<Student’s name>
<Foundation course><Tutor>
<University>
<Department>
Introduction
First of all I must say, that I don’t agree with the statement, that inflation is more dangerous than unemployment just because the last is only a problem for those who have no work. The high level of unemployment is also dangerous for all society, and I will explain this in my essay.
Body
As you know, the situation in the labor market in the U.S. and other developed countries are not improving. In America, the unemployment rate (9.5 %) has the potential to fall over 10% . In 2010, it is expected to reach a peak of 11% and will long remain above 10 %. In most developed countries, unemployment will peak in excess of 10%. But these figures do not reflect the real picture. If one includes part-time workers and people stop looking for work , the unemployment rate reached 16.5%. Adopted in many countries, incentive programs have done little to slow the growth of unemployment. As a result, total labor income ( jobs x average hours worked x hourly earnings ) fell sharply.
The sharp decline in jobs and labor income has many negative consequences for the economy and financial markets. First, the drop in income implies falling consumption for households , which have already been hit by the loss of purchasing power and rising debt. As in the United States and other developed countries, consumption is 70 % of GDP, which means that the recession will last a long time, and the economic recovery in 2010 will be anemic (less than 1% growth in the U.S. is even lower - in Europe and Japan).
Second, the loss of jobs will exacerbate the decline in housing construction, as unemployment and reduced income - key factors determining delinquencies on mortgages and foreclosures . By the end of the year 8.4 million Americans with a mortgage on his hands will be unemployed and unable to pay their mortgages .
Third, if the "score" unemployment rate in the 10-11% range in any model of cases of loan defaults, then we obtain the horrifying figures. Not only for residential mortgages, but also on commercial real estate, credit cards, student loans, auto loans, etc. Thus, bank losses will be much greater, and it will worsen with the credit crunch.
Fourth, the increase in unemployment leads to an increase in demand for protectionist measures to preserve the “domestic" jobs, exacerbating the situation in world trade.
Fifth, the higher the unemployment rate causes the greater budget deficit, as automatic stabilizers reduce revenue and increase spending. Thus, now the situation with finances in the U.S. (10% deficit) is becoming increasingly complex.
All this leads to a policy dilemma: rising unemployment rates are forcing politicians to consider additional financial impact of the program in order to stimulate the falling demand and raising the level of employment. But despite the deflationary pressure, the growing budget deficit, support the financial sector, money printing and an unacceptable level of debt leads to a much larger -than-expected inflation. And it will raise interest rates, which "strangle" recovery in private demand.
Therefore, even if the unemployment undermine consumption, housing prices, banks' balance sheets, free trade, and the state finances, the possibility of further financial incentive programs is becoming increasingly congested. Indeed, not only are governments financial "bullet" such as mounting debt, but also the monetary policy is not enough "traction" in order to "pull" insolvent economy with liquidity problems and more. And even worse - in the medium term monetary burden and excess money supply may lead to the risk of significant inflation.
Conclusion
Now, as we can see, there were five basic reasons provided, why unemployment is a problem for all society. Also we can see, that the unemployment could cause the inflation in the end.
