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US Economy: The Worst Is Yet to Come
Since the U.S. economy showed positive growth for the last quarter, some commentators in the business press are saying that we are not necessarily going to have a recession, or that if there is one it will be mild. This is a bit like the proverbial story of the man who jumped out of a window 60 floors up, and then said "so far, so good," as he passed the 30th floor.
The United States accumulated a massive, $8 trillion housing bubble during the decade from 1996-2006. Only about 40 percent of that bubble has now deflated. House prices are still falling at a 20 percent annual rate (over the last quarter). This means that the worst is yet to come, including another wave of mortgage defaults and write-downs. Even homeowners who are not in trouble will borrow increasingly less against their homes, reducing their spending.
President Bush says we are not in a recession. One commonly-used definition of a recession is two consecutive quarters of declining output (GDP). The first quarter of 2008 came in at 0.6 percent, although it would have been negative if not for inventory accumulation. So by this definition we cannot say with certainty that the recession has started, although it could well have started this quarter. Of course, for most Americans it has felt like a recession hit some time ago, with real wages flat since the end of 2002, and household income not growing for most of the six-and-a-half year economic expansion.
The National Bureau of Economic Research will eventually decide on the official onset of the recession, but even its definition is arbitrary. All the indicators of a serious recession are swirling around us. The economy has lost jobs for four months in a row, which has never happened without a recession. Consumer confidence has dropped to a 28 year low -- a level not seen since Jimmy Carter was president. Home foreclosure filings are up 65 percent over last year. And now commercial real estate prices are heading south, dropping 6.2 percent in the first quarter.
With oil prices hitting record highs, and the Fed beginning to worry more about inflation, more restrictive lending practices and other fallout from the credit crunch, the near-term economic future looks even dimmer.
Some look to exports to lead the recovery, but these are only 11 percent of GDP, and consumption is about 70 percent. Still, the fall in the dollar over the last six years is helping -- making our exports more competitive and reducing the subsidy that we have been giving to imports for many years. In a sign of how economic illiteracy prevails in the United States, most people (thanks largely to what they hear and read in the media) see the dollar's decline as bad economic news.
We are facing the prospect of millions losing their homes, their jobs, their retirement savings, their health insurance, and their livelihoods.
This serious economic situation greatly raises the stakes of the 2008 election. What will the government do to help the victims of economic mismanagement, to provide health insurance, and to restart the economy? Is it really more important to spend billions each week on the occupation of Iraq?
So far the government hasn't done much. The stimulus package now taking effect, at about one percent of GDP and much of it likely to be saved, is quite small. The major legislation that Congress is considering for the housing crisis would mainly bail out lenders and investors while doing little for most underwater homeowners.
The voice of the people has yet to be heard on these questions in the halls of power. It had better get a lot louder, soon.
This op-ed was distributed by McClatchy-Tribune Information Services on May 23, 2008.
Mark Weisbrot is Co-Director of the Center for Economic and Policy Research, in Washington, D.C.
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56 Comments so far
Show AllRight now, nobody in the "halls of power" is listening . . . or cares.
jj
The National Bureau of Economic Research will eventually decide on the official onset of the recession...
Yes, but the NBER posts its analysis several years after the event has occurred. Until then, we use the archaic rule of thumb of 2 consecutive quarters of declining GDP that is manipulated to show that we are not in a recession.
I hardly think it matter if we call it "recession" or a "peacock". The economy isn't going well for anyone other than the top 1%. I'm not sure it matters what we name it, doesn't change the facts.
Most consumers that I know personally must be as ignorant as
rocks. They spend money they don't have for things they don't need, don't use, and don't want.
Tell me, why would you pay $21.00
to dump a 1/2 ton pickup when you can have it collected by the city
without any charge at all.
I do not understand!
I do not even expect to understand.
"In a sign of how economic illiteracy prevails in the United States, most people (thanks largely to what they hear and read in the media) see the dollar's decline as bad economic news."
No, it's because it really is bad news for a lot of Americans. It's bad news for anyone traveling outside the US for any reason. It's bad news for Americans studying abroad or working abroad and being paid in dollars. It's bad news for Americans buying or selling products here that aren't made domestically (such as good wine and most electronics).
It's bad news for me, too. As a teenager, I watched as my more well-to-do friends got to travel to Europe. I wanted to go to Europe as well, especially the country of my family's origin, Ireland, but my family was too poor. Now, I have some financial independence, but I'm once again too poor because of the dollar/euro exchange rate.
