Companies are shedding jobs quicker than kilos on “The Biggest Loser“. Former fatties are now “right sized” and “down sized” and better able to handle the economy. Meanwhile the “right sized” are filling unemployment lines and leading to record high unemployment in most OECD nations. (Australia, for some odd reason, is defying the trend and last month announced a decline in unemployment - Aussie! Aussie! Aussie! Oy! Oy! Oy!)
In the USA alone, each month a half million jobs are lost, according to The Guardian:
“The unemployment rate in the United States has hit a 26-year high after another half a million jobs were lost last month.
“The labor department said the jobless rate jumped to 8.9% in April from 8.5% the previous month, marking the highest level since September 1983. US employers cut 539,000 jobs in April, the smallest number since October.”
To date the Global Financial Crisis emanated from falling residential housing prices leading to a drop in consumer confidence, leading to less spending, leading to banks writing off loans…leading to today’s catastrophic mess.
But the bad news it’s only going to get worse.
The employers that are now thinner, leaner and meaner are locked into long term rental agreements for commercial property. This means the major cities will soon have a glut on their hands. And when owners find it impossible to fil buildings - at the right price - they’ll start defaulting on commercial mortgages. Prices for commercial property are bound to fall due to a steep fall in demand. Yet due to the long-term nature of most commercial rental agreements, we’re unlikely to see the full effect for another year.
Until then demand for new commercial premises has fallen - so building has stopped.
And did we mention the banks now holding mortgages that may not be repaid? In the USA attention has been focused on the larger banks - Citibank and BankofAmerica come to mind. According to “The Wall Street Journal“ more than US$100 billion is likely to be lost across all banks in commercial property next year:
“Commercial real-estate loans could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy’s woes deepen, according to an analysis by The Wall Street Journal.” (see full story on-line)
We’ll need new terms in a post-crisis world. Safe as banks? Nope. Good as bricks and mortar? No longer. Maybe mattress sales are on the upswing - especially as we can’t get coffee in tins any more to bury in the back yard.
