US Economy Beset By Problems

From the fallout over the subprime disaster to the credit crisis to rising gas prices to unease on Wall Street, the US economy looks increasingly shaky and possibly on the brink of a recession.

Bear Stearns Bailout: On Friday the Federal Reserve, looking to head off a financial crisis, implemented a dramatic rescue of faltering Wall St. giant Bear Stearns. The Washington Post reports:

The Federal Reserve took the extraordinary step yesterday of providing emergency funding to one of Wall Street's venerable firms, Bear Stearns, after it ran out of cash to repay its lenders.

The Fed used a little-known power it last exercised in the 1960s to stem a run on Bear Stearns that could have sent multibillion-dollar losses cascading across the world financial system, causing more failures on Wall Street and threatening to choke off global economic growth.[...]

Critics characterized the Fed's move as a bailout that inappropriately intrudes on the free market and could lead banks to keep taking risks like those that imperiled Bear Stearns. Other analysts said the action was necessary, given the precarious state of world financial markets.

"We're on a knife's edge," said Eugene White, an economics professor at Rutgers University who studies financial crises. "The danger is if people's confidence is lost in a place like Bear Stearns, no one will lend to anybody."

Market Stumbles: The Bear Stearns bailout failed to stabilize Wall St., with the market tumbling Friday, the AP notes:

Wall Street plunged anew Friday after a near meltdown at Bear Stearns Cos. handed investors the unwelcome confirmation that the credit market's troubles are far from over. Word that the investment bank needed rescuing touched off a wave of selling that left each of the major indexes down more than 1.5 percent on the day; the Dow Jones industrial average fell nearly 200 points.

More Interest Rate Cuts Expected: The AP reports that Tuesday could see further action from the Federal Reserve:

Desperate to aid an economy in crisis, the Federal Reserve is ready to deliver yet another big interest rate cut.

How big? One-half of a percentage point, some economists say. Investors and others hope for even more, a three-quarters cut or perhaps a full point, given the turmoil on Wall Street. It will be a close call, Fed watchers say.

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Gold Prices: On Thursday gold prices passed the $1,000 mark.

The metal peaked at $1,005 a troy ounce before noon. It fell back by day's end, with the June contract settling at $998.70, its highest nominal close, but below its inflation-adjusted peak, reached in the early 1980s after a series of wars, oil shocks and a deep domestic recession.

Gas, Diesel Prices Reach Record High: From the AP:

At the pump, gas prices set records for the fourth straight day, rising 1.3 cents Friday to a national average price of $3.28 a gallon, according to AAA and the Oil Price Information Service. Average prices are nearing $4 in some parts of Hawaii.

Diesel, meanwhile, rose 2.9 cents to a new record national average of $3.938 a gallon. Heating oil, a fellow distillate and close cousin of diesel, jumped to new records on the New York Mercantile Exchange.

Grocery Inflation: The New York Times reports that the price of food is surging:

Government figures released Friday showed that grocery costs had jumped 5.1 percent in 12 months, the latest in a string of increases. In fact, the nation is undergoing its worst grocery inflation since the early 1990s.

With a few exceptions, nearly every grocery category measured by the Labor Department, which compiles the official inflation numbers, has increased in the last year. Milk is up 17 percent, as are dried beans, peas and lentils. Cheese is up 15 percent, rice and pasta 13 percent, and bread 12 percent.

No food product has gone up as much as eggs, jumping 25 percent since February 2007 and 62 percent in the last two years.

Comments

[rivrgrrl]

This is from another thread, but still applies here. Say so long to super power status, America.

I can see a scenario where our wounded economy would have a lesser impact on the world economy, once the effects of the American bundled-credit package losses have shaken out. What with their own markets and stronger economies and trade pacts, all operating without input or participation of American dollars, it should be possible for them to continue on without us. I think they have been preparing for this day for a while now.

According to the rest of the world, New York is no longer the financial center of the world.

We will still have a global role to play, but it won't be the one of the financial powerhouse it once was.

And it may be a good thing in the long run. The economic theories and policies practiced by our leaders the last 30 plus years has shown them to be failures when it comes to building a stable, healthy economy that benefits the most of it's citizens. It is time for a paradigm shift in our economic policies, one more in the direction of sustainability and stability over the long haul.

Maybe this 'down turn', as monkeydanceboy calls it, is just the kick in arse to set those wheels in motion.

[SeriousBlack]

So let me get this straight.... The situation is so bad that "We're on a knife's edge," and all this stuff is happening that seems amazingly similar to what was going on right before the great DEPRESSION, and yet we're not even actually in a RECESSION already? ("...the US economy looks increasingly shaky and possibly on the BRINK of a recession"). WTF?