I did get to live in China for a time. I'd like to go there again, but the soonest I will have that opportunity is next year. However, with the dollar falling fast against the yuan and inflation rising there as well, I have no idea if that will be affordable.
Are my concerns rather narrow and selfish? Sure, but so is assuming that our increasingly debased currency is great for everybody just because it's benefiting a few manufacturers.
"So far the government hasn't done much" is inaccurate.
The government HAS provided direct bailouts to the perpetrators and indirect bailouts by lowering interest rates in the face of high inflation (sorry Mark, the Fed couldn't care less about inflation), thereby renewing their license to steal.
The government HAS NOT re-regulated the financial industry, providing an additional tacit extension of their license to steal.
Low interest rates based on understated inflation rates started and enabled the housing bubble and are now exacerbating the effects of the bubble.
The result of the Government's (most notably the US Federal Reserve's) actions and inacations is that there is no question that THE WORST IS YET TO COME.
Keep this in the front of your minds: the people who are supposedly tasked with "officially" declaring a recession are members of the same cult that lied us into an illegal invasion and occupation, stole trillions from us and future generations, and continue to lie about everything from the quality of the air to the need to kill a few million Iranians.
Believe "them" at your own risk.
Perception is reality. Many people are able to weather this storm very well, more than just the top 1 percent. Many of them feel it, but many have learned to profit from the hard times of others. And, they grabbed greedily while the fruit hang low, so now they can weather this. And of course, amoung those are the people that are compiling the statistics and the people that are reporting them. They also have a vested interested in seeing that the tables aren't upturned.
Perception is reality. Those that feel the recession first hand, that have trouble filling the tanks and the stomachs, know there is one.
Marx said that when things get bad enough, when the means of production is far enough removed from the proletariat, and the wages are low enough, the people will rise and rebel. Up until now the property owners have thrown bones meaty enough to keep the rabel at bay.
What Marx didn't anticipate was advancing technology, with crowd contol methods and tazer technology.
Sound like a bad Arnold Schwarzenegger movie?
"President Bush says we are not in a recession." Ergo we *must* be facing a recession, if not worse, because anything Bush says is 100% opposed to the truth.
FRANK: You took the words right out of my mouth! Indeed! If they can create confusion over global warming, lead some to believe the war is going just fine and we are "winning," then smoke and mirrors around the economy is a piece of virtual cake.
QBALDSMOOVE: Excellent perception, about perception (being everything)! In the alternative Orwellian universe of neocon production quality, fair IS foul and foul IS fair.
What we can do is prevent US companies from sending jobs overseas. We can also tax imported goods high rates. You can bet Japan, India, and China are doing the same.
I have nothing against our international friends. But I buy American made goods unless I have no choice. We must understand that our economy will not improve until we begin supporting it ourselves. We can also invest in our own educational institutions and hire our own citizens. By sending our money and our jobs overseas, we have almost destroyed ourselves.
JBPM said "... anything Bush says is 100% opposed to the truth"
I disagree completely. For this to be true, Bush would have to know what the truth is. The correct statement is "... anything Bush says has a random relationship to the truth."
;)
Let's not get too scared about the "upcoming recession". We have actually been in a long term recession since 2001, the truth about it has just been obscured by official statistics. I guess consumerism doesn't really make us all wealthy. Who'd a thunk?
Well lets all roll over and shit mars bars....
Hell this country IS in a recession and its only getting worse.
I own a small business in Colorado, its going to be getting smaller, the last 7 years my profits have taken a nose dive, people are not buying, energy is going up in price, whilst the fascists in Washington are making huge sums from war and oil.
I'm done with this country, and the American people, we have sat on our fat collective asses for so long that it is now to late to repair the damage caused by the GOP and its jackals.
Hilary, Mccain or Obama, they are all in it for the money, there's no hope for us, no hope, we are doomed once Iran is attacked.
Recession is the wrong word. We will have a depression, don't know the month but it easily could be this year.
This is just one of several reasons. Diesel just hit $5 bucks plus a gallon, at $2.50 it was a serious problem. A long haul trucker going from the west coat to the east coast will shell out near $2,000 one way just for fuel. That drives up the cost of everything.
Farmers need to use fuel to plant and bring in the crops, higher food prices, people are not purchasing new vehicles as per usual, thousands more layoffs in the important auto industry. All of the airlines are in serious trouble, several near bankrupt or already bankrupt, aircraft production down, thousands more layoffs and higher travel fares.
