No jobs, no recovery

In an interview I heard today, the excellent Catherine Austin Fitts talked about how she knew many years ago, as did others, that GATT and NAFTA would permanently eliminate millions of American jobs, resulting in high "structural" (not fixable) unemployment. Her fears, obviously, have been confirmed. Manufacturing and other means of production have been gutted.

Mish reported yesterday that 24 states are having to borrow money to meet unemployment benefits payments. North Carolina has so far borrowed an amount equal to 21% of its annual budget.

It gets worse. The debt is still rising. The problem is that with about 500,000 people out of work, the state has more unemployment claims than it can pay. So it has been borrowing from the federal government since February, sometimes as much as $20 million a day.

States will be further hit when the health care legislation passes, as Medicaid costs (paid by states) will increase, without commensurate increases in federal aid. And at least 10 states are already in very serious trouble:

A study released Wednesday warned that at least nine other big states [besides California] are also barreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services.

The report by the Pew Center on the States found that Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin are also at grave risk....

The 10 states account for more than one-third of the nation's population and economic output, according to the report.

State and local governments have total budget shortfalls of around half a trillion dollars for this fiscal year. And states and local governments cannot print their own money, which means they'll have to beg for aid from the feds. Yet even if the feds come through with major bailouts, states will still be forced to cut expenses dramatically. Goldman traders may not have to give up their bonuses, but you can bet your local school will be giving up its teacher's aides. Have you ever seen the IMF come in to give "aid" to an impoverished nation? It demands as much austerity as it thinks the people can stand without it causing a revolution. And if there's anything useful in the country, any natural resources, those are sold off to somebody else. That's the Washington model for you. So if California needs to be bailed out, so be it, but there will be as many kids in a classroom as they can physically pack in. The homeless shelters will close, the potholes will never be filled, and the forest fires can consume as many homes or hamlets as may be. Everything will be cut to the bone, including payrolls.

In a long and detailed post, Mish made some predictions for the unemployment rate over the next several years. His conclusion is enough to make you weep.

Yet, in spite of all those generous assumptions, no double dip recession, no second recession, high rates of job growth and falling participation rates all the way through 2020, and unemployment peaking at 11.6% not 13%, the best I can do is suggest the unemployment rate will be over 10% all the way through 2015 and never dip below 8% all the way out through the end of 2020.

His "generous assumptions" will not be met, of course; the reality will be worse than that. We'll have this level of unemployment for another decade, in other words. At least this level. Next year is sure to be higher.

When people can no longer borrow, they must be able to earn money if we're to have a functioning economy. Without jobs the deflation will worsen, because the Free Money Fiesta over at the Federal Reserve does not include you and me. It doesn't even matter what happens to the dollar. Inflation or no inflation, we will still have deflation in real terms. Weimar Germany had absolutely terrible deflation when measured in real terms (i.e. if you convert all sales into gold gram equivalents)-- they had more than a 90% fall in gold-denominated GDP. In fact, the currency failure (hyperinflation) was a huge factor in causing the disruption and collapse of commerce. If the dollar collapses it will only exacerbate the real life economic slowdown that we normally think of as "deflationary."

It isn't as if nobody has any ideas about how to ameliorate this economic disaster we're headed into. Webster Tarpley has suggested a 1% tax on financial transactions (known as the Tobin Tax, which also means death to Goldman Sachs' beloved high-frequency trading). He's also suggested 0% interest loans to production and manufacturing, and real stimulus along the lines of the Tennessee Valley Authority, including high-speed rail lines, local public transportation, and nuclear power. Bob Chapman has suggested using tariffs to force a revitalization of domestic production. Catherine Austin Fitts advocates local business and local banking, or in other words, decentralized production.

Basically we need to reverse globalization and start making things where we live. What we produce translates into our communal wealth; production is wealth. I suppose the elites on Wall Street don't care for this idea since they themselves produce nothing at all.