Thursday, May 14, 2009

If you don't look down, you can walk on air

Last week’s unemployment claims were up substantially; reversing a one week "trend" of slight improvement. The number of people filing continuing claims increased at an even faster rate making the outlook for jobs especially gloomy. And something really gloomy: people going back to school for retraining can expect to take a 15-20% cut in pay on average from their previous job; if and increasingly it’s a big if; if they can find a job in their new field.

One of the many crisis’s trying to elbow its way to the front the pack, among the host of things trying to bring down civilization is a potential wave of defaults from bond insurers. It’s worse than just the people who hold bonds not getting paid if they go bad. The failure of the insurer of an otherwise good bond usually puts the bond into default and can trigger the bankruptcy of the original issuer of bonds starting yet another wave of collapses.

And the Federal Government is on the hook for covering a lot of these bonds because of risk sharing agreements; not that they have much choice given the potential damage. Cities, states, municipalities and an alphabet soup of government service districts that have issued trillions in bonds and need to be issuing new bonds to aid the recovery. The crisis is of course driving up the interest rates these local government agencies must pay.

It all comes back to the millions of formally middle class factory workers who are now unemployed and will stay unemployed under current trade policies. Declining revenue, increased need for services, abandoned properties coming off the tax rolls and on and on and on. Nothing has been done to break the cycle; pundits keep talking about a bottom, but a bottom is not in the offing. The insane Republican trade policies leftover from Reagan/Bush/Clinton/Bush are still in place and still yanking the bottom out from under us. Maybe if we don’t look down, maybe we can walk on air like in the cartoons.