THE US was shocked and shaken yesterday after learning that the workforce shrank by 652,000 jobs in the month of June alone.
Former US Labour secretary Robert Reich has responded to these devastating figures that come at a time when Americans were hoping against hope that there would be some signs of a recovery.
Referring to the ‘hungry’ 1930s he described the US economy as ‘still in the gravitational pull of the Great Recession’.
Robert Reich continued with his analogy: ‘All the booster rockets for getting us beyond it are failing.’
The month of June was a record breaker for bad news.
Not only did the US workforce shrink by 652,000, simultaneously the rate of hourly earnings fell 0.1 per cent.
The average time needed to find a job also rose to a record 35.2 weeks.
In California, seen throughout the world as some kind of heaven, state workers have had their wages cut by 14 per cent this year.
Governor Arnold Schwarzenegger is cutting pay for 200,000 state workers to the minimum wage of $7.25 an hour in an attempt to cover his $19bn (£15bn) deficit.
This is less than the UK minimum wage in a state where the cost of living is much higher than the UK.
In the Mid-West, the state of Illinois has a deficit of $12bn and is $5bn in arrears for its schools, nursing homes, and childcare centres.
The Illinois state comptroller Daniel Hynes said: ‘It is getting worse every single day.
‘We are not paying bills for absolutely essential services. That is obscene.’
Attempts by the Federal Reserve at reversing the recession including zero interest rates, quantitative easing (QE), and fiscal stimulus have pushed the budget deficit above 10 per cent of GDP.
The US housing market is in a serious crisis, the expiry of homebuyers’ tax credit led to a 30 per cent fall in the number of buyers signing contracts in May.
In response to the accelerating crisis and fears for the collapse of the dollar, the Federal Reserve Bank is split about whether to restart ‘Quantitative Easing’ the modern equivalent of printing billions more dollars.
However, Dennis Lockhart for the Atlanta Fed advised: ‘It’s appropriate to think about what we would do under a deflationary scenario’.
His colleague Kevin Warsh added that the pros and cons of purchasing more bonds should be subject to ‘strict scrutiny’.
The worsening economic climate in the US will have a serious impact on Europe.
Last Friday, Jacques Cailloux from RBS put out a warning for Europe.
He said: ‘The risk is rising fast. The European economy will double dip in 2011.’