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The View From Here

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On January 27th , Douglas Elmendorf, the Director of the Congressional Budget Office, testified before Congress concerning the current recession and the expected outlook for recovery. Elmendorf predicted that unemployment in the United States would peak just above 9% early next year.

Last Thursday, the government’s monthly employment reported showed June payrolls losing another 467,000 jobs, the unemployment rate now stands at 9.5% with a long six months in front of us before the year ends.

If you are looking for a context try this: right now there are as many people working in America as there were in the year 2000. Nine years of employment gains have been wiped out.

And there is no sign that these figures are going to improve anytime soon.

Today, there is no such thing as a protected asset class. Fortune 500 companies that have been household names for generations-General Motors, Chrysler, Lehman Brothers- are going into bankruptcy as easily as corner stores and small construction companies.

Mark Zandi of Moody’s.com is one the most highly regarded economists in the United States. Zandi, who lives in West Chester, said in an article last week:

National house prices have plunged more than 30% since peaking over three years ago and are now back to levels seen in late 2002. House prices are falling in all but a handful of the nation's 392 metro areas and across the housing market, from low- to high-priced homes. Most disconcerting, the price declines show no indication of letting up.

The resulting loss of household wealth is enormous and weighs heavily on consumers' willingness and ability to spend. Since the peak in housing wealth, homeowners have lost more than $5 trillion in home equity, and close to 15 million homeowners—more than a fourth of all those with first mortgages—are estimated to be under water; their homes are worth less than they owe. With nest eggs so cracked, households are in no mood to spend more.

The combination of millions of underwater homeowners and millions of unemployed workers is leading to an unprecedented number of foreclosures. Some 3.5 million homeowners are on track to default on their mortgages this year, taking the first step in the foreclosure process. Defaults since the crisis began total around 7.5 million. The financial pain to these families and their communities is extraordinary and adds to the monumental woes of the financial system. As long as house prices fall and foreclosures rise, financial institutions will remain reluctant to extend credit to anyone, strong as well as weak borrowers. And without ample credit, the economy will struggle.

This, at mid-year- is the lay of the land. Next, we will discover what our economic fate will be for the immediate future. Then we pop back into the never ending election cycle.

Stay tuned.

photo: www.earningextramadeeasy.com