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TechnoratiOops, It's a Recession
It ain't sexy, I know, but a word about the economy and the presidential debate.
Wall Street banks are holding a fire sale; employment is down, holiday sales tanked. Burdened with record debt and stagnant incomes, homeowners are about to reckon with declining home values, their largest investment, with a projected $2 trillion in assets evaporating in the course of the year. Even clueless George -- "the fundamentals are strong" -- Bush admitted a little stimulus might be needed.
So finally, the R word -- recession -- hit the presidential campaign trail. In the January Myrtle Beach Republican debate, the candidates were asked what they would do to get the economy going in the event of recession. The answers expose just how preposterous conservatism has become.
John McCain, who at least admits he doesn't know much about economics, said the first thing we need to do is" stop the out-of- control spending.... As president, I know how to do it. I'll wield that veto pen, and I won't let another pork-barrel earmark spending bill cross my desk without vetoing it. I'm called the sheriff by my friends in the Senate who are the appropriators, and I didn't win Miss Congeniality."
Charming, but completely wrong headed. A recession is caused by lack of demand. The squeeze on working families has them tightening their belts. Companies lay off workers. State and local governments, mandated to balance their budgets, choose between deep cuts in spending on education and health care or increased taxes. Only the federal government is able to act - by spending money or cutting taxes, adding to a short term deficit to get the economy moving. (The Federal Reserve can also try to lower interest rates, but with the dollar sinking and credit markets shattered flooding the market with money may just feed inflation without much effect. And in fact, the Fed's previous interventions under Alan Greenspan helped blow up the bubble that triggered this mess).
Rudy Giuliani just released a big tax cut plan, so you'd expect him to take McCain apart. Nope, the Mayor was as lost as McCain: "You also have to cut spending as significantly as you cut taxes. You have to be willing to impose cut-backs on each one of the federal agencies, the civilian agencies. "The main things you have to guard against are overtaxing, overspending, overregulating and over-suing." "Over regulating?" We're suffering a credit and housing collapse that derives directly from the LACK of sensible regulation to hold lenders to basic standards like reviewing borrowers' ability to pay.
Mike Huckabee showed that he could feel people's pain, and then suggested he'd increase it, calling once more for his "fair tax" that would cut taxes on the wealthy and increase them on working and poor people. Not exactly a remedy for the economy no matter what condition it is in.
Libertarian Ron Paul at least was true to his principles, which he stated as unintelligibly as possible. After ruling out monetary or fiscal relief, he called for attacking this with the "Austrian theory of the business cycle. For the few of you not familiar with Austrian economists, the Austrian theory of the business cycle is simply to let her rip... "The longer you delay the recession, the worse the recession is," said Paul.
In this crowd, only former Governor Mitt Romney offered a passing glance at common sense. Before lurching into his requisite pander about fighting for every job in Michigan, he urged that we "stop the housing crisis (without telling us how), and "immediately cut taxes" on middle income Americans. He then argued that we get "gas prices under control" by becoming energy independent and invest in research and development, good ideas that would take far too long to have any effect on turning around a recession.
The contrast with the Democratic field is stark. Once more John Edwards drove the debate, releasing a serious short term stimulus plan, mixing tax rebates for low income people with direct spending and aid to the states. Hillary followed with the largest plan, with a good mix mirroring that of Edwards. Obama's plan relied almost entirely on tax cuts, quicker but less effective than direct spending.
Democrats on the Hill seem more muddled. The conservative Blue Dog Democrats are reported as demanding that the tax cuts and spending of any stimulus "be paid for," which would, of course, eliminate their stimulus effect. This preposterous proposition apparently has led Speaker Nancy Pelosi and Sen Harry Reid to seek pre-emptive agreement with Bush on a plan. That virtually ensures that what emerges will be too small and too weighted towards tax cuts. (The President suggested that repealing the estate tax permanently would be a stimulus. Other than titillating the Paris Hilton's of the world, it isn't clear what he had in mind).
