Pssst, the Economy Is Collapsing -- Don't Tell Congress

The latest mutterings from Congress, especially the Republican leadership, indicate that they still don't have a clue about the seriousness of the economic downturn we are facing. They are saying that they can't have a stimulus package ready for when President Obama takes office in two weeks, and that a package probably won't be ready until well into February.

This delay is inexcusable. Remember when the Wall Street boys needed their TARP bailout in the fall? President Bush and his crew, together with the Democratic congressional leadership, with a huge chorus of media cheerleaders, all told us that the economy would collapse without immediate action. That is almost true now in the case of stimulus.

At this point, there should not be much question about the seriousness of the need for stimulus. The $8 trillion housing bubble that our economic leaders somehow could not see is in full collapse, with house prices falling at more than a 20 percent annual rate in the most recent data. The immediate impact of the collapse was to cut the housing sector in half.

More importantly, the lost housing wealth, combined with the loss of $8 trillion in stock market wealth, is causing consumption to plunge. We are going to see the largest set of bankruptcies and store closing in the retail sector ever. More than 10 percent of the workforce is employed in the retail sector. The layoffs will almost certainly top 1 million and could hit 2 million.

And, when those stores go out of business, they are not going to be sending their rent checks to shopping mall owners. The bubble in commercial real estate, which followed on the bubble in residential real estate, is also collapsing. Look for more surprised economists as hundreds of billions of bad loans on commercial properties suddenly appear on the banks' books in the next few months.

In addition, we have the cutbacks in state and local governments, all of whom are being squeezed by plunging tax revenues. Since these governments are generally forced to balance their budgets, they have no alternative to making cuts and/or raising taxes. This is exactly the worse course for the economy right now.

This is the area that Congress could most easily address right now. Both red states and blue states are subject to budget squeezes. There must be a package of aid to state and local governments that President Bush and the Democrats can work on right now. President Obama can always add to such a package after he takes office.

This stimulus package should have been approved two months ago, but for whatever reason no action has been taken. As a result, we are seeing painful layoffs and cutbacks in state and local governments that are completely unnecessary.

There is no justification for further delay. Congress should immediately approve whatever assistance President Bush will agree to now; there is no reason that the public should be forced to wait until mid-February for Congress to pass the crisis.

If there is not interest in Congress today for serious action, perhaps the loss of more than 500,000 jobs that the Labor Department will report on Friday will help to focus its attention.

Comments

[kgb999]

If congress had passed a bill 2 months ago the money would have gone the way of Paulson's TARP funds. Bush gets no more money. Period.

Good on congress for that one.

[rad21]

The urgent need is to come up with innovative ways for economic growth. Borrowing money, we do not have, to stimulate the econmy to just create jobs and services that may not be needed is only going to get us in greater debt down the line. IMO we need to go back to basics

Our healthcare is in shambles. Let me present a least talked about aspect of it. A third of the cost (2 trillion dollars a year) is spent in the last few weeks of life. Reducing this would reduce 'healthcare' taxes (medicaid and medicare); save business (from high premiums). Reduction in medicaid costs would save cities and states.

Our edcation system (school and college) is the most costly in the world and we are out-ranked by poor third world countries. Can we do more with less financial resources? Would that reduce our property taxes? Would that save the next generation of Americans?

How about states using this crises to homestead families into rural America? Living in upstate NY, I know families who use a 5-acre lot to grow and market inorganic and organic farm produce. Another seventy-year old, on his one acre, grows annuals that he sells to local and regional florists. Consider the foreign exchage these individuals are saving. Homesteading will reverse the declining popluaiton in small towns; which in turn impacts the local schools, hospitals, retail business etc etc.

[steve-in-abq]

It seems to me that you are looking at the big picture here and actually stating facts and brainstorming solutions. Folks, we need more of this on this blog. I have an idea of my own. First, I do not believe the health care crisis is nearly as bad as our health crisis. We are, as a country, seriously out-of-shape (which is at least partially responsible for many health problems). Secondly, we should conserve natural resources. Thirdly, we should reduce the pollution causes by motor vehicles. We could partially solve these problems with one program. The federal government could subsidize public transportation a little more, build new bike and walking trails, people could be encouraged to use mass transit (tax breaks) and not be afraid to have a bit of a walk (exercise) in their commute. Result: not as much traffic (fuel use and pollution), folks get some exercise (health).