Many who rely on tourism are now in dire straits, and who can afford $500 a month heating bills? Not the majority. How many restaurants are going out of business, nillions, more out of work and few decent jobs available. It all tends to (feed back) and there is no end in sight. Add the weakened dollar to the mess and depression looms.
There are many reasons, those are just a very few, when you see dollar stores closing shop you know there ia a problem. The busiest stores other than Wal-Mart? Thrift stores, Pay-Day loans and pawn shops. It's coming.
"In a sign of how economic illiteracy prevails in the United States, most people (thanks largely to what they hear and read in the media) see the dollar's decline as bad economic news."
This IS bad news. I'm beginning to think my respect for Weisbrot may be unwarranted. On the one hand, we have valuable, increasingly scarce, and hotly pursued commodities. In the other: dubious specie. Meanwhile, the tried and true means for acquiring said commodities--the lifeblood of our economy--are being tested...
The public may or may not be illiterate, but on this point: I don't think they are misreading.
Over time those things could be fixed, the words (over time) is the problem. We'll have a depression before we run out of time.
You ever wonder how much the 'real' price of oil is going up? As the US dollar is continuously being devalued (worth less than the Canadian dollar or the Euro), it is impacting the US people more than other countries.
And who gets the $135 dollars that a barrel of oil costs? The Saudi's? The oil companies?
The price of many food items went up 10% the past year. Did your salary go up 10%? That would be inflation. If your salary stayed the same, that is a recession.
Good thing that our police and military (public and private) will be able to 'control' us when things get out of hand.
"The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt." Bertrand Russell
We are already in a recession. Our government has been lying about the inflation rate for years now and when you discount the "real" inflation rate we have been in a recession for at least 3 quarters now.
THE REAL INFLATION AND UNEMPLOYMENT RATES:
Hard numbers: The economy is worse than you know
http://www.tampabay.com/news/article473596.ece
A recernt Gallup poll shows 87% beleive we are in a recession and bankruptsies rose 38% last year. Many are filing chapter 13, where that freezes a forclosure on their house.
Many food items rose almost 50% in the past two years, among them tonatoes, rice, flour, milk and milk products. It has just begun.
The devalued dollar shows up every time a consumer in America buys gasoline at the pump. If oil were being bought with pounds, euros, or even the Brazilian real, the price of gasoline wouldn't be rocketing like it is now. Indeed, the price at the pump in Brazil is about the same now as a year ago. Every time one buys food, etc., and notices the prices rising in American supermarkets, think of the devalued dollar. All this, and you claim that the advantages for the 11% of the economy involved in exporting from America makes the devalued dollar good news.
if we can't afford bread we will eat cake
Robert Kuttner in his new book THE SQUANDERING OF AMERICA lays out a pretty good way to fix the damage that can be fixed, but it will take some time. Really re-regulating the financial markets and taming the "free trade" globalized market will be some job.
Warren Buffet was recently asked his opinion of Obama, Hillary, and McCain, to which he replied: "They're all good."
I don't hear anyone talking about ending US militarism and fundamentally reorienting the US economy.
President Bush says we are not in a recession.
President Bush says we do not torture either.
With food, fuel and housing prices exploading I'm sure that America's pensioners and the nearly retired Baby Boomers will demand that Social Security payments keep up with the collapsing value of the Bush Buck. Is that depressing or just recessing?
"If oil were being bought with pounds, euros, or even the Brazilian real, the price of gasoline wouldn't be rocketing like it is now."
Up about 85% in Euros as opposed to 100% in dollars, so it's true but to a very small extent, oil is up in any currency.
"Of course, for most Americans it has felt like a recession hit some time ago, with real wages flat since the end of 2002, and household income not growing for most of the six-and-a-half year economic expansion."
2002? Hell try 1982! Real wages have gone down since the late 1970's and the working class keeps on getting screwed.
Sorry, that was over the last year, and approximate.
FYI the Saudi's pay 35 cents a gallon for gas. Brazil is fossil fuel free. Potential biofuel from the grease holding tanks at restaurants are now being stolen from, in Phoenix at least. Wow, pretty amazing. Probably happening all over the US. Hot commodity.
