Monday, October 12, 2009

Are Young Workers Already Facing a Depression?

I wanted to share a great article from Business Week. The future for the current generation of young workers is looking increasingly grim as the first depression since the 1930's continues to wreak havoc on our economy.
The numbers are grim:

Let me share a few statistics from the piece:

"Affected are a range of young people, from high school dropouts, to college grads, to newly minted lawyers and MBAs across the developed world from Britain to Japan. One indication: In the U.S., the unemployment rate for 16- to 24-year-olds has climbed to more than 18%, from 13% a year ago."

"What's more, the baby boom generation is counting on a productive young workforce to help fund retirement and health care. Instead, young people risk getting tracked into jobs that don't pay as well, says Lisa B. Kahn of the Yale School of Management. That would mean lower tax payments for Social Security and Medicare.

Only 46% of people aged 16-24 had jobs in September, the lowest since the government began counting in 1948. The crisis is even hitting recent college graduates. "I've applied for a whole lot of restaurant jobs, but even those, nobody calls me back," says Dan Schmitz, 25, a University of Wisconsin graduate with a bachelor's degree in English who lives in Brooklyn, N.Y. "Every morning I wake up thinking today's going to be the day I get a job. I've not had a job for months, and it's getting really frustrating."ANXIETY AND FEAR"

"The sense of stasis in many Western countries is reminiscent of Japan, where talk of a lost generation has been around since as long ago as 1995. Some 3.1 million Japanese aged 25 to 34 work as temps or contract employees—up from 2 million 10 years ago, according to the Ministry of Internal Affairs."

My Take:

This article was quite eye opening to me. I hadn't really taken time to think about the impact that our depression will have on young workers over the long term.

The fact that 46% of workers aged 16-24 are jobless is flat out frightening. How will these kids ever get ahead? How will they ever be able to earn enough money for a stable retirement if they lose a decade before the economy recovers? Even then, who is to say that the economy sharply recovers within 10 years?

Japan still hasn't recovered from its post bubble malaise and it happened over 20 years ago! America wasn't able to recover from the depression in the '30's despite the government trying everything under the sun to stimulate it. WWII finally got the economy kick started again towards the end of the decade.

You need to ask yourself: After a euphoric 25 year bull run, could we not see a 20 year bear now after such prolonged prosperity?

Another thought here is how in the hell are we ever going to pay off our trillions in debts without young prosperous workers from which to tax from? Also, who is going to fund the massive medicare and social security programs that will be dramatically drained as our baby boomers retire?

The Bottom Line:

I'll tell ya folks. The more I think about the future the more frightened I become. I see no way out of this fiasco without years and years of pain. NONE!

As I watch the dollar fall on an almost daily basis I can't help but think: Is it time to buy guns and gold and move up into the mountains? It's starting to look like this might be the best alternative.

The economy and our currency are both in a free fall and the elites in the ivory towers simply don't seem to care.

When is America going to rise up and say Enough?

I'm waiting.

20 comments:

Tom said...

Thanks Jeff for all the great info

bdrube said...

The really scary part is that this prolonged recession has temporarily mitigated the effects of Peak Oil. Now it looks like we may be facing a long twilight before the Peak Oil collapse rather than a fast crash.

getyourselfconnected said...

Jeff,
You bring up a key point. In my field (as you know biotech/pharma research) the job market is crazy tight. Positions that normally you would like a first year candidate (1st year out of college) to fill can now be filled by 5 and even 10 year veterans of the research world. The poor kids cannot compete. And try explaining to management that someonei s hoplessly over qualified, they just want the experience at the lowest price. Jobs are so short right now salary cuts of 20-30% are acceptable to job seekers, they just want to work.

That said, our 18-25 year old population segment is too drunk, stoned, and jaded to get riled up ,unlike elsewhere in the world. I think the biggest revolt will come from parents that after dropping $150k on a college degree they are going to want to know why their son/daughter is still living in the basement at age 30!

PS
Make a friday night video fight nomination!

Tom said...

Jeff

I just thought of something in regards to your last post. How are the banks going to make a profit now that they have ramp the market up 50%? They aren't loaning and as you have so well documented the consumer is dead. Running oil up will crush a already ruined economy so what do they do next? Will it be cap and trade?
Sorry I am off topic.

Jeff said...

BD

Yep

Thats how I see it too. Inflation is nowhere near peeking as long as the Fed continues its weak dollar policy.

This should continue to take oil higher for a long time.

Jeff said...

Get

Yep its here in pharma and everywhere else from waht I have heard.

I talk to bartenders that graduated from school a a local watering hole and none of them can even get an interview.


What's sad is none of them seem to care. The apathy in this country defies belief.


As for fight night:

Buster Douglas vs. Mike Tyson. Watched that fight live. That was the biggest shocker I ever saw.

Anonymous said...

"When is America going to rise up and say Enough?"

Basically never. A good friend of mine lived in Japan for the so called "lost decade". In Japan, its not a big deal - so slow, so subtle, no one ever really noticed.