[NWGuy]

Gosh, no energy policy other than to keep feeding the oil industry, tax breaks during a war running $10 billion a month and no end in sight, increasing insecurity about the start of another war (Iran), a huge trade deficit, business encouragement for offshoring, increasing distrust of the US abroad, a whole system designed to convince people to buy more than they can or should and then blaming them for credit problems, 7 years with an emphasis to optimize gain only for the already wealthy (with minimal attention to the other 98%), and continued denial and rationalization of the current economic situation. Can't imagine why the economy is looking like crap!

The responsibility (foreign term for the GOP) lies right at the feet of G Bush and the republicans that have repeatedly fed their own greed and their 'party first, America second' policy. Thanks guys!

[antiquity]

Well now, isn't that something? Bailout for an investment bank the size of Bear - who'da thunk it? So, the Fed will securitize the junk that Bear has that it can't pawn off on someone else - what a deal for somebody. Slight problem though, if there is a Bear in the woods, can there be more lurking just out of sight, for now?

So, when did this fascination with making money on bundled CDO's really take off? Was it, maybe, 2004 or 5? Let's see, that would allow for an ARM to reset in oh say 2 years, or 2006/7. And wasn't it fun to just have business coming out your ears, falling off the desks, spewing from the fax machines, as a result of the fabulous marketing campaigns put on by our friends, the lenders?

Save me from the Lions and Tigers and Bears of Wall Street; they make a profit on merchandise that even the Treasury honcho describes as almost too complex to understand - how would the average consumer know what they were signing back at the starting point? So these junk bonds, defective products, tainted meat, cyanide laced veggies made their way out to the general public dressed up in shiny clothes and keen packaging only to wind up putting the homeowner out on the street two years or so later, and that was just the beginning.

Once the first inkling of trouble, the first scent of odor, the first thorn in the foot appeared, and the CDO's were not able to be pawned off on someone else, necessitating the resulting put, the bad food went back into the system from whence it came - back to the lender. There, faced with valueless assets, they turned to stones and became writedowns by one lender after another. No support for the junk, no support for the ratings insurers, and the ripple effects have yet to complete the sunami impact on not only this but other of the world's financial markets.

Now we have reached the point where these lead painted toys require bailouts for their manufacturers, and to hell with the consuming public dying from lead poisoning and drops in their home values approaching Angel Falls magnitude; tainted food from overly enthusiastic sales teams, pushing the filthy foodstuffs, foul smelling refuse in disguise, who benefitted from the "no doc, stated income or 100% financing" that the lenders, brokers, and others in the mortgage peddling business shoved down the happy consumers' throats.

Foreclosure mess, you say? Liquidity problems, you say? I don't think so - not when bailouts are only for those who are the players in the game on Wall Street; the employees, the homeowners, the vast ripple effect on local and state economies that has yet to be dealt with - these are the losers.

If the CDO's were seen as viruses, there would be a national effort to eliminate them for the damage they have done, and will continue to do. If they were seen as defective products, they would be pulled off the market and restitution made. If they were seen as bad medicines, they wouldn't have been allowed to be ON the market - they would have killed too many people along the way.

But it seems as if the laissez-faire approach to home ownership has run its course - low interest rates will not make the impacted parties whole again. The pathetic efforts by this administration to have pre-foreclosure consumers call in for info are or should be embarassing to any but the most jaded bureaucrat. The damage has been done, and continues.

In my view this sunami has resulted in our nation's being in a recession since last March. It took several months before the financials were clear enough to be seen for what they were last August - the edge of the cliff whose bottom is not yet visible. A drag on the economy - no doubt about it. Dark waters ahead - absolutely. Stimulus package - more junk in disguise, paid for by YOU and your children. It is pablum designed to make you feel better, nothing more.

And the President doesn't know there is $4.00 gas; does he know a dozen eggs are now $3.00? What does he know? Housing is THE engine that drives this nation - and it has become a vast wasteland; few can lend without perfect credit, or perfect cash. Lenders are de-leveraging, dumping their waste in writeoffs and praying for securitizing by the Fed to back them up. Meanwhile, people are out of their homes, or in homes they cannot refinance because their home is now one-half what it once was just a few short years ago - roughly about 2004 or 5. Remember those days? That was a different world, and it is gone.

The patient's dying and the doctor's out to lunch. The Fed? They're about out of bullets, nothing left in the holster, nowwhere else to get more except by reducing the value of your dollar.

That's why this is unlike any other banking crisis since the Depression. Nobody knows what they are looking at, and if they did, how to fix it. It can't be fixed. It's a virus that has to run its course - and it may kill the patient in the process.

[riverhouse]

Iraq at $3 trillion and growing. Special interests and lobbyists ruling the roost in DC. Military industrial complex with open checkbook. Tax cuts for millionaires and billionaires. Unregulated financial institutions. Unending occupation of Iraq. Bomb Iran, anyone? HIllary and McCain have to answer for the above while Bush tap dances and says we're doing just hunky dory.

