No matter where economists look there is no evidence that a recession in the US, EU, and Asia is doing anything but deepening. The stock markets are the least of it. Some of the indexes in the largest countries are off 40% from their peaks reached a year ago. Banks are failing. In cases where the government has not stepped in some have disappeared and others have been merged into more healthy institutions. Healthy for now, that is.

The financial sector could easily lose several hundred thousand jobs in the US. New York City expects employment in the banking and brokerage sector to fall by 150,000. Marriages like the ones between Bear Stearns and JP Morgan (JPM) and Wachovia (WB) and Wells Fargo (WFC) will clearly put tens of thousands of people out of jobs. Goldman Sachs (GS) apparently will let 10% of its workers go.

The trouble has spread well beyond banks. Merck (MRK), Xerox (XRX), GM (GM), and Chrysler just said they will push more poor souls out the door. Even a successful tech company such as Hewlett-Packard (HPQ) has taken significant numbers of people out of its workforce.

So, how many people, how many people in total could lose their employment over the next year?
In the recession which started in 1973, unemployment hit about 9%. As of last month, the comparable figure was at 6.1%. With a national labor force in the US of about 145 million people, that means 4.5 million more people could be out of work relatively soon. That does not take into account the “shadow” army of unemployed, the people the government says are no longer looking for jobs.

Economists, particularly those with a dark view of the world, are concerned that 9% may not be the end of it. As people lose work, retail spending drops which can lead to more layoffs. The housing crisis could get worse and foreclosures may rise. More people with mortgages could find themselves “underwater”, a term which lacks the power of describing the dilemma. Credit is rarely given to those with such substantial leverage, although it was common in 2005 and 2006.

The press and those in despair almost always turn to the government for answers to the most perplexing questions. But, in this case they will not get an answer. Short of what was done in the 1930s. there are no ready solutions and even a series of actions like those taken by Roosevelt might do no good.

Put bluntly, it is hard to imagine that at least another five million people will not lose their jobs over the next twelve months. No matter how much money is pumped into the banking and mortgage systems, the carnage cannot be prevented. It will be left to private enterprise to take advantage of the situation, a process which is fueled by opportunistic thinking and greed. Bottom fishing will become an art. Finding opportunities in the rubble will make some people rich. At that point, the economy will start to drive back up again. The rich willing to take risks almost always sense a bottom.

Douglas A. McIntyre

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