Let them go bankrupt. Let them all go bankrupt! The way the system is supposed to work – when you fail you fail – competent people come in and take over the assets. But what they’re doing is taking assets from the competent people and giving them to the incompetent people – it’s absurd economics and absurd morality. The solution to too much debt is not more debt! This is the most insane thing I’ve ever heard. It’s going to make the collapse, when it comes, even worse – be careful. No, don’t be careful. Be worried.
-Jim Rogers

Just to make sure we don’t lose sight of the problems in the US, I decided to discuss the troublesome American labor market in this issue. But before that, some thoughts about the unfolding debt crisis in Europe which will, unfortunately, not end in the near future.

If you were wondering how big the Spanish bailout would be if it came to the United States, the indefatigable Tyler Durden at www.zerohedge.com has the answer for you:

For those curious what the latest and greatest estimate of the Spanish bank bailout, which at last count was €100 billion and growing fast, would look like in US terms, here is a rough and dirty comparison of the scale we are talking about here ...

Spanish GDP of $1.25 Trillion : US GDP of $15.5 Trillion :: Spanish Bank Bailout of $125 Billion : US Bank Bailout of $1.6 TRILLION

A trillion here … a trillion there...

He also posted a very interesting article yesterday about Biderman & Santschi on “Why Germany Should Leave The Euro”:

While some have discussed the game-theoretic dilemma that Germany faces relative to the ‘rest’ of Europe, David Santschi of TrimTabs (Biderman’s balder buddy) digs into the details as a potential solution (hard as it may be) as Europe’s fatal flaw (the currency unionization – but not fiscal or banking union – of a group of nations with strong sovereign identities). The imbalances are so great right now that the only practical solution David sees is to breakup the Euro-zone, and simply put the best way to achieve a break up would be for Germany to leave voluntarily – establishing a strong currency and in turn saving itself financially. The clear implication is that if Germany continues down the path of printing and bailouts it will be dragged down along with the rest of Europe. The EVP does not minimize this as a ‘good’ or ‘easy’ solution – many people would lose their livelihoods and many would lose a lot of money – but it is the only practical solution he sees (as Eurobonds, banking unions, and fiscal unions are simply impractical in terms of both effect and timeliness).

Of course this would have painful implications as the Euro would fall sharply but given the yields on Spanish debt (and previously on Greek, Portuguese, and Irish), it would appear markets are pricing this in as a string possibility and as we have noted Germany’s CDS are starting to rise (whether on risk-transfer or contagion concerns). Reflecting on the press (and in our view, the politicians), Santschi quotes W.C. Fields quite appropriately: “If you can’t dazzle them with brilliance, baffle them with bullshit!” as he opines on the sheep-like reporting from the mainstream media of politicians ‘lies’. Europe remains a solvency problem not a currency problem and it seems journalists do not understand the difference between a grant of money and a loan of money – as the latter needs to be paid back!

In one of the most sane discussions of the reality in Europe, Bidermantschi note that it appears investors have finally wised up to the fact that “bailout loans are nothing but a shell game replacing old debt with new debt” and the heretical proposition that central banks perhaps cannot solve all the world’s problems.”

You may want to sit down before reading this. David Rosenberg, who is a great favorite of mine, summarized last week how, quietly, the US labor market slipped back into a full-blown depression:

One Sick Labor Market

There were so many disturbing elements to the May jobs data that we’re not sure we can do justice to the litany of disappointments (with some help from our friends at the Investor’s Business Daily):

  • The share of long-term unemployment is at its highest level since the Great Depression (42%).
  • Fully 54% of college degree graduates under the age of 25 are either unemployed or underemployed.
  • 45 million Americans are on food stamps – one in seven residents.
  • 47% of Americans are on some form of government assistance.
  • The employment-to-population ratio for 25-54 year olds is now 75.5%, lower than it was when the recession supposedly ended in June 2009.
  • The number of people not in the labor force has swelled eight million since the recession ended; absent that effect, the unemployment rate would be 12% right now (about the same as President Obama’s election chances would be).
  • The number of people confident enough to leave their jobs fell 11% in May for the second month in a row to 891k, the lowest since November 2010.
  • The ranks of the unemployed who have been looking fruitlessly for work for at least 27 weeks jumped 310k in May, the sharpest increase since May 2011.
  • The unemployment rate for males aged 16-19 is 27% and for males between 20 and 24 it is 13%. Draw your own conclusions from a social (in)stability standpoint.
  • One in seven Americans is either unemployed or underemployed.
  • Only one is six of the youth are working full-time and three-in-five are living with their folks or another relative (as per the NYT).
  • A mere 16% of the 2009-11 graduating class has found full-time work, while 22% are working part-time. Even those hired from 2006-08, just 23% are working full-time.
  • According to a poll cited in the NYT, just 14% of high-school grads today believe they will have a more successful financial future than their parents. Line of the day, as depressing as it is, come from an 18-year old: “Thank God I had a buddy at Burger King who could help me out”. Fast-food has emerged as the fast-growing industry in a country once led by technology. Even tech now is fuelled more by companies that produce nifty consumer gadgets and feed our narcissistic needs than those who focus on improving the nation’s capital stock which is the ultimate trailblazer for productivity growth and durable gains in our standard-of-living.

