US financial crisis is entering a new phase
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Around the world, everyday people and experts alike are wondering whether the financial crisis is over and whether an economic recovery is underway. These questions have different answers depending upon the specific country. Nevertheless, American economic progress is of interest in China just as Chinese economic progress is of interest in the US. In view of this mutual interest, there are perhaps several underlying aspects of the US recovery that are not being addressed in the popular media. Therefore, I will attempt to describe one such aspect in some detail here with discussions of other aspects to follow with later articles.
During the first week of October 2009, the US unemployment rate was dangerously close to the psychologically significant 10 percent level at 9.8 percent. On October 9, the good news was the reported weekly new jobs lost number was a nine month low; signaling the rate of job loss is slowing in the US. However, it seems there is a much more serious long-run issue associated with the US employment outlook.
Like so many times in the past, dramatic financial upheaval has marked distinct structural changes within economic systems. With respect to employment in the US, even after the financial crisis is technically over, it may be that many currently unemployed workers (unskilled, semiskilled, skilled and professionals alike) will never be reabsorbed back into the work force. Their talents, abilities and past contributions will simply no longer be needed in the 'new' economy that follows. If this proves to be the case, it has tremendous implications for what type of practical economic recovery the US is actually able to generate for its typical citizens.
Such long-term unemployment will cause many older workers to retire earlier than expected. This scenario has already caused a much higher than expected rate of Social Security retirement benefit applications during the past several months. If more-or-less 'forced' early retirements continue for long, it will cause the routinely predicted pension plan fiscal crises for state and local governments, as well as for the national government, to come quicker and to be much more severe than previously expected. This type of fiscal crisis will most assuredly create increased tax burdens and related problems, such as reduced government services, education, etc., for those still working. Financially strapped workers, that feel they are not making economic progress, will create political dilemmas for politicians and this could conceivably result in more radical social and political confrontations that are not conducive to order and prosperity. The disruptive passions and emotions that erupted from the recent national debate about health care policy could pale in comparison to these displays.
Of course, in the long-run, the way to accommodate economic structural changes that make a portion of the work force unemployable is to retrain and reeducate those that are disenfranchised. This takes time, resources and the will of the people and their leaders. Even with success in such an undertaking, it will not come in time for the rather large proportion of American workers that are nearing the end of their working lives. Furthermore, it seems like lately US society has been a little reluctant to make the bold policy changes that would be required to make all of this come about.
In conclusion, I am not optimistic about a quick US recovery. High future unemployment rates and retirement induced fiscal crises within the federal, state and local governments are part, but by no means all, of the reasons for my prognostication. Only time will tell if my prediction is correct.