[jdenham]

Personally I doubt if Congress will come up with anything more than a band aid for our economy. The partisan lines have been i place so long that compromise on issues is impossible. The TARP plan is a case in point, it was a rushed partisan plan that has been nothing but a give away to the financial industry. Dean if you wonder why Congress and the American people are hesitant to act on the economy, the answer is George W Bush, anything this man touches is a failure. See TARP Plan.
The current plan being proposed has some real problems. I like the create jobs part investing in infrastructure, a Green economy, helping out the state budgets, and helping the unemployed. What I feel is a waste of money is tax cuts or tax rebates, they have not worked and have hurt us this year. Consumerism can not be built with a rebate check, that is a onetime purchase. You need people to have jobs so they can afford to by items they do not really need.
The last thing that must change is confidence. I do not trust our government to do the financial sound thing, see TARP plan, under George W. Bush. To protect our families we change our purchasing habits, I am not buying unneeded items, I have cut back on 401K contributions and I am watchimg to see if Congress heard our message Nov. 4.

[jfor]

The reason Congress can get away with the delays is because the average American has no clue about what is happening and frankly does not care. However if Obama has an affair or Biden goes to a Minneapolis men's room we all will be outraged and demand immediate impeachment.

[ObjectiveRealist]

oxymoron alert: "... the Republican leadership ..."

They can be described as "trend-setters" or "ringleaders" or probably several other terms, some more flattering and some less so, but "leader" is simply not accurate for today's Republican. They have shown beyond a shadow of a doubt that they are adequate for no more than three things: obstruct, follow or get out of the way. I suppose by now you can tell which I prefer that they do.

quote:
The latest mutterings from Congress, especially the Republican leadership, indicate that they still don't have a clue about the seriousness of the economic downturn we are facing. They are saying that they can't have a stimulus package ready for when President Obama takes office in two weeks, and that a package probably won't be ready until well into February.
/quote

Freeze all their accounts immediately.

[Peter007]

A few thoughts.
There is no law that states Americans are entitled to a better standard of living than the rest of the world.
Next, given the free flow of technology, educated labor, and natural resources, many countries are now on an even playing field with the United States.
The United States economy benefited dramatically from WW1 and WW2. Other developed countries were devastated by the two wars and the US was lucky to have avoided most of the destruction. That advantage is now gone.
Next, the Federal Reserve System is a giant Ponzi scheme. It's caused the devaluation of the dollar by about 95% since its creation. Its function and influence is a mystery to most members of Congress and 99% of the general public. Unless people understand the difference between money and wealth, the people that control the printing press will forever be the rulers of the nation.
Don't look to the politicians to create wealth. Thats not their expertise.

[LeftRight]

I'm not asking for a better standard of living than the rest of the world, I'm asking for the govt to regulate the economy like they did in the 30s, 40s, 50s, 60s, and 70s, and we were finding that although our growth rate was low it was still there, and that growth translated all the way through the economy.

NOW the growth rate is larger, but it's limited to a very small percentage of people who need it the LEAST!

[ObjectiveRealist]

quote:
There is no law that states Americans are entitled to a better standard of living than the rest of the world.
/quote

No law states that the rest of the world may not afford the 1950s - 1980s United States' standard of living but the scarcity illusion manufactured by dependence on petroleum combustion instead of the planet's PRIMARY source of energy, sunlight, for the majority of industrial processes and transportation.

quote:
Unless people understand the difference between money and wealth ...
/quote

You know, I think we have all along; NAFTA and CAFTA and that Y2K abomination in Seattle were all protested for pretty specific, academically correct and well-articulated reasons. We demand symmetricaly tariff policies with every country with which we trade.

[vippy]

We are far behind the rest of the world, the industrialized nations! Alone, in car ownership the USA is #16, first place is Luxemburg, Ireland, New Zealand. Italy is
#4 and Germany is #6, England is #19. Of course, when it comes to healthcare we are
at the bottom of the list and when it comes to benefits for the working people, well,
there are none for the middle class. Nice brainwashing attempt!

[PoliticalAnimal]

The Democrats are criminally responsible for allowing all of this to happen while they had control of the Congress and Senate - they are incompetent!!!

Where are the perp walks???

[Veri]

LOL. Your Republican masters have you believing the propaganda! It took both the Dems and Repubs acting in concert to create the conditions necessary for this disaster. Once you realize this and stop taking orders from the boob-tube, well, the truth shall set you free.

[LeftRight]

Yeah, because we all know that before the 2006 election everything was going swimmingly with none of the warning signs of what has happened.....

[FrankFurter]

"This stimulus package should have been approved two months ago, but for whatever reason no action has been taken."

The reason is simple:

A proper looting of one of the worlds largest economies takes time, BushCo and friends got a late start and there just hasn't been enough time to get all 350+ billion dollars out of the public coffers and into the Swiss banks yet.

Once there is no more money available, the stimulus package will surely be approved.

[Veri]

And Americans stand idly by and do nothing. Mentality of the poor.

[Joseph A. Palermo - Huffpost Blogger]

We're about to find out if our governing institutions are capable of dealing with real social calamity. I'm not confident they can.

