As many as a million American jobs could be lost every month by next spring as businesses struggle to raise capital in financial markets consumed by fear, according to a new analysis.Sustained job losses of that magnitude would indeed be catastrophic for America and the world. Consumer spending would drop like a stone, and retail level goods and services would evaporate, taking the economy with it. We're talking a deflationary dealth spiral scenario, one where millions of jobs would vanish and the US would face shortages, riots, and chaos. The effective unemployment rate is 12.5% now...it could end up twice that, with one in four working age Americans either out of work, under-employed, or no longer seeking a job because there will be none to have. The Happy Face economic press has so badly underestimated this crisis that the reality is more and more likely to be an "effective depression" where the entire global economy is restructured...and when it is, America will no longer be on top.
November was the worst month in the US labour market since the oil crisis of 1974, as more than 500,000 US workers were laid off, according to official figures released on Friday.
But Graham Turner, of consultancy GFC Economics, says the rising cost of corporate debt is now flashing a red warning signal that far worse is to come over the next few months and job losses are heading for levels last seen in the 1930s Great Depression.
Corporate bond yields have rocketed since the credit crisis began as investors flee risky assets in search of safe havens such as US Treasuries. That effectively means many firms are being forced to pay eye-watering interest rates to borrow funds.
Turner says when the gap between the yield on high-risk company bonds and US Treasuries widens sharply, unemployment tends to shoot up - and current credit conditions are pointing to a doubling in the pace of layoffs, to more than a million workers a month, by spring.
'The correlation is holding up all too well,' he said. 'It's very disconcerting.' He added that the pace of layoffs already happening in the US 'is indicative of panic'. During the 1970s oil crisis the panic was relatively short-lived, he says. 'But the worry now is that this will just roll on and on.'
There is no visible bottom to this abyss. 2009 is going to be one of the worst years in American history, bar none.