Counter intuitive isn't it? How can high unemployment be good? Actually I wouldn't say it's good, but it is inevitable.
I've been saying that 2008 was about the collapse of the financial system but 2009 is going to be about unemployment.
Here's the problem. Americans make too much money. Again sounds counter intuitive doesn't it. That is the problem though. We've had it too easy for too long. We want to get paid big salaries for doing the same job that a Chinese worker will do for 1/10th the cost.
As long as that imbalance is in place we are going to continue to lose jobs in the US. As long as this imbalance continues our companies (think autos here) are going to remain unprofitable.
We could start to cure the problem by willingly lowering wages. In a deflationary environment we are in the best possible scenario to weather a voluntary pay reduction. However that's not going to happen. It's very hard to take something away once it's been given.
So the market is going to take it away for us. It's going to take it away with high unemployment. People who don't have a job are more willing to accept a pay cut. Workers who can't or won't willingly work for lower salaries run the risk of losing their jobs to someone unemployed that is desperate and will work for less.
Ultimately if the US is going to bring back it's manufacturing base and if current businesses are going to survive and compete in this climate wages are going to have to come down.
So I guess in the long run unemployment is good for the long term business structure of the United States.
Market Direction Change
2 weeks ago