[kennethjkranz]

The same socila pressures were with us during the depression. Many riots. We have a difficult road ahead but we must rebuild our economy on real fundamentals. We've chipped away at society's hierarchy of needs. When we do that political unrest creates poltical instability. One of the reasons we have been able to attract foreign investment is due to our stability. If we lose that then we lose reserve currency status. Welcome to the third world. Deficits translate directly into higher interest rates! Endgame!

I agree with you. I think we should prepare now. Hungry crowds arent rational.

In the early 60's consumer savings represented 2/3 of savings. That was the basis for business investment. Economic growth was well distributed. we have to get back to that. Just as the formation of capital (supply) is a natural market force, so is labor formation. Balance...we need balance

[rocketman69]

You belive the government can save the environment, save the economy, save the whales, restore social justice, and make the birds sing and flowers bloom; but can't do anything about a little calamity?

[snoopbuzz]

I agree that there needs to be a stimulus package, but not before some other things need to be done. It is the flow of money that really needs to be stimulated. There are a few government agencies who have open checkbooks and are not being regulated. For example:

CIA- they have an open checkbook and nobody regulates them at all.

Dept. of Energy: Thanks to global warming they have an open checkbook

FEMA: they need to be monitored alot better.

Dept. of education: they need to be monitored alot better

Iraq war: They need to get the troops back and get them ready for Afghanistan

With all the agencies not being monitored and nobody really knowing where all the money goes, its no wonder the economy is bad and the deficit is getting bigger. I am sure I missed a few agencies but this is just off the top of my mind.

Also, they never should have bailed out wallstreet. When I was in junior high, decades ago, in economics class they always told us that the stock market was a big risk. I'm not sure when people started to believe it wasn't, especially after the 1929 market crash, but it was their own greed that caused that to fail.

[SenGovLuvr]

This stimulus or any stimulus will not stop the collapse of poorly run retailers.
Your inclusion of the retail segment is purely for scaring the masses.
There are too many retailers that were benefitting from over-borrowing consumers and now the bills are coming due.
Sorry, mister ecomomics expert, but 20% to 40% of the retail establishment is going to disappear.

"As a result, we are seeing painful layoffs and cutbacks in state and local governments that are completely unnecessary."
Your answer is to flood the states and local governments with "stimulus" money. Great for government employess and contractors. But how will that produce paychecks for the private sector?

[DuganS1]

That's right. There is a lot of over-capacity in the retail sector right now, and it will be healthy for the economy to purge the least profitable/least efficient ones to help relieve the current over-capacity problem. This is how the economy works, and how it should work.

[Kram]

The private sector created this mess! Only the people's government can save them now.

If you have any other options available, please inform us mere mortals. Baker's analysis is spot on.

[SenGovLuvr]

You're funny, but, there is a lack of specifics in this analysis, other than fueling state and local governments with stimulus to stop painful layoffs and cutbacks. With reduced tax revenue, there will naturally have to be layoffs and cutbacks in all levels of government until this crisis passes. Even mere mortals would agree with that, eh?
Baker is foaming at the mouth to get any stimulus out there that he can. There has to be a plan and it will take some time. There weren't enough specifics in the financial bailout and look what happened with it.

[kennethjkranz]

Its not that they are poorly run. There is simply a glut of them. In the last 8 years consumption was fueled by artificailly rising equity prices. Without the housing bubble, economic growth would have been anemic. its likely we would barely be out of the 01 recession.

we also have artficially low prices and interest rates. China was pegged to the dollar through 05. The US exports dollars. The chinese print yuan and buy dollars. they then buy treasuries and other debt based instruments. That artificial demand has kept the Yuan and import prices for the US low. The entire Walmart based retail system is built on cheap import prices and easy credit. both fueled by the Chinese and the day of reckoning is here!

[DuganS1]

"Without the housing bubble, economic growth would have been anemic."

You might be right but there was a large boom in the natural resource and export sectors over the past three years. That would include oil and natural gas production and exploration, energy-equipment manufacturing sectors, coal mining, coal mining equipment manufacturing, chemical industry, construction equipment manufacturing, aerospace, heavy truck and truck engines, electrical equipment, semi-conductor equipment design and manufacture, tractors and irrigation equipment, steel industry, titanium industry, generators, turbines, computer software, large batteries, construction engineering, alternative energy like wind tower construction and solar cells, maritime related equipment, large tires for construction equipment, fertilizer, seeds, potash, etc. etc.

All these areas were in recession in the late 90s through about 2003.

