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Rosenberg: 13% Unemployment May Be Likely

Written By Brian Hicks

Posted November 10, 2009





According to the bulls and the party in power, unemployment is what’s known as a “lagging indicator”.  They use that virtual mantra to convince the rest of us that all is well.

You see in their eyes it’s always darkest before the economic dawn, which they insist is right around the corner.  So when unemployment came in at 10.2% on Friday, talk of those figures being “rearview mirror” filled the airways.

But the larger truth is there is something to see in those figures and it’s staring us down from front windshield this time not the rear.

That’s because our collective magic hat is fresh out rabbits—something that wasn’t true in past downturns.

For instance, when you look back at previous recessions the way out them was pretty evident. In the 80s there were taxes cuts and falling interest rates. The 90s gave us the tech revolution, while in 2000 there was room to expand housing.

Conversely, in today’s world the answers to our troubles are nowhere in the picture.

Housing is falling…. Interest rates have nowhere to go but up…Higher taxes are a given….and there is no brewing innovation with the same power tech had to lift us out of our doldrums.

All that is left is a Keynesian policy response that cannot go on indefinitely. 

In fact, it is complete folly to believe that trillion dollar deficits can be run up over the next couple of years—let alone the next 10.  Most of us realize we cannot borrow our way to back to prosperity and in the end we won’t, although it will be tried a little bit longer.

That is what makes unemployment a leading indicator this time since our gun is effectively out of bullets.  

As  a result, unemployment will likely get worse before it gets better. Moreover, it will linger much longer than it ever has.

How, after all, are we going to replace the 15 million jobs we have lost since the peak? And where exactly will they come from now that we’ve sent so many of them overseas?

In many cases, there is simply nothing to go back to.

What’s worse, Americans have more than triple the debt they had in 1982, and less than half the savings. And a bigger share of them have no home equity, leaving them one pink slip away from financial ruin.

Those are tough balls to juggle in an economy that relies on consumer spending for 70% of the total spend.  Those are the cold hard realties government can’t fix.

What’s more according to David Rosenberg, chief economist at Gluskin Sheff & Associates, unemployment may reach as high as 13%.

From Bloomberg by Vincent Del Giudice and Thomas R. Keene entitled: U.S. Joblessness May Reach 13 Percent, Rosenberg Says


“The U.S. unemployment rate may rise to a post-World War II high of 13 percent in the aftermath of the recession, said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto.

“This is going to be the mother of all jobless recoveries,” Rosenberg said today in an interview on Bloomberg Radio. “At the beginning of the year, who was calling for unemployment to go up to 10 percent?”

Rosenberg said the recession, the deepest since the Great Depression, “is truly secular in nature” and said the economy is “in a post-bubble credit collapse.”

A 13 percent unemployment rate would be the highest since monthly records began in January 1948, according to Labor Department data. The previous postwar high was 10.8 percent in December 1982. Yearly records, which began in 1929, show joblessness climbed to almost 25 percent in 1933 during the Great Depression.

The economy in the U.S. could rival Japan’s so-called “lost decade” of the 1990s, Rosenberg said. “This has some prints of Japan in many respects,” where growth stagnated for years and prices fell in the aftermath of speculation in real estate and equities, he said.

In the U.S., “20 percent of private credit is coming out of the system — and on a semi-permanent basis,” as reflected in the record eight consecutive monthly declines in consumer credit through September, Rosenberg said.

Credit card, auto and other installment debt declined $14.8 billion, or 7.2 percent at an annual rate, to $2.46 trillion, according to Federal Reserve data released Nov. 6. The consecutive declines were the most since records began in 1943.”


So when they tell you that there is nothing to see here and try to move you along, don’t believe it for one second. The truth is staring us right in the face.

By the way, if we were calculating the unemployment figure the same way we did before it was changed by the Clinton Administration, the unemployment rate would be a hefty 17.5%.

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