govt response to unemployment? some guesses & insights
first, fed extensions to state unemployment benefits
typically run for 13 weeks
will extend to 26 weeks
in 1992-93, when I was laid off, feds extended mine to 26 wks
this is the nobrainer
by monetizing corporate debt (huge risk without precedent), the feds will be essentially building a socialism component never seen before in the USA
it will create a dangerous precedent though
bad companies will be rescued
my expectation is that this will not only happen, but further establish the parallel with the Japanese Vampire Corporate Economy
whereby the dead companies compete with the living, and kill off the good
feds will eventually socialize ownership of the transportation sector, COMPLETELY
the car sector and airline sector will join the railroad sector
one can argue (in vain) that the railroads are private
not a chance
so 15 million jobs in vertically integrated car sector might be saved
what cost though? huge costs to taxpayers, big inefficiencies
sooner or later, expect some kind of national car for the poor programs !!!
feds will have other (expensive) programs to encourage companies to hold onto workers
since jobs are the biggest risk to the govt budgets
the grants to laidoff workers seeking jobs will be extended to some outright grants to companies to forestall further layoffs
that is how bad I expect it to get
but the feds can do nothing to stop the effect on real estate, and REFI slowdowns, and effect on consumer spending insanity
since a stagnant demand can diffuse the bubble
I dont expect a housing burst bubble
but rather a housing diffusion bubble slowmo collapse
dunno how long
the consequence to jobs will be enormous
combine car sector with housing sector, and huge layoffs coming
I expect to see dealership sales
not of cars, BUT OF DEALERSHIPS !!!
the biggest safeguard the feds can build is to keep longterm rates from rising
which would stick a stake in Real Estate's heart
which would widen the corporate spreads of Trez yields
feds will accomplish this by monetizing both Trez longterm bonds and Mortgage-Backed securities (bonds)
this is a monumental task
once bond market players sense this, US Officials will be attacked in the marketplace
you cannot prop up such markets
if they continue to attempt it, then the pressure valve becomes the USDOllar
which springs a leak in longterm Trez and potentially mortgbackeds
THE FEDS MAJOR CHALLENGE IS TO STOP THE BOND BUBBLE FROM BUSTING
TREZ BONDS, MORTGAGE-BACKED BONDS
the Corporate Bond situation is not a bubble
it is a festering breakdown that never reached bubble proportions
I personally think Corp Spreads are the biggest threat to the entire economy right now
they might produce a derivative event sooner or later
that it hasnt so far has been a big surprise to me
/ jim |