This debate has just begun, but it's got to get a lot bolder. This is a $13 trillion economy wounded by successive body blows. It will take a lot to get it turned around. Consider the last recession after the collapse of the dot.com bubble and the shock of 9/11. The Fed lowered interest rates to the lowest levels in memory; Bush racked up record deficits with massive top end tax cuts and increased spending on the military and homeland security; Chinese and Japanese central bankers lent the money needed to prop up the dollar and limit inflation - and still we witnessed a slow recovery in which employment as a percentage of the population and income never returned to pre-recession levels. Now the economy is weaker, the damage more serious, and the Chinese and Japanese more sober. It is going to take heavy lifting to get this economy moving again.
Robert L. Borosage is the president of the Institute for America's Future and co-director of its sister organization, the Campaign for America's Future.
Copyright © 2008 HuffingtonPost.com, Inc.
36 Comments so far
Show AllGee. The US economy is about to tank.
Any bets on how Georgieboy will try to solve this one? How long before he is able to whip the American sheeple into another 'kill the ay-rabs!' frenzy?
I know this. I'm not flying anytime soon. And I am going to stay out of tall landmark buildings, and away from large public gatherings surrounded by lots of MSM cameras...
So we are back to "it's the economy, stupid." Clearly there are a few things we can no longer afford. Chief among them the war in Iraq, Bush's tax cuts for high income and wealthy Americans, and the "fox guarding the hen house" regulatory policy on key industries.
The contrast between Republicans and Democrats is quite stark and clear. Again, it seems that John Edwards is leading the Democratic debate, providing specific ideas, but will be break through in Nevada or South Carolina?
Insatiable greed has reached epidemic proportions in America, period. Until Merck or Pfizer invent an antidote in pill form, "we" will continue to screw each other out of every possible penny while racking up the credit for the must-haves - you know, the big flat screen, the Hummer, and all the other crap "we" just can't seem to live without.
Humans, especially us Americans, only REACT to disasters, we never, ever preempt them. The drunk driver changes his behavior AFTER he wrecks, not before. Same thing economically - which is what Paul means when he says "let her rip." It's time "we" grow up and take responsibility for our "way of life" - and if that means millions have to learn the hard way, so be it.
Got news for you folks.... the economy has been slowly going into the tank since 2001.
First of all, the White House's rosy propaganda about unemployment and the need for foreign workers is a lot of crap.
Nearly 2 million new workers are added to the workforce every year as people leave high schools and college... that is over and above the attrition from death and retirement.
According to the Department of Labor Statistics, we added 17.8 million new jobs during Clinton's eight years... and LOST over 3.5 million during Bush's first 3 years!
Since the election year leading up to the 2004 election, that has turned around a bit and we started adding jobs again, but not like we did in the '90's. We're currently up about 7 million from 2000. (Mostly former executives, hi-tech workers and automobile builders that are now selling hamburgs and fries!)
Also, according to Homeland Security, we have had approximately 2 million LEGAL H1B and other visa workers enter the country and about 3 million ILLEGAL invaders crossing our borders EACH YEAR since 2001. That is 20 million people, added to the 10 million jobs that were NOT created for our own citizens.
That drives wages down and increases the cost of our law enforcement, government services, hospitals and public schools to name just a few items.
Still wonder why the middle class is crying?
It IS a fact that the rich are getting richer and the poor are getting poorer... and everyone in between is losing ground.
Once again John Edwards leads the pack with thoughtful and progressive solutions on health care, the economy, the war on Iraq, etc. Then Hillary chimes in with a nearly identical copy of Edwards' answers to America's problems. Why don't we just cut out the middleman (woman?) and vote for the candidate with the real solutions we need? Electing anyone else will only lead to more of the same. America needs real change. America needs John Edwards.
The middle class should stop crying and start some grassroots actions. And so should you - stop soaking your keyboard with your impotent tears and do something. What do Americans always say? your oppressor has only as much power as you allow him?
Ta-daaahhh!!!
Once again Edwards and Clinton come up with sound policy proposals and Obama comes up short. He's always vague, but when he does commit, he always seems to end up to the right of Clinton.
The easiest way to mitigate the effects of the coming Depression is to roll-back the US Empire--totally and comepletely, which means its domestic as well as its foreign deminsions. By my calculations, that provides $1 Trillion/Year at current rates of spending to prepare us for the post-Peak Oil and intensification of the global warming world realities.