The whole wheat bread I use, I found at the Dollar Store for $1, at the regular grocery store it is nearly $4, what's up with that? So what if it's one day old, like it wouldn't be in my house. We have no choice but to be more intelligent consumers and no longer take commodities for granted. Grow stuff, even tomatoes will grow inside. We cannot wait for things to get better, have to eat and survive now, buy locally, lessen your carbon footprint while supporting your local economy. Carpool, convert your vehicle, pub transit. Face it, we have been screwed. Recession or no recession hardly matters. The fact remains that the cost of oil will continue to rise and the cost of goods will rise right along with it. Get used to it. Perhaps the only thing that might save us are "green" jobs and the technology and manufacturing that goes along with it. Maybe, if it's not too late, global warming will save us from ourselves in the long run if we commit to changes now, at home, locally and state wide. Screw the feds, that will be a "hot" day when they'll do anything that will save our planet. If we don't, this will all be a moot point anyway. Do you have any idea how horrible it feels that I am glad that I don't have grandchildren to leave a potentially catistrophic future to? Makes me sick to my stomach.
"FYI the Saudi's pay 35 cents a gallon for gas."
That costs the Saudi government money. It's a direct subsidy. Same with Venezuela.
This calls for a new National Anthem. I nominate the Gregg Brown song " All The Money's Gone".
Siouxrose:
They can spin it all they want. When a person is forced to buy less food or quality, put off things like home improvments ( Home Depot closes 13 stores in the US) or replace the family car, they don't have to read about it in some paper or on TV that things are going good when they know they are not. The average joe doesn't have a stock portfolio he has a credit card and he is lucky to make the min payments.
Toys are the first to go. When times get bad the toys are first sold off. I have noticed a huge amount of boats, see doo's etc in driveways forsale. In fact I just bought a used boat for about 50% the price that was being ask just 12 months ago.
Gee I wonder if big countries and companies are doing the same. The taking over of America by foreign investers?
The silver lining in this dark cloud is that John McCain's and his fellow Republicans' gleeful embrace of voodoo economics will likely come back to haunt them.
'helix6 May 28th, 2008 4:20 pm
JBPM said "… anything Bush says is 100% opposed to the truth"
I disagree completely. For this to be true, Bush would have to know what the truth is. The correct statement is "… anything Bush says has a random relationship to the truth."'
That's about right. If he said that the sky was blue, I would look out the window just to make sure.
"The voice of the people has yet to be heard..." And won't be until BHO tells the American people,
"I'm sorry. I'm here to tell you that the Dims have been charged with collecting the Bill, FROM YOU. We know, you voted us into office in '06 to end the war and impeach Bush & Co and of course we laughed at you and did Absolutely NOTHING. Now you have placed me in the White House and I'm the collection agency and you owe the Richfilth Animals who've been raping you for 35 years A GREAT DEAL OF MONEY.
So starting now YOU have to tighten YOUR belt. Until the bill is paid, no public education, no Medicare, no SS. But I am NOW the Unitary President, so I'm closing all the banks for a week, suspending congress, declaring Martial Law and voiding all elections until after "The Period of Instability" has passed. My Vice President, the former head of the NSA will of course make it his first job to protect the US and the Government of Israel from ANY perceived or potential threat. I want you to know, that YOUR sacrifice for the Richfilth animals who own you is appreciated and you will be rewarded like all people of "faith" (he-he-he) in Heaven. Le Chaiim. Long Live The Republic!!!
The head was delivered wrapped in a bloody flag.
With all the well founded pessimism let's not forget that the ecological restructuring of our economies of which Nader and Amory and Hunter Lovins are talking (and Lester Brown in Plan B 3.0) may well get us afloat again. Just think what different spending/subsidizing priorities could yield.
The price of oil is everything when it goes up we all spend more on energy related items plastic junk,food,car,electricity ect.
When oil is cheap the industrial engine hums just hope the price goes down or we are in big trouble.
BBC 4 did a series called "The century of the self". The gist of 4 part series (available on u-tube) is the attempt at explaining whom, what, why, when, where and how British and American ordinary citizens began to be controlled, first as consumers then as voters and finally as cattle lead in any direction but especially taking the young to the slaughter house of war. Edmond Bonnet, the so-called father of public relations, his famous cousin Dr. Sigmund Freud, and Freud's daughter Anna worked very hard at giving the powerful all the tools they needed to enslave us. It began in the colleges and universities in the 1890's brainwashing the instructors who then trained their students in a new way of thinking and seeing the world.These students began their professional lives with the "new think" and with confidence infected all around them. By the time the boomer generation hit the bricks the largest number of self absorbed me me me only me types where running the show. Mind control gave us desires for crap we didn't need to buy and that as a functional addition to our homes shortly became of zero value, stored in the closet awaiting the next garage sale. Advertising did that to our parents, to us and to our own children and grandchildren. It created a need in a consumer for crap and do-dads. Some of them are very advanced technologically and some are not. But all are steering single individuals away from the group, taking you to a private place just for you.
