America Slides Deeper Into Depression as Wall Street Revels

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by Ambrose Evans-Pritchard: Global
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December was
the worst month for US unemployment since the Great Recession began.

The labour
force contracted by 661,000. This did not show up in the headline
jobless rate because so many Americans dropped out of the system.
The broad U6 category of unemployment rose to 17.3pc. That is the
one that matters.

Wall Street
rallied. Bulls hope that weak jobs data will postpone monetary tightening:
a silver lining in every catastrophe, or perhaps a further exhibit
of market infantilism.

The home foreclosure
guillotine usually drops a year or so after people lose their job,
and exhaust their savings. The local sheriff will escort them out
of the door, often with some sympathy – just like the police
in 1932, mostly Irish Catholics who tithed 1pc of their pay for
soup kitchens.

Realtytrac
says defaults and repossessions have been running at over 300,000
a month since February. One million American families lost their
homes in the fourth quarter. Moody’s Economy.com expects another
2.4m homes to go this year. Taken together, this looks awfully like
Steinbeck’s Grapes
of Wrath
.

Judges are
finding ways to block evictions. One magistrate in Minnesota halted
a case calling the creditor "harsh, repugnant, shocking and
repulsive". We are not far from a de facto moratorium in some
areas.

This is how
it ended between 1932 and 1934, when half the US states declared
moratoria or "Farm Holidays". Such flexibility innoculated
America’s democracy against the appeal of Red Unions and Coughlin
Fascists. The home siezures are occurring despite frantic efforts
by the Obama administration to delay the process.

This policy
is entirely justified given the scale of the social crisis. But
it also masks the continued rot in the housing market, allows lenders
to hide losses, and stores up an ever larger overhang of unsold
properties. It takes heroic naivety to think the US housing market
has turned the corner (apologies to Goldman Sachs, as always). The
fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn)
of "option ARM" contracts due to reset violently upwards
this year and next.

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the rest of the article

January
11, 2010

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