"Ron Paul, The Federal Reserve, JFK and M3: Devaluing Americans into Bankruptcy"
http://www.chycho.com/?q=ron_paul
Whaddaya bet we can solve the whole thing by reducing the interest rates on everybody's FDIC-insured bank deposits to nearly nothing? Doing so WILL fix the adjustable-rate mortgages and the 31.99% default rate on credit cards, as well as inflation, health care, environment, peak oil, foreign affairs, infrastructure and family values. Won't it?
I know how we can prevent recession. Remove a few items from the basket of items used to calculate inflation, say fuel, food and housing. Then, have those prices skyrocket. Lots of cash will change hands, but no additional goods. Then, when a lot of people are out of dispensable income and stop purchasing things like medicine and refrigerators the overall amount of cash changing hands will remain high (no recession) even though people are broke because the inflation figure is not realistic and the amount of cash changing hands is distorted because goods that are not included in the inflation basket are sky high but don't count to devalue the currency on paper.
Another excellent effect of removing most necessities from the inflation basket is that the COLAs (Cost of Living Increases) in things such as pensions and Social Security become minimalized so that eventually the value of those payments will approach zero.
So this strategy is a perfect way to never have recessions, all you will have is higher prices and you can get rid of Social Security at the same time.
Incidentally, that is exactly what has been done and is the system we have been operating under for decades. So that explains why we have hard times but the GDP figures show no recession.
stop using taxpayers money to kill people overseas and give the taxes back to ordinary people (those in the bottom half of the income scale) to spend on living costs
I predict this "recession" will be markedly different from previous recessions. First of all, with the wholesale decimation of manufacturing jobs and runaway consumer debt, it will be much more difficult to recover from. The media would have you believe that a slow down in consumer spending hurts the "economy," but really only hurts the resellers of cheap Chinese goods and the wall street profiteers, since hardly any of those goods are manufactured here anymore. Worse yet, I predict that banking losses will be lessened by large scale sell-off of real estate to foreign investors, who will get a real bargain due to the weakening of the dollar. So your next landlord may be from Dubai. Alarming, isn't it?
From the perspective of of the working-class, and the bulk of the people who mistakenly see themselves as middle-class, a recession is just a different way to get gouged.
The ueber-elite can focus their gouging efforts into inflated real estate, gas, taxes, interest, health care, whatever suits their fancy. A recession is just a shift in the gouging emphasis. I'm waiting for the Boomers to simply execute the X/Y Generation.
Problem solved....Bernanke is going to lower rates again. That should keep the economy going for at least another month or so. Don't despair, the Federal Reserve has everything under "their" control.
Yes, Bernanke will cut rates again, which is exactly the opposite of what the Fed should do to counter seriously rising inflation. But, it's not about protecting the buying power of average American people, it's all about bailing out Wall Street at public expense.
EDWARDS '08
I say let him cut the rate. Cut it until it's zero. Usury (along with speculation and hyper-consumption) is what got us into this mess.
Well said provoice! And because of those factors, any 'recovery' will be very slow in coming, if it comes all.
The economic elites and foreign investors are betting that the American people will continue to go to work for little or nothing each day and continue to spend. Surprise ! The Greed balls will have to use their own money to get out of this one.
It's the Greater Depression folks. Peak Oil and Climate Change are going to hammer the world economy into a quivering wreck. You can count on it as it's already happening in Kenya, Mexico, Bolivia, Sri Lanka, Bangledesh, Pakistan and many other places.
The basic equation of human life is energy avialable for use per capita. Obviously in Alaska you better have a LOT more energy available in order to survive than in Panama but even then you need a surplus. As the amount of available oil per global person declines the amount of food and cooking fuel will decline also. The result is that people will do ANYTHING to improve a desperate situation including cooking their neighbors kids in the flames of a church.
We are in a co-operate or die situation on a global scale and the decision makers have decided that they don't have to cooperate with the rest of us. So get used to power outages, food shortages, fuel shortages, inflation and fascism. It's the future.
Normally I don't make a habit of criticzing others' posts, but the proposal that Bernanke cut rates to zero(9:57p above) is off the wall. The fed funds rate is way below real inflation now. The dollar is tanking against other currencies for that reason now.
