"the post-bubble US economy faces considerable headwinds to sustainable job creation. It takes time to restructure an economy that became over-dependent on finance and leverage. Meanwhile, companies will use this period to shed less productive workers."

Finance, leverage? What about dopey bondholders? Just saying. And "restructured"? Interesting word. I suppose El-Erian would say along the same lines that the Titanic went through a period of restructuring following its encounter with the iceberg. Finally, there is that last sentence. Companies are going belly up because of their bad financing, lack of access to credit, and collapsing markets. "Unproductive" workers have pretty much jack to do with that. But hey, if Pimco wanted to get rid of some of the drones it employs, I couldn't think of a better place to start than Bill Gross and El-Erian.

The Scheff column in contrast uses actual numbers and insights to underlie his points.

http://www.zacks.com/stock/news/21777/More+Unemployment%2C+Longer

http://www.zacks.com/stock/news/21770/Another+Ugly+Jobs+Report

http://www.zacks.com/stock/news/21805/Is+Unemployment+Understated%3F

http://www.zacks.com/stock/news/21804/Initial+Unemployment+Claims+Fall

Regarding the unemployment numbers, I think we're going to see a shift in causality very soon if it's not happening already. From a situation where the financial crisis is causing escalating unemployment to one where escalating unemployment starts to worsen the financial crisis.

Despite all of the green shoots nonsense from the CNBC crowd, we are far from out of the woods. What would happen if the stock market took another leg down and then there was another blowup at one of the big banks causing them to have to go to the gov't. for additional capital? What if it were a "bank" like Goldman Sachs, that already made a big show about paying back the TARP and then proceeded to start paying record bonuses for a short period of time again? The popular political pressure to cut the cord and just let them fail would be irresistible.

–RueTheDay

Have a look at Richard Posner's latest book, "A Failure Of Capitalism: The Crisis Of '08 and the Descent Into Depression".

It's interesting for a couple of reasons. 1) Posner makes the case strongly that we are in a depression, rather than a recession. Not like the Great Depression, mind you, but a depression nevertheless, similar to the depressions we experienced on a somewhat regular basis in the 100+ years leading up to the GD and 2) Posner appears to be having a considerable change of heart with regard to his libertarian failure – he makes the case that this crisis is in fact a failure of capitalism and would have happened even in the absence of "government meddling" which is a shocking admission for a libertarian.

–RueTheDay

Hours worked declining does suggest that a deflationary environment is continuing, but I find it strange that economists seem unable to accept that there might be elasticity in the price wage relationship. It seems to me market speculation and market dynamics can also have an impact on price along with the state of other global economies. These deviations from the normal relationship can I suspect last longer than many economists suspect.

It comes as no surprise that firms are ahead of the game and are not forecasting a significant up tick in demand. I do wonder if they sometimes have a narrow focus on protecting their own business rather than looking at the overall economy, but I guess that’s not what they are paid to consider. The dynamic of reducing hours to retain skilled workers will eventually work through to unemployment if conditions do not improve further reinforcing the cycle.

To this point, there has been much talk about deflation, but without real hard evidence. Yes, we have had huge asset price declines . . . from wildly overvalued levels. If those prices level off back near long term trends rather than undershoot, that is not necessarily deflationary. If the banking system had collapsed, the consequent collapse in the velocity of money and severe rationing of credit would have been patently deflationary. That was prevented (for now) by government intervention. We have credit rationing, but at the same time low rates and the flashfreezing of many high-leverage credit maws have prevented credit rationing at deflationary levels. We have had major unemployment declines, yes. In and of themselves, those are not necessarily deflationary, either, although because they continue we approach unemployment levels where the scale of demand collapse is inherently deflationary. But while deflationary pressures have been evident, actual deflation has been absent.

How would we reliably know that we have actual deflation? If we get y/y wage declines north of 3-4%, say, particularly if they continue to decline. If we have sustained declines in prices for consumer durables running to 5% or beyond, something indicative of real demand collapse, the total absence of consumer credit, or both. If small businesses reporting custom are _closing_ because they are unable to secure working credit on viable terms, indicating severe credit rationing. Note: These three conditions are only some of several, and moreover are benchmarks rather than definitive thresholds: if we see the whites of their eyes, here, we're in trouble. Well, regarding wage declines we can see that particular pale rider in view.

We are entering depressionary territory, is what I'm saying. As of this summer. By mid-Autumn, we'll know for sure. And I sincerely hope that by mid-Winter 2010 most of our present Congress are fired, 90% of whom are doing nothing useful for the country for their salary, along with most all of Prez O's intimate advisors. We can't fire him for another two years, but maybe we can light a fire under him.

In this case, who "recovers"?

How can you possibly have a "recovery" with such high unemployment? For anyone who uses the English language and not some Orwellian simulacrum of it (e.g. economist-speak), this is impossible by definition.

Who benefits? Every policy to deal with the crisis, all the bailouts, have been nothing more than a massive redistribution of wealth from the taxpayers to the finance sector elite.

So the answer to "who recovers?" is, no one. Those already rich get richer; everyone else is now a permanent victim, permanently more poor.