[kennethjkranz]

Wasnt congress who broke it. The amount of money pumped into the Asset Backed market doubled in 2004. Congress didnt pump it in. Nor did Fannie and Freddie. and its not a subprime problem. Never was. This is the result of 10's of trillions in side bets. CDS's and unregulated Structure Investment Vehicles. So why the Bailout? prettyy simple really. Have a look at the US balance of payments with the rest of the world. 750 billion dollar trade deficit. we have to attract 2 billion a day in foreign capital to offset it. That money flows through wall street. and that money will be underwritten by US Taxpayers or we risk an even greater collapse of the dollar and double digit interest on our borrowings

and we cant blame anyone but ourselves. We bought the "free trade" mantra. We bought the "outsourcing is good mantra"

Well we now have a zero savings rate and a credit crunch. Wow, ya mean ya couldnt see that coming? we must have misunderestimated things somewhere.

You cant lend what you dont save. Relying on worse run economies than ours for capital investment is suicide.

[DuganS1]

Increased trade and outsourcing has nothing to do with the current fiscal crisis. BTW, the biggest part of the trade deficit is the price of oil. This year through October we had a $712b trade deficit and $346b of it was from petroleum. The non-petroleum trade balance thu October was -$377b, in 2007 thru October was -$460b, in thru October 2006 was -$483, in 2002 thru October was $330b, in 2000 thru Oct $271b, in 1999 thru October $222b. Over the last two years the non-petro US trade balance has been improved via the weak dollar and strong global growth (exports). In the next year we should benefit from the lower price of oil. IMO we need to (going forward) find ways to reduce our dependence on foreign oil and continue to devalue the dollar.

[kennethjkranz]

If you continue to devalue the dollar commodity prices will rise. Steel for infrastructure, coal, oil etc etc etc. I agree that we must diversify our energy use but we have to be realistic. Capital is mobile. when capital is mobile prices are Global. Oil prices in dollars will rise as the dollar devalues as will most other commodities required for production.

and have a look at the balance of payments and financial balances. 800 billion in foreign inflows. It may look like an assets but the truth is its a liabiltiy. profits,rents and any other yields will flow out of the US.

[kennethjkranz]

Increasing Trade deficits certainly can and do excacerbate bubbles.

Dollars exported through the trade deficit find their way back into the US economy. and like a funnel they came through the treasury market. Treasurys set the floor on the private sector debt market. when their return is too low, capital will move to the next higher yileding assets. In this case the housing bubble.

Note this link and the last graph labeled "outstandings"

http://www.federalreserve.gov/releases/cp/

The Gold Line represents assets backed paper. mortgages. note the explosion in 04. Much of the source of this capital is due to inflows through investment banks

This is the source of the bubble. Structured Investment Vehicles received intial capital before securitization in this market. This is the source.

[LeftRight]

First, your numbers are WAAAAAAAAAAAAYYYYYYYYYYYYY off! We were NOT sending $346 Billion to oil!

Second, outsourcing and increased "trade" are the CAUSE of this whole mess, since we are no longer MAKING anything here!!! Without the jobs that making things in America would provide, there is no middle class. Couple that with people in Washington trying to hide the economic mess that we are in by providing cheap or even free credit and suddenly we have the housing bubble and credit card bubble, and negative savings rate!

[JBVT]

I've lost a great deal of money this past year.

It does not feel any better because I've so much company.

So there.

JB

[Balancement]

C'mon, people--Congress doesn't care one whit about any of us. They're a pack of liars and thieves who take their orders from the corporations who *really* run the country. We can either wake up and take our country back--or we can just sit back and watch our nation crumble. I'm ready for revolution. How about you?

[Overd0g]

But "we" elected the so-called liars. Therefore "we" are responsible. So don't have a revolution against the government, have a revolution against the people.

[Buddy McCue]

Most of the liars are the sort of people you might vote for.

Therefore, you are responsible.

So, why not have a revolution against you? Oh that's right; we just did. We voted our guy in. Live with it.

[mikep]

Well, I'm just one person, but I definitely don't see that the situation is so urgent that hundreds of billions of dollars should be spent in a rush. We need to take our time. If a stimulus plan is needed, then it should be done carefully, after due deliberations, extensive hearings in Congress, and massive public input. Above all, it has to be done in such a way that it doesn't increase the budget deficit or national debt, since those two things are the major source of the problem to begin with. As anyone who has ever balanced a household budget knows, at times of economic difficulties it is even more important to be prudent, and to avoid increasing debt or borrowing further money. I find it frightening that a small group of people are using panic to justify ramming through multi-trillion dollar bills without due deliberation. It strikes me as a type of coup d'etat, in fact.

I also don't see anything in the proposed stimulus bills that would address any of the real underlying economic problems. It seems to be just a hastily done quick-fix, that will have a short-term and temporary payoff, but will make the long-term situation much worse.

[kennethjkranz]

In a sense it is a coup! Banks attract capital into the US. Without them the US dollar would be in worse shape. Not that I support this nonsense. Taxpayers are bailing out foreign investors. Saudi, Kuwaiti and other Sovereign Wealth Funds! and we have no choice.