Daniel David:
Paul is not off the wall - The Fed does not serve the people - it serves teh banking system. In any case, the Fed is irrelevant, credit is frozen. GDP is dying and inflation is rising. Under normal circumstances, the Fed should be raising interest rates, if it did so, the stock market would collapse.
Your Democrats had their chances to avoid this mess, not supporting the Iraq war, not passing the Bush tax cuts, the Democrats are complicit in this economic mess as well.
Normally you bash Cindy Sheehan.
Neither Keynsian, nor Friedman economics, works in our current situation. And nothing the Republicans, nor your Democrats offer, will provide the answer. Reagan and Clinton, Republican and Democrat, gave it all away.
Ramsay
It would be good to answer the question of why we may be going into a recession only 5 years after exiting the last one. My answer to this is that the recovery from the last one was an illusion based on deficit bloating tax cuts for the rich.
As the late Lloyd Bentsen once said "anyone can create the illusion of prosperity with a blank check". That blank check has added more than 3 trillion dollars to the national debt in less than 7 years. A lot of that debt was caused by tax breaks for the rich and the privatized war in Iraq.
The solution to the recession, and we may have been in a mild one for 2 years or more, may be quite simple. No one dares speak of it, for then they would have to explain to the critters how our system works, and why it works that way.
The first thing, which helps those at the top is to simply change the accounting rules and allow banks to keep any bad loans issued prior to 2008 on the books. Loans that are not defaulted upon remain as assets. But once the loan is bad, the asset must removed, and since the liability is still on the books, the bank has to replace the asset from their reserves to keep the books balanced (ouch). Since the money from the loan is already in circulation, this rule change does not increase the money supply, it simply prevents it from decreasing. And it should remove the lock on credit since banks are afraid to loan money fearing loans are defaulted on, since they need to keep sufficient reserves so they can replace the assets that would be removed under current rules.
China flourished for years despite allowing banks to keep bad loans on the books w/o penalty.
The other issue is money in consumers pockets. The fact they keep taking out loans indicates there is shortage of money in the middle-lower incomes levels. While the overall money supply is high, it is not equally distributed, and the unequal distribution of wealth between rich and poor is at 1929 levels. There are only so many hamburgers and beers the top 1% can consume, but lower-middle income people make up 60% of the population, and they have hearty appetites.
The upper 1% income that is not spent gets invested it stuff like CDO's, SIV's, derivatives, hedge funds etc., and contribute nothing to the real economy. In the old days, they used the money to expand their factories or start new businesses in the US. If they do so today, they do so in China, so puting more money in their pocket does nothing for the US economy in todays world.
Solution. The government creates money (greenbacks)out of nothing, like the Fed does, debt free, and issues X amount of dollars to each family making less than 100 K per year. They use that money to do whatever, pay the mortgage, pay off credit card debt, etc. How much should X be? To make any kind of impact, assuming 50 million families would be elgible, about 10,000 (say 20 K for a family of 4, 5 K for an individual). Total cost 500 billion. Do the bail out from the bottom up this time instead of giving it to the banks. Besides, as with all our money, it is created out of thin air. (ps I am not eligible for this bail out, as an expat, among other reasons)
Some would worry about inflation. This is simple. Make a rule that deposits of greenbacks can not be used to creat new money, meaning the banks will not be able to loan out 9 dollars for every 1 greenback dollar deposited as they can with the Feds dollars. This would be inflationary. So banks would need to create special accounts for greenbacks and give 0% interest (and perhaps charge a nominal handling charge). Greenbacks also need to be made legal tender as they are for the Fed Notes.
The other thing you have to understand is inflation. Today it is mainly caused by energy and food prices, as well as some cartel pricing policies of certain industries. Monetary policy can not control these prices. Oil prices are high mainly because of the devaluation of the dollar, and speculation in futures trading. The solution to this inflation is out of the Feds hands. We import more than we export, our dollar will be devalued until we correct this, and this can be done by eliminating tax incentives to companies moving jobs and production out of the US and giving incentives to bring jobs and production back. And government should do something about usury charges on credit cards, insurance, pharmaceuticals, but we all know they won't.
