Will unemployment sink the economy?

I have given a lot of thought to this subject lately. There are a lot of theories about the economy. Most people on ATS would probably agree that the bunk we hear in the MSM and from the federal government is just a psyops to try to make people feel better, spend money and get back into debt. The reality on the ground is harsh and doesn’t synch with the “official” news.

I heard on NPR the other day an interesting story indicating that the funds that support our social safety net called “unemployment insurance” are drying up. Many states, notably California, have lost all funds. When this happens they rely on a federal fund that is also stretched.

It took a bit of time to resolve this in my head, but I think I see a possible outcome of this and it is not pretty. I have to tell someone and my family is already so cynical and jaded that none of it surprises them.

Unemployment is rising. The government tries to spin it with “we are losing jobs slower than we were last month”. That’s great, we lost 200K jobs, but it’s great because we didn’t lose 250K jobs. That’s still 200k jobs lost! That’s over 2 million jobs a year! So what happens when people lose their jobs? They go to unemployment insurance and savings while they try in vain to find another job.

Now what will happen as the safety net begins to break? State after state will begin tightening the leash on who qualifies for unemployment. The ones who have been on it longest will probably be dropped first. As these people begin to roll off the fund, they will be unable to make their bills and mortgages.

Round 1 – Homeowners
In the first round, I see large batches of homeowners getting foreclosed. They will be kicked out and will try to find a place to rent. Some will find rental houses, others apartments. Many will sacrifice the one room to a person concept and all bunk in common rooms or share rooms.

The banks on the other hand are converting their (some would say imaginary) liquid assets into real estate via foreclosure.

Round 2 – Renters start getting kicked out
Shortly after the initial boom in rental funds, the well dries out. After all, no unemployment insurance and no job mean no money to pay rent either. People will buy food before they pay rent. Homelessness levels begin to rise along with crime rates. Independent landlords and property management firms begin to struggle.

Round 3 – Investment Owners
This round will hit the people who were renting out property. They can’t find anyone to rent to anymore because of large scale unemployment with no more safety net. By this time, unemployment funds have begun to catastrophically fail. Banks continue to foreclose, now turning to apartments and rental houses, but the weight of the real estate is beginning to take a toll on their liquidity. The markets, sensing this freeze credit lines again in a panic.

Round 4 – Banks begin to dump their Assets
In a panic, the banks begin to dump their assets onto the market at greatly reduced rates trying to recoup something, anything, and become liquid again. No luck. The people that can buy will, but it is too little too late. The credit markets freeze and “credit ratings” mean squat to anyone. This heralds the ultimate collapse of the dollar and the start of hyper-inflation.

So this is obviously just one way it could play out. I might have some logical fallacies in here, too. I just wanted to post this to see how plausible this might be.



[edit on 9-13-2009 by rogerstigers]

I'm with you on this one, RS.

Florida had to BORROW money from the Fed Gvt. to pay out it's unemployment. I think there is a thread around here about that.

The spin is certainly going on. I like how they change up the wording just a little bit to make it asound better. The one I heard on MSM on friday was something like this:

'The number of people receiving unemployment benefits has fallen by blahblahblah...' They sure SPIN it, but they don't tell it all.

There were riots going on for three days in Uganda..one of the women quoted said (paraphrasing) 'I'm glad the fighting has stopped, no we can get back to work'

Work is very, very important for a number of reason. We all have top eat, so we have to have money. If you've ever been without a job when you needed one, you would understand how emotionally devastating that can be. We can right it off as a misapplied Puritan work ethic, or whatever you like, but the truth is if I don't work for a living, I feel like crap.

If I can't work, and feed my family, and there is someone other than myself that I can make out to be responsible for that, it's on.

A thoughtful, well-articulated post my friend.

(gratitude applied in customary fashion)

Unemployment is the most detrimental thing to an economy.

If people dont have jobs, they dont spend money, if they dont spend money businesses fail, if businesses fail the economy fails.

Damn, my thread got trumped by a video release from Osama ... *sigh*

Thanks to you two for contributing at least...lol

That is an interesting theory and I have often thought the same thing myself. Unemployment can't be a good sign. I've heard in my economics class that moderate levels of unemployment are actually beneficial to business, because they can cut pay, and demand more out of their employees. But if this level of unemployment is sustained for too long or gets to high, I would imagine it would really hurt many businesses. Once more of the unnecessary businesses get wiped out it will only make a snowball effect as even less people will be employed to buy stuff.


I would imagine you could make a time line with the effect on businesses as well. It would go something like this:

1. Unemployment continues to rise as business begin to cut pay or lay off employees.

2. With unemployment rising, less people go to expensive boutique stores and instead start going to thrift stores and cut back on their spending. Businesses based on lavish irresponsible spending start going out of business, more unemployment.

3. Unemployment is probably around 15%-20% as there are even more unemployed people who are now cutting back in every way they can. Stores selling superficial items experience extreme lack of income as people just aren't buying anything beyond the necessary.

reply to post by Canis Lupus


Very good points. Here is the scary part of what you are saying in your timeline... Noone in the US *makes* the items in the dollar stores. So our economy would lean even more towards buying stuff made overseas. I can't see how that would last very long.

As for your first point, I hear this theory a lot on NPR in the form of Productivity Indexes. as unemployment rises, productivity rises because people are willing to work extra hours for the same pay just to prove themselves worthy to keep on. This could end up burning out a large section of our work force leading to more illnesses.