US Unemployment Soars And IMF Sees Global Problem
The consensus expectations for September jobs were that another 167,000 people would lose their work. Goldman Sachs (GS) yesterday issued a much more pessimistic forecast of 250,000 jobs lost taking US official unemployment to 10%.
The numbers were even worse than the most grim projections. The U.S. labor market weakened in September as 263,000 payroll jobs were lost and the unemployment rate rose a .1% to a 26-year high of 9.8%, according to the Labor Department.
Over 7.2 million jobs have been torn out of the American economy since the recession began twenty months ago.
The IMF warned today that the problem of joblessness is global and that it could push the economy into a double-dip recession.
IMF president Dominique Strauss-Kahn said today that individual government stimulus was still needed to prop up the global economy because of rising unemployment. He warned that there was still a danger that economies could turn down again, since unemployment was set to rise for many months in most countries, according to Reuters.
Strauss-Kahn told CNBC, “”There are some possibilities of a double dip. It’s not the main scenario in which we believe but it may happen.”
What the IMF is proposing has a danger all its own. Adding hundreds of billions of dollars to stimulus packages in the US, UK, and EU where joblessness is most acute, will mean the deficit-burdened governments will have to go into the capital markets for more borrowing. That in turn is likely to increase the debt service of these nations which will take a larger and larger part of their budgets.
The borrowing is also likely to lead to credit tightening in the private sector as sovereign governments push other borrowers out of the markets were capital is raised, especially China and within the global banking system. The consequences of tight credit could be a sharp contraction of access to liquidity for both consumers and enterprises, which in turn could lead to another economic slowdown.
It is hard to say which is the lesser of the two evils, borrowing or joblessness. They may be inextricably linked.
Douglas A. McIntyre