It's not rocket science. Not taking action is corruption, or something more sinister, pure and simple.
I'm gonna stomp a dead horse here again. We are already in a recession. We are going to have a depression and I'm betting before the election, probably by May of 08.
If you wish to know just one nasty thing that will occur when it hits, go up and read the last few blogs on the thread about the Cluster Bombs.
There we hve a fellow from Mexico, who writes somethng like, you 'Sheepies' will see 12 million armed Mexicans pouring across the border, Viva the revolution, or some such words. ___ He's right, we will.
The economy is NOT about money. I know we changed that rule a long time ago but pouring money into the system, whether giving it to the rich or to the poor, does not repair the faults. In a way Ron Paul is right when he says we better let the recession come fast because it's coming anyway. Pumping up spendability indeed only further undermines the economic structures. Because that's where the problem is, in the structure. The distance between the average bloke and the scale of the economy is way too big. Nobody is able to influence the economy. It is functioning like a mad dog on the loose. The economy, as the definition of how society functions, should be controllable, should be in accordance with environmental needs and possibilities. So what you are looking for is an end to the globalised free market. We should not necessarily forbid trade, that is nonsense, we should create economic entities (countries, regions, states) that can function more or less independent and in balance with their environment. Of course such would mean the end of their wonderful useless but ever so exciting job for many people. It would imply going back to basic skills like farming. But at least it would be sustainable and controllable. Pumping money is like doing heroine.
remember when bill clinton was campaigning in 1992? he was talking big about the "peace dividend," capital that would be freed up by ending the cold war. he was going to put people back to work by investing the peace dividend in infrastructure. it was a good plan then, and would be a good one now (why he didn't is another question).
this kind of stimulus takes your tax dollars, builds something useful and of lasting benefit, and puts real money into the hands of real people who will circulate it instead of parking it offshore. i don't hear the Ds discussing this at all, and all the Rs are bleating about extending the ruinous upper-class tax cuts, as if that weren't part of the reason we're in this mess to begin with.
don't tell me china wouldn't lend us money to rebuild new orleans just as readily as they're doing now for us to destroy iraq.
This "recession" is a depression which will make the 1930s one look like a picnic. Get real! With all the globalization of all economies today, we are in for some "deep do do," as Poppy would say.
Once again Ramsey is spot on!
It almost seems that our "elected" officials, Dim and Repug alike have been intentionally leading us to economic collapse. We are indeed in a recession already, and full economic collapse is on the way. I have been hoping that the powers that be would see fit to keep it propped up until I get my house built, we'll see. The whole premise of the western "free market" consumerist economy is fatally flawed, and doomed to end badly. The real question is when, and will you be ready when it happens? Building those local networks seems more important by the day.
Daniel David,
In addition to lowering the rate to 0%, I'd suggest (a) abandoning the practice of printing up new money at will (one of the causes of recession) (b) shutting down the Federal Reserve and (c) returning to the gold standard.
Inflation of prices is the arrogant economists' way of saying, "Relative decline of worker salaries."
You can't fix one problem (inflation, printing too much money) with another one (fiddling usury).
As I've indicated elsewhere, governments can borrow/spend/tax indefinitely it seems, or print new money: no real limit to the debt they can accrue. Banks can get bailed out by foreign investors. What is Joe Sixpacks supposed to do? We can't print our own money, there is no Saudi prince who'll plop a few hundred thousand into my bank account, and there are hardcoded and enforced limits to personal debt.
If the recession hits in a meaningful way we could look forward to building state and country level manufacturing jobs. To bring the logo "made in the USA" back to life could be a great presidential nominees platform. When everything went to china and across borders, nafta and the like helped make this mess. Yes it costs more to make anything here but its was, at one point, the best in the world. If we could only get our democracy back too.
I'll bet if we taxed the wealthy out of the country, put the squeeze on the upper middle class and gave breaks to the poor and lower middle class we wouldn't be in this mess. Lets see, out of 100 burgers one is eaten by a wealthy elite, so, if they are making 100times that of a poor worker, or more, then if they are taxed fairly, equally on the dollar, then there is no loss of tax dollars and a tax break could go through for the poor, then they, the rich, should be bringing home the bacon for the government and the workers still get to spend the money for the beef, stirring up the economy. Economics for dummies? Make sense to me.
