5 trillion in lost homeowner equity and the $2.5 trillion in lost credit card lines, the “consumer” has taken hit in purchasing power roughly equal to half of the US annual GDP.  Find me a recovery in those numbers.

Looking elsewhere the charts are equally grim. World economic output and exports are declining far faster than they did at the onset of the Great Depression. The world stock markets have taken far more serious losses as well. Look at the data!

The conclusion of that article is obvious for anyone with a brain: “To sum up, globally we are tracking, or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimize this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.”

In light of such evidence, it is equally clear that the fantasy and denial that now constitutes the “plan” to correct the crisis in the financial markets by restarting the securities game will not soon help Main Street and create new jobs that will re-stoke production and  reverse the decline. The Depression now underway is heading off the charts compared to any other normal “recession” in modern times. It will not recover in the foreseeable future. Job loss is generally a lagging indicator. They can rig the rules to pretend the banks are sound, and the bankers can start lending to big corporations again, but we will not see this play out in the real economy for many, many months in terms of significant new hiring. Companies that have had a close brush with bankruptcy will be leaner, meaner, and cautious about expanding into new “growth.” Count on tough times throughout all of 2009 and well into 2010 and beyond.

As things stand, “Society” has managed to hold itself together in this country because of numerous safety valves that were set up after the last Great Depression. And people have turned to friends and family for help as well. But people can only absorb so much pain, particularly financial pain. When Grandma’s house is full of nieces and nephews, when people no longer have money to help their friends, when those unemployment benefits run out—what then?

Here’s a final chart from the web that sums things up in a humorous way:



Now for the clincher—concerning that green arrow above. As the Fed balance sheet inflates like a massive balloon, inflation is the likely result. The debt deflation currently underway is like the waters receding from the shoreline before a tsunami. The huge waves of inflation may yet be on the way, perhaps three or even five years off, but clearly forming in the massive expansion of the money supply now underway. At present, the newly minted dollars are not really entering the economy, and Bernanke will have the job of managing the sluice gates when he tries to de-lever the Fed balance sheet, on its way to a whopping $4 trillion by year’s end. Good luck Ben—I’ll be watching the price of bread, as will so many others—when the line forms.

Article By:
John Schettler, April 2009

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