[viper234]

I was very surprised as well. In fact I'm shocked. So many comments on Clinton and Obama nonsense and nothing on the REAL PROBLEMS THAT WILL AFFECT THE POCKET BOOKS OF WORKING AMERICANS. It seems our fellow Americans prefer to be in denial rather than to face the facts. My God, the dollar is crashing, gold is going through the roof, oil is trading at record highs, heating oil, natural gas and all other utilities are skyrocketing, not to mention the higher cost of food based on the overall rising cost of doing business across the board. Additionally, no one is talking about how one of the major factors pressuring the economy is the Iraq War fiasco which has been draining billions, ultimately trillions of dollars from the US economy. No one is talking about how Saudi Arabia and other oil rich Middle East countries, as well as Russia are thriving while the US is going down the tubes, how emerging markets are thriving while the US is falling behind. How the US dollar is almost as worthless as toilet paper on the foreign exchange market. People, these are the trademarks of a profound economic crisis, a very depressed economy. I mean a major financial institution, Bear Stearns tumbled close to $30 dollars during trading on Friday. THERE WAS A RUN ON THE BANK. PEOPLE WERE BAILING OUT OF THE STOCK ON FEARS THAT THIS MAJOR BANKING INSTITUTION WAS ON THE VERGE OF A COLLAPSE. Wake up America. Let's talk about the Economy and the Iraq War. These are the issues that we need our presidential candidates to spend their time addressing, not comments on who is or is not a "monster," or whose minister made "controversial statements" in the pulpit. We've got much, much more important issues that warrant our full attention.

[preemptivelove]

this is unreal. so......correct me if i'm wrong......wall street firms can be bailed out, regardless of what kind of behavior is rewarded and encouraged by the bailout. meanwhile, americans who were swindled in to mortgages they could not repay are "irresponsible" and shouldn't be bailed out. and never mind that it is the average american, with average american spending habits, who is the steam of the u.s. economy.

this is pretty blatant and speaks volumes about our country's priorities. anyone who thinks we're not already in a fascistic state should think again. governent working to protect and further the interests of corporations, ruling and legislating and making policy to benefit the top, with hopes that it trickles down.

unreal.

[ramal]

Just as with that famous turnabout in 1918 when describing the state of the war: A Berlin daily newspaper said, "The situation is serious, but not hopeless." while a newspaper in Vienna came up with the headline that, "The situation is hopeless, but not serious." I think that "Dear Leader" and his government are saying the former, while the American people are voicing the latter.

[Lisa88]

Thanks for posting this. Our econmy is going down in flames due to terrible mismanagement and corruption by the Bush government. Americans are losing their homes at alarming rates, people throughout the country are suffering immensely but all our tabloid MSM sources like CNN, MSNBC, Fox etc are interested in reporting is nonsense about the presidential candidates and their surrogates.
We really need to wake up in this country and realize we have some serious problems on our hands and start shining the light on this horrendous Bush administration that has led us down this horrible path.

[research]

What's to say? It scares the hell out me?

We should all know by now:

Shock Doctrine,

Robber Barons,

Conservative=corporatist=fascist=GOP=BushCo=McCain=Bankruptcy.

Bankrupt morally, intellectually, politically.

Bankrupt financially unless you are one of the few chosen cronies.

The Permanent republican fascist majority is still moving forward toward a Hoover depression, so they can further dominate the peasants and avoid prosecution.

That is why Impeachment hearings are NEEDED, I could care less if the Senate rethugs block conviction, ...

Impeachment hearings are so necessary to put the BushCo fascists on the defensive:

to stop and reverse their forward momentum toward total control.

To stop the Iran War Crime from every starting

To end the Iraq War Crime,

To stop Torture, DOJ partisan justice, Orwellian surveillance, Looting of the treasury by war profiteering cronies, partisan MSM propaganda blitz, and god knows what else.

We need to strip away executive privilege and expose the fascist cronyism that has stained our democratic republic. We need to strip away the 1000's of lies and deceptions of Bush&Co.

House: start the Impeachment!

[sesshoumaru]

I hope there's isn't any problem. This is one of the most important stories this week .

[jneems]

Things aren't WORSE yet. Things are just beginning. We have a long way to fall before we hit WORSE. And it's not that eggs and gas and gold are going UP. It's that the dollar is going DOWN. Of course, they don't come out and tell you this...

[sesshoumaru]

This is where politics fails the people. The most unpopular thing among politicians is the very thing that will solve this mess. Raise the minimum wage to $10 per hour, increase domestic infrastructure spending to equal no less than half of defense spending, and bring the US trade policy back to working in the interest of the american people.

I don't know if the comments are working, I keep getting kicked.

[QuantumBios]

Socialism for the rich. Un-American, yet exactly what we will get more of if Obama, Hillary or McCain get in the WH. Watch this rare glimpse of honesty on the topic. http://www.youtube.com/watch?v=JBbpEXdum6s

[rpence]

What can we say besides, "We're fucked"?