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26 January 2009

More Jobs Lost

Another 50,000 jobs are lost this week bringing the total, so far, this year to 185,000.

Nearly 2.6 million jobs were lost in 2008, the highest since 1945. It has become a vicious cycle where weak spending results in job layoffs, which in turn leads to further weak spending and that leads to more layoffs.

Caterpiller announced the layoff of 20,000 workers being the largest of the latest announcements. These layoffs of course, reflect how the world economy is performing.

Sprint Nextel cut 8,000 jobs, Home Depot cut 7,000, ING cut 7,000 jobs, Pfizer will cut about 8,100, Deere will cut about 700, Schlumberger will cut about 5,000 jobs, Time Warner will cut about 800 and Microsoft cut 5,000.

While many analysts expect the unemployment rate to approach 10%, some are thinking of this as a normal business cycle and expect everything to suddenly turnaround and improve from here.

There are those, however, who have a more extreme view and believe that we are just beginning what could become a 10 to 20 year depression, if the right decisions are not made in the next 90 days.

These people feel that politicians should let capitalism run its course. That means letting the banks and large corporations fail. It will be painful in the short run, but the continued bailouts will lead to prolonged pain.

The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery. -Winston Churchill

Banks have lost trillions of dollars in wealth and the last thing they want is to go bankrupt. The people that are making the decisions on what to do, Paulson, are former bankers and they don't want to see the banks they used to run go under.

Currently, banks are being nationalized, which is more socialism than capitalism and this is offensive to many. Of course, this is more of a stealth nationalization. An official nationalization would require the government to freeze accounts and limit withdrawals (which could happen anyway). This would be very undesirable, the loss of shareholder equity would wipe out the stock market.

Nationalizing banks, officially or unofficially, is going to require the government to pour trillions of dollars into the system to keep it from going bankrupt. This is money that will never be returned to taxpayers.

With all of the recipients of the bailout money having burned through half of it already and asking for more. It is becoming clear that whatever they are given it will not be enough.

That is why, the extremists say, action, the right action, is needed immediately. One conspiracy theorist says that Obama will need to act within the next 90 days to shore up the financial system or it could collapse completely. He gives it a 50/50 chance.

Stay tuned, there will be opportunities to make a lot of money if this were to come true. For now it is best to be in cash.

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