Unemployment affects all of us

Some people think that only the unemployed and prospective employers are affected by unemployment. However, as the financial crisis has shown us, unemployment affects all of us. The unemployment rate is one of the key measures used by business owners to gauge market conditions. With unemployment figures remaining high since the crisis first hit in 2008, business owners continue to be pessimistic about the economy.

When large numbers of people are unemployed, the number of available customers is greatly reduced. Add in the fact that Department of Labor figured significantly understate the unemployment picture by omitting from their main unemployment figure both part-time employees who want to be employed full-time and long-term "discouraged" workers who want to be employed but have given up searching, and the overall unemployment picture is actually far worse than the official U3 unemployment number shows.

The economic statistics website, Shadow Stats, does a particularly good job of illustrating this fact. Take a look at this graph.

As you can see, the Department of Labor seriously understates the level of unemployment in the United States. This isn't just a statistical problem. It's evidence that the recession is much deeper than claimed by our economic and political leaders.

Common banking practices need reconsideration

By now, nearly everyone has noticed that Wall Street got bailed out of the mess they made, and everyone else gets the privilege of paying for it. But no one pays more than the unemployed.

Certainly, a significant share of unemployment is tied directly to home foreclosures and repossession, and those former homeowners who are also unemployed have paid the heaviest price of all. But many unemployed or underemployed people weren't among those who bought homes in the middle of the real estate boom. They're simply the hidden victims of the entire mess.

Despite all the noise made by politicians about how they've extended unemployment benefits for millions, the fact remains that many of these millions had nothing whatever to do with the financial crisis and recession. And that's a shame, because these people carry an undeserved, large share of the burden that others created.

Meanwhile, the banking community has made out like bandits. Not only did they get the politicians to use the rest of us bail them out, but now, even during bad times, they're making money hand over fist. According to a recent Washington Post article, JP Morgan profits are up 47% over last quarter, and they didn't exactly have a bad 3rd quarter. Wells Fargo is up 21%. U.S. Bancorp is up 59%.

Goldman Sachs was an exception. Their net earnings declined by 52%, but the quarter included a $550 million settlement with federal regulators over allegations of misleading buyers of mortgage related investments. Overall, however, the commercial banking sector did extremely well.

This is particularly disturbing because the banking industry makes its money by investing its depositors' funds as if it was its own, an activity no other industry can get away with practicing. Naturally, the banks keep the lion's share of the earnings. A lot of noise has been made about how many of the bailout dollars have been repaid, but most of us never think about the fact that this repayment is made by collecting interest and fees on money that was loaned out but which never belonged to the banks in the first place. Without this practice, there would not have been a financial crisis. Without the financial crisis, unemployment and underemployment would not be such a big problem for millions of Americans today.

Even if we were to require that the banks return the favor and bail out Main Street, the fact remains that they could only do it with their depositors' money, and those same depositors are primarily from Main Street. It's a horrible catch 22, and it sorely needs addressing.

Climbing back to economic health will take a long time. In the meantime, it's not too much to ask that the banking system be systematically changed. The practice of allowing banks to treat depositors' money as if it belongs to the banks needs to be stopped.

The Federal Reserve has gotten lots of credit for stopping the Great Depression II from happening, but truly this credit is overstated. The reality is that the Fed exists precisely to prevent this kind of crisis from happening in the first place. Regardless of whether one believes that the Fed helped cause the crisis or not with its monetary policies, the fact remains that the Fed's publicly stated function is to keep inflation down and unemployment down. The government would argue that inflation has remained low throughout the crisis, and many in the markets would agree. But the CPI itself is severely understated, due to changes the Bureau of Labor Statistics has made to the way the CPI has been calculated over the past 30 years. According to ShadowStats, the true inflation rate is in the 8-10% range, if we measured them the same way they were measured 30 years ago.

So we must conclude that the Fed has failed both to keep inflation down and to keep unemployment down. Giving large amounts of verbal credit for doing a bad job should not be tolerated.