Nothing to cheer us up for sure, and I am afraid things are not going to get better going forward but worse instead, much worse indeed...

And Chuck Butler from the Daily Pfennig had this to say about the labor market in ‘US Job Growth Is VERY Disappointing’:

Nonfarm payrolls grew by a lackluster 69,000 last month, the smallest gain in a year. The unemployment rate, obtained by a separate survey of US households, ticked one-tenth of a percentage point higher, to 8.2%, the first increase in nearly a year.

And remember that 115,000 job increase in April? It was revised downward to 77,000. Oh, you won’t believe this, or maybe you are “all in” on what the Bureau of Labor Statistics (BLS) does with the number. In either case, I’m going to give it to you, anyway!

The BLS added over 400,000 jobs in the past two months. So let’s see, using my new math, if we take 77,000 and 69,000 (which are bad enough on their own) and add them together, we get 146,000. But if we take away the 400,000 ghost jobs the BLS decided to add, the economy is actually losing jobs! 400,000 – 146,000 = a negative 254,000 ...

Furthermore an article at Bloomberg, “Forget the Euro Crisis … The US is in Far Worse Shape” from Nassim Taleb, author of The Black Swan, truly added insult to injury. Here are some of the most important parts of it:

A breakup of the euro ‘is not a big deal,’ Taleb said yesterday at an event in Montreal hosted by the Alternative Investment Management Association. ‘When they break it up, there will be a lot of fun currencies. This is why I am not afraid of Europe, or investing in Europe. I’m afraid of the United States.’

The budget deficit as a proportion of gross domestic product in the US amounted to 8.2% at the end of 2011, government figures show. That’s twice the 4.1% ratio for euro-region countries, according to data compiled by Bloomberg.

’Of course, Europe has its problems, but it’s in much better shape than the United States,’ Taleb said. He voiced similar concerns about US prospects at a conference in Tokyo in September...

Rising interest rates would make things worse for the US, said Taleb, a principal at hedge fund Universa Investments LP who also serves as an advisor to the International Monetary Fund.

We have zero interest rates,’ Taleb said. ‘If interest rates go up in the United States, you can imagine what the deficit would be. Europe is like someone who is ill but is conscious of it. In the United States, we are ill, but we don’t know it. We don’t talk about it.’

Last but not least Egon von Greyerz, founder and managing partner at Matterhorn Asset Management, had to say some very interesting things in an interview with King World News about the global crisis, and also mentioned that the money printing is “imminent”:

As I see things, we are on the road to perdition. There is no exit strategy for the world (to get) out of these problems. There is no solution. If you look at what happened in 2008, people thought that was bad, but what’s going to happen, starting this year and in the next few years, will make 2008 look like a small rehearsal because the real collapse is going to start now.

We’re seeing every week, one domino after the next that is falling. So far they are only smaller dominos such as banks, smaller countries, etc. No (major) country has fallen, but that will come. Every single economic figure is looking worse. World trade is declining – Chinese exports of steel were down 14% last month, US exports to the euro zone were down 5% last month and that is likely to increase to minus 20% if not more.

The decline of world trade means the start of a depression ...

We also saw six German banks downgraded, we saw manufacturing figures in almost every country coming down, as well as production. So the dominos are falling and, sadly, we are seeing a historic and dark period for the world.

Bernanke, don’t believe a word of what he is saying. He’s a politician, like everybody else, and he used this speech to put pressure on Congress to reduce the deficit, but of course they won’t. So the burden will be back on Bernanke to print more money. That (money printing) is imminent.

Ben (Bernanke) talked about the euro zone. He said he’s prepared to take action if needed. Well, I can tell him that action is needed now. That action we will see very soon. There will be a worldwide package. There will be a massive worldwide package coming out between the Fed, the ECB, the IMF and other central banks.

And to finish on a happy note, have you already read the humorous summary of yesterday’s market action from Goldman’s Sales team:

Stocks off just shy of 1%, which erases most of yesterday’s gains, which erased most of Monday’s losses. After tomorrow, will you be able to say that Thursday’s gains erased most of Wednesday’s losses, which erased most of Tuesday’s gains, which had erased most of Monday’s losses? With apathy running high and conviction low, that sounds just as reasonable as anything else.

Posted by Nico Omer Jonckheere | VP Research and Analysis, PT. Valbury Asia Futures