Regarding Alstry's call for 30% unemployment and a 50% cut in American wages.
Like many of you, I'm an avid reader of Alstry's commentary and insight. His track record and rating in CAPS speaks for itself. However, having said this, I am at odds with his recent blog which calls for a spike in unemployment to 30% and a required 50% nominal cut in American wages before we (as a country) find our way clear of the current downturn.
In short, none of this will come to pass. Future unemployment rates and the value of American salaries will never reach the levels suggested above because current monetary policy will not allow it.
Following what will be a deflationary period in 2009 in which the unemployment rate could reach as high as 10%, the government will flood the economy with money. This process is already underway and it will have two large effects (among others):
1. It will likely cause a period of inflation not unlike that which was last seen in the early 1980's. This will be intentional, as the government will need this inflation to find its way into hard assets like housing, in order to stem the tide of foreclosures casued by downward spiraling prices.
2.This flood of money will also serve to weaken the American dollar significantly. This will lead to American goods being cheaper in the global marketplace, leading to increased demand for American products and services, and giving rise to U.S. employment.
3. White-collar American workers will become more cost competitive with outsourced overseas resources in this environment. Thousands of these previously outsourced jobs will begin to find their way back to the U.S. beginning in 2010.
4. Those living on a fixed income will suffer in this environment, however the incoming president's stated plan to reduce or eliminate taxes on seniors making 50k or less will ease some of that burden.
5. Oil will bottom in 2009 as production cuts and inflation find its way into the price of crude. Already OPEC is targeting $75/barrel as their "fair" price.
If any of this sounds familiar, its because this is what I outlined back in my June blog (then written as SemperGumby77). At that time, I also outlined the Obama victory, the short-term crash in oil prices (recall the "$75 vs. $200" debate I had with Demon Doug), and the Dow crashing at least 2000 points (though the fall swoon even caught me by surprise with its ferocity).