This analysis is written by Dr. Bento Lobo, UC Foundation Associate Professor of Finance, with research assistance from Tyler Forrest, Will Hudson, Kaytie Oldham, and Stephen Tilstra, all students in his international finance class at the University of Tennessee at Chattanooga this past spring semester.
A year ago, the national unemployment rate was 10 percent. A year later, this rate has inched lower to 9.5 percent. Some believe this statistic reflects the fact that many of those unemployed have chosen to give up looking for a job. Ironically, these folks are not counted among the unemployed. This economic crisis is already characterized by the longest average duration of unemployment: over 45 percent of those currently unemployed have been out of work for more than 6 months, according to the Bureau of Labor Statistics. Compared to the 1976-2007 average of about 15 weeks, the average unemployment duration as of June 2010 is about 35 weeks. Moreover, The Atlantic reports that globally more than one billion people are currently unemployed.
The mood on Main Street USA is unhappy. A recent WSJ/NBC poll (June 23, 2010) shows that 62 percent of adults in the survey feel the country is on the wrong track, the highest level since before the 2008 election. Just one-third think the economy will get better over the next year. Amid anxiety over the nation’s course, support for incumbent politicians is eroding. Indeed, 57 percent of voters would prefer to elect a new person to Congress than re-elect their local representatives.
The Washington Post reports that a massive wave of borrowing will begin this year when the U.S. and European governments sell an estimated $4 trillion in new bonds as countries, corporations and banks borrow record amounts of money to repair the damage from the financial crisis and pay back loans from the boom that preceded it.
Will markets be able to smoothly absorb the new debt, or will less-creditworthy governments be pushed into a Greek-style crisis? Will weaker banks and corporations get pushed into default that could trigger another downturn?