If you look at the GDP on a graph, but if you ask the average Japanese on the street, they say its "same as it was 10-15-20 years ago".

In a way, I guess thats the point. Japan, while stable, has not grown. In relation to itself, everything is the same. But in relation to the rest of the world it is falling slowly behind.

Thats what I expect for the US. A slow rope-a-dope where things neither grow or decline and we dont realize how much we have lost
relative to the rest of the world.

Jeff said...

Tom

No problem every topic is welcome here.

Right now they are making a killing borrowing short and lending long.

They can also borrow short and buy the long bond and pocket the spread.

These games are only temporary because the yield curve will flatten as yields rise.

They are still taking massive hits on their balance sheets as this crisis deepens but as long as they don't have to mark to market who cares in the short term?

They will look very profitable. BTW When I say "they" I mean the big banks like Goldman and Morgan Stanley that are primary dealers in the bond market..

The regionals could get pummeled as commercial real estate tanks.

Jeff said...

Anon

Thanks for the insights from Japan.

That kinda sounds like the late '60's/1970's here. A lost decade followed by 3years of insanity before Volcker broke inflation.

I wouldn't be surprised to see it play out like that. In fact, I would be thrilled if that is as bad as it gets!

getyourselfconnected said...

Jeff,
While not a music video, I too watched Tyson get beat in Japan live!! I remember thinking "No Way, No Way" plus Douglas was counted out in the 8th by the ringside timekeepr after he was knocked down.

For drama, search my site for Chavez vs. Taylor round 12, easily the most exciting finish to a fight ever.

As to Finance,
yes japan has faced deflation, but where is the hardship? IS the Japan result (assets have dropped more than incomes, so they are ahead really) so bad? Obviously they have demographic problems as well, but there has ben no physical revolt in Japan.

My 2 cents

Anonymous said...

I'm 50 and on unremployment and will retire on unemployment,The goverment knows 1 thing HUNGRY PEOPLE RIOT !

CT-Hilltopper said...

That's what I posted about on my blog, anon.

This isn't like the thirties, when masses of people waitied on breadlines patiently for hours and hours.

American's today riot when they are hungry.

Unfortunately, we can't seem to get them to get their asses off the sofa and get the remotes out of their hands right now, because the standard of living hasn't declined enough.

Just wait. But they won't get off their sofas until it's far too late to do any good.

Jeff said...

Get

Deflation would be the easiest way out but the banks blowup in the process.

We need prices to collapse before this economy can ever recover.

People eating baked potatoes in order to pay a $2000 mortgage payment is no way to go through life.

Check this out this article:

"
It doesn'tWhy not just walk away?
Increasingly, homeowners with good credit and no late payments are making what appears to be a strategic decision to walk away when their home's value falls below what's owed.

"The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," concludes a report on research by Experian, the credit agency, and Oliver Wyman, a management consultant company.

The better their credit rating, the more likely homeowners were to default. The trend is most pronounced where prices have fallen furthest: Florida and the West, especially California.

The finding -- that 588,000 borrowers appear to have strategically defaulted in 2008, a 128% increase from the year before -- surprised the researchers. Piyush Tantia, who conducted the research for Oliver Wyman, and Charles Chung of Experian spotted the trend while analyzing 24 million credit files to see what they could learn about mortgage delinquency.

Foreclosure as a financial strategy
Strategic defaulters stand out among the 14 million to 15 million "underwater" mortgages, the researchers said, because they:
take a brain scientist to realize that paying 3k a month on an asset thats worth 50% less makes ZERO sense."

http://articles.moneycentral.msn.com/Banking/YourCreditRating/the-rich-bail-faster-on-mortgages.aspx?ref=patrick.net

The wealthy "get it". Its just a matter of time before J6P does.

Jeff said...

Anon

SOrry about your situation.

I hope you find something soon. I think many of us will be facing the same situation.

Good luck with everything and keep us posted.

Jeff said...

CT

Great points as usual.

It seems like food stamps on an ATM type card has replaced the breadlines this go around.

Eventually the money is going to run out and like you said, it will be too late by then.

I feel like going out and buying a farm!

Herb said...

If anything comes out if this, I hope it is lower college costs.

Herb said...

Opps..rest of my comment got cut off.

Students are going to have to figure out if it makes any sense for them to graduate with 100k+ in student loans.

Financial Advisor in CA said...

Can anyone say, "Hello Welfare!"

FA in CA

flipdippy said...

Wow. I was away from the office today and damn near had a coronary when I checked the markets.

JP Morgan offered a savory taste of the way the banks are going to report this Q.

And, their earnings are eerily similar to the way my grandpa answers the question "how are you".

"Except for my glaucoma, and my knee acting up, and the doctor telling me I can't have too much salt or sugar, and I need to have a mole biopsied for cancer, I feel like I'm 25".

Jeff- I'm curious and may be a post idea on exploring a 'what-if' scenario if Obama did actually manage to reflate a bubble.

Minton Mckarkquey said...

Post-bubble bubble coming... when it hits the fans, it's going to be 10x messier. Guns 'n gold, Jeff!