Why you are being LIED to......
January 28, 2009
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As many of you know, my blogs have been focusing on unemployment lately and providing factual documentation of the ever increasing rounds of layoffs. It ain't fun, but Fools must be prepared for the consequences.......
One of the key analytical focuses in Alstrynomics is how unemployment affects the economy in general.....and distilling it to its essence, the impact is profound and it compounds in severity. It is the compounding that is key and why many "economists" are likely intentionly under estimating future unemployment rates.
Here is a piece from Mish's blog.....
Last week, consumer lender Capital One Financial increased its unemployment forecast to 8.7% by the end of 2009, from its previous expectation of 7% by midyear. And Capital One added that it is building more-severe unemployment scenarios into lending decisions.
Also last week, Kelly King, chief executive of regional bank BB&T, said unemployment of 8% to 8.5% is "kind of manageable," but 9% to 10% would "have a dramatic impact on our scenarios."
Why the trepidation of going above 9%? Take a regular credit-card book. Past data show that a percentage-point increase in unemployment leads to roughly a percentage-point rise in the charge-off rate, the amount of defaulted loans written off at a loss.
But as unemployment exceeds 9%, bankers think charge-offs will start to increase by more than the increase in unemployment. The reason? A high rate could cause an unprecedented wave of defaults among prime borrowers, who tend to have bigger loan balances.
"The situation is so extreme and beyond what we've seen in past cycles that management teams are becoming reluctant to predict the relationship between unemployment and credit losses," said Kevin Fitzsimmons, analyst at Sandler O'Neill & Partners.
If you understand this, you understand why Alstrynomics focuses sooooo much on unemployment. As I have warned you before, please prepare.....if not financially, at least mentally. And if you have read my blogs, whether you like it or not, you are more prepared than most.
In the mean time, stay focused on the facts.....but if you like fiction and you have already not read it, Atlas Shrugged is a great read.....and it may be more reality than you think.
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