I know it will never happen.
The chief reason is costs more here is that our companies don't lock their sweatshop doors during work hours, and house employees/children/prison workers/etc. in massive dorms. We also have a cost of rent/real estate far, far, higher than the Chinese.
So until a middle-class median home drops to under $75K or so, or cost of transporting the goods across the Pacific quadruples or something -- yeah, it'll be more expensive to produce here.
Ramsay Mameesh January 17th, 2008 12:56 am
"Neither Keynsian, nor Friedman economics, works in our current situation. And nothing the Republicans, nor your Democrats offer, will provide the answer. Reagan and Clinton, Republican and Democrat, gave it all away."
And the majority in the U.S. are still totally oblivious to this reality. Wow.....are we in trouble after they elect another patriarch or matriarch of the corporatocracy!
When will they ever learn? Wasn't that a Peter, Paul and Mary song?
I like to old Albert King song, "I've been down so long down don't bother me."
Ill bet that the $300 bones Bush is tossing us will arrive at the end of October.
http://www.trafford.com/07-2440
Dear Sirs and Mesdames,
This subject, in my mind, is the most immediate most urgent and serious matter confronting the Human Race. Despite the fact that many great minds, philosophers, politicians, academics and economists, have all created eminent careers based on their knowledge and understanding of how free enterprise, national economies and the human race interact, they have all failed to admit the obvious. It is glaringly obvious that we have large swathes of the human race that do not have access to money; it is that simple.
Therefore we need a system of economy that literally accommodates the needs and aspirations of every human being. A system that will not rely on taxing others' in order to provide all the multifarious forms of infrastructures, as well as our human and social obligations. A system of taxation in which the haves are continually being pressured to claw back those taxes from the have-nots. We must face the fact, once and for all; this system can never provide all human needs and infrastructures.
We have allowed right-wing ideology to dictate the terms and even if or when large swathes of populations may be fed and housed or have health needs addressed. We tolerate the fact that we have millions of working poor who will never earn enough to meet all of life's basic costs. Many of these are struggling to raise families the bedrock of our future. Those who work lead the most precarious of lives.
Precarious, because their work and income has become the plaything of corporate power, which moves production to lower waged economies. This makes the executives and the shareholders richer but at the cost of the misery they leave behind. Wages go down, but not prices, or costs of living, and the formerly free "social wage entitlements" are removed.
This is the "rationalized" world directed by Corporate Power and implemented by our Governments, the world of "user pays".
Take it or suffer the consequences. The Government calls this "work choices". Hear the Corporate applause? The consequences are total destitution for some; they could buy none of life's essential services.
Complete and total destitution for many unless they work, no shelter, no food, no health care, and no education, none of life's necessities.
So we need a system, which provides equal opportunity and care for all, overlaid with free enterprise. At the same time we can put in place a fair and equitable industrial relations system that eliminates employer employee antagonisms.
Our democracy is in serious trouble. Rich people and corporations channel funds into political parties in order to achieve their own commercial or ideological ends cleverly bypassing democratic inputs. It is happening in all democracies but that does not make it "worlds best practice" or "right". We can correct that quite easily. We make so-called free trade agreements under which corporations are exempted from government regulation that control workers rights, pay and working conditions. Is this democracy, is this really necessary, should corporations have such unbridled power, where will it end?
Introduction of The Universal Economy will immediately and substantially impact and improve such questions as Poverty, provision of universal education, health care, pensions, unemployment, housing and all public infrastructure (roads bridges schools hospitals etc). None of this will require the imposition of taxation.
The concept of The Universal Economy will be easy to introduce, because it benefits everyone, everyone will want it to work. It will be hardest to implement in third world nations, not impossible, just slower to implement. It will kick start economies wherever it is introduced.
This is a concept for the twenty-first century. Put to one side traditional thought processes and embedded conventions see only the greater-good and benefit of mankind then you will support this enterprise with the open heart and mind it deserves. Adopt this concept for the good of humanity.
Give your support, not money.
Yours Faithfully, THOMAS W ADAMS.