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Little New Job Creation Signals Rising Unemployment.

People aren't leaving their jobs at a greater rate than before: the "separation rate" of about 3.5% a year has been stable for some time. But unemployment is rising steadily. That's what happens when the new hire rate, currently around 3.0%, is lower. People are leaving the work force faster than they are being pulled in. Up the new hire rate to say, 4.0%, keeping the separation rate constant, and you'll have falling unemployment.

It can be argued that the housing, derivatives and related bubbles of the past pushed unemployment TOO LOW. Too many construction workers at homebuilders. Too many ori... at mortgage companies and banks. Too many mortgage traders at brokerage houses. Not to mention providers of ancillary services such as cars, clothing, liquor, and other "toys."&nbsp... those days are gone. And with them the tight job market.

Many of these workers had to be let go. But there are few new industries to employ them. So they live in limbo, collecting severance packages, drawing down savings, and hoping somehow to wait out the current downturn, for better times. And while the separation rate is steady, there are two components; voluntary "quits," which are falling, and terminations, which are rising. So far they balance each other, more or less. Someday they won't, because "quits" will reach their irreducible minimum. In times like these, almost no one wants to "jump" who hasn't been "pushed" (or "pulled" into a new job).

Headline unemployment, or the so-called U-3 rate, recently between 8% and 9%, will head to double digits, probably to 12%-15%. It's the so-called U-6 rate, with discouraged and part-time workers (without benefits), now around 15%, that wil get to perhaps 25%.

This problem could last for some time, years. The excesses described above, took a decade or so to create, and may take the better part of a decade to unwind. Eventually labor demand and supply will come back into balance. Retirements of older workers will also create spaces for the rising youngsters. But there may be another "lost" generation of underemployed people now in their 30s. and 40s.  That is a 1930s-type construct, and the thirty- and forty- somethings of the 1930s were, in fact, referred to as THE Lost Generation.