BOSTON - Despite hundreds of billions of dollars thrown at banks large and small, the U.S. economy is in a free fall, just weeks before President-elect Barack Obama takes office, analysts say.
"Most measures of economic and financial activity look like they fell off a cliff in September and October, and have been deteriorating at an alarming rate ever since," says Nariman Behravesh, chief economist at IHS Global Insight.
The bank bailout, which now stands at 335 billion dollars, was supposed to ease credit lending, and jumpstart the economy. But U.S. businesses and individuals report that they are still unable to get loans from banks, and new reports show the economy in very bad shape.
"The bailout hasn't succeeded. The problem is the diagnosis of it as a 'financial crisis'. It is a toxic stew of subprime mortgages that is the problem, and its consequences are to poison the well of finance. Pouring capital into the banks doesn't fix it," Jamie Galbraith, an economist at the University of Texas, told reporters recently.
Galbraith and 120 other economists, progressives and labor leaders sent a letter to Obama urging him to spend 900 billion dollars or more starting in the New Year, to stimulate the economy.
"This crisis is unprecedented since the Great Depression. It will take unprecedented measures," Galbraith said.
Government figures released Tuesday show the overall economy has almost stalled, and between July and September grew at an annually adjusted rate of just 0.5 percent, as measured by the Gross Domestic Product. Healthy GDP growth for the U.S. is considered to be 3 percent or more per year.
Economists estimate that the current GDP is declining at 6 percent.
New unemployment claims for the week ending Dec. 20 were 586,000, the highest since November 1982, according to the U.S. Labor Department Wednesday. About 4.3 million people nationwide are already receiving unemployment benefits, said to be just a fraction of those actually unemployed, due to the restrictions placed on receiving benefits.
The public cut spending in November by 0.6 percent, after cutting spending 1 percent in October, according to the Commerce Department Wednesday.
More than 2 million people have been thrown out of work this year, and it's estimated that 12.5 percent of previously fully employed people are now "underemployed". One out of 10 mortgages are delinquent in payments.
"The United States is now officially in a recession that started in December 2007. Japan and many European countries are in the same boat," Behravesh says, adding that markets in the developing world will "decelerate dramatically".
"We are experiencing a fundamental collapse of the basic mechanisms of trust and exchange at the heart of the credit system," Galbraith said.
Obama has said he wants to stimulate the suffering U.S. economy by delivering hundreds of billions, possibly close to a trillion dollars, in infrastructure projects with the goal of creating 3 million new jobs over two years, and tax cuts, plus food and unemployment programs for those who need it.
"My administration will be absolutely committed to the future of America's middle-class and working families," Obama said Sunday.
Incomes of working people didn't increase during the George W. Bush years of 2000 to 2007 -- they decreased by about 2,000 dollars each, Obama has said.
More recently, those with 401(K) retirement accounts have lost 2 trillion dollars this year, as the stock market has plunged 40 percent, Obama noted.
Obama and Vice President-elect Joe Biden are putting the finishing touches on the package, and working with the Democratic leadership in Congress to craft a bill that will pass Congress, and land on Obama's desk for signing within days of him taking office, on Jan. 20. Congress returns Jan. 6.
Biden said Sunday that the billions are needed immediately to keep the economy from worsening.
"Every economist that I've spoken to ... from well-known economists on the right, conservative economists, to economists on the left, and everyone in between, says the scope of this package has to be bold; it has to be big," Biden said on ABC This Week.
"They are well advised to do too much than too little. We can always scale back. We should get a very large program in place," Galbraith said.
"There are a whole bunch of anxious and angry workers wondering why we keep throwing money at the people who have created the mess," said Leo Gerard, president of the United Steel Workers, who also signed the letter.
"We're going to take to the streets if Republicans try to block this," Gerard told reporters.
"We have 850,000 members in two countries. Any Democrat or Republican that tries to put a stick in the spokes of this wheel is going to have problems in the next election," Gerard said.
In addition to the stimulus package, the new Treasury secretary may have access to about 350 billion dollars in bailout funds that remain of the 700 billion dollars Congress approved in October.