This kind of brainwashing technique has become extremely popular with politicians. Show the opposition in a terrible light, reveal old sins, past mistakes and look for lots of dirt. Wait till he makes a mis-statement due to exhaustion or to a temporary brain fart and tear him apart. Build yourself up to the legendary level that you are in your own mind and sell it to the fools, You are the answer to their need for continuing mindless consumption. You will enact legislation, laws and executive orders just for them. LOL
Relax. The signal will be given at the necessary time to lower the gasoline prices and quell the rebellion.
rebellion? We are seeing first hand the destrution of America from within. Then the super rich move in and control even more. With talk of IRAN, IRAQ Syria the list goes on, this is just the beginning
Recession is a public admission of FAILURE by the Bush regime. That is why those words are not allowed to be mentioned by anyone in the MSM who wants to keep their job. Just as Bush is euphoric all the way through a genocidal occupation as Bugliosi details, denial of failure or wrongdoing is crucial to the appearance of success in a failing economy. As the sages have said forever, if you can fake sincerity, you've got it made! The US economy is failing by any objective measure, but just as long as the "D" or the "R" word is never mentioned, the powers that be can deny, deny, deny the obvious. Idiocracy is right around the corner.
We live in a "relatively safe" part of our state for recession (Madison, WI). I say that because when unemployment rises elsewhere, it stays "relatively" stable here. Only because we have a Big Ten University, several hospitals and are the seat of state government. HOWEVER, the rise in homes for sale priced above 200K (the average for our area is just over 200K), is up substantially. I can only hypothesize that it's because a lot of folks living in these homes (especially the 3-400K ones) were 2 income maxed out credit folks, or ones who lost health insurance. We've seen an increase in folks from these "nice" neighborhoods at our local food pantry. And while they wait to sell their home and scrape together mortgage payments (on homes they bought without 20% down)before it is foreclosed on, they can't afford food. So for me to see these people in dire straits, I know that out in "regular" America, it has to be getting bad.
"The signal will be given at the necessary time to lower the gasoline prices and quell the rebellion."
Total BS, there is no "price dial".
re 9:24am
capitalism 101: the supply (and therefore the price) of petroleum products can be, and is, fine-tuned like a guarneri viola to elicit the desired effect.
This talk about lowering the price of gasoline is appropriate. Funny too. It may happen and when it's less than four bucks a gallon we'll be satisfied.
Remember when it was three and it lowered to two seventy five and everone talked about how good it was. __LOL.__ When it hit a buck fifty in 2001 we had fits, it hurt. When diesel hit A buck seventy in 1989 the truckers went on strike and within three days it dropped twenty cents a gallon.
If gasoline dropped to three a gallon and diesel to four today and stayed there it wouldn't help the failing economy much if at all. It would just make the majority feel better. After awhile it would go back up, a penny at a time.
"This talk about lowering the price of gasoline is appropriate."
It will happen as people drive less. Used SUVs can be had for cheep. The city I live near reports transit rider ship up 10%, the commuter rails in and out of the 'burbs even more.
Another big problem with gasoline prices is, twenty or more years ago, most of the gasoline stations were franchises and operated by independent dealers who could set their sale prices. That created strong competition where there was more than one station in an area or community.
Those independents are almost all gone now, the oil companies forced them out by raising the rent until the dealer had to close. The major oil company stations are almost all company operated now and the oil companies determne the sales price of any specific location or area.
The dealer cannot just go out and lower the price one or two cents a gallon to compete with another. The major oil company mini-store station operators make their profit selling milk, bread and coffee, etc.
"Those independents are almost all gone now"
I think they are about 50% now.
The mixed message from the business press is simple.
You didn't save enough, so you can't spend.
You spent too much, so you can't save.
And you buying everything is what keeps the economy going.
The cognitive dissonance is staggering.
I'm of the camp that says we're really taxed at somewhere between 80 and 120% of our income (you know, the debt society.)
Who really has "disposable" income to buy all the things we need to to keep the economy going?