The Worst Economy Of Our Lifetime, pt. II
Concern about the economy, the war in Iraq and growing dissatisfaction with the political environment in Washington all contribute to the lowest public assessment of the direction of the country in more than a decade. Just 24 percent think the nation is on the right track, and three-quarters said they want the next president to chart a course that is different than that pursued by Bush....
Dissatisfaction with the war in Iraq remains a primary drag on public opinion, and Americans are increasingly downcast about the state of the economy. More than six in 10 called the war not worth fighting, and nearly two-thirds gave the national economy negative marks. The outlook going forward is also bleak: About seven in 10 see a recession as likely over the next year.
Yet last week the economic news was upbeat. The U.S. economy grew 3.9 percent and the economy added 166,000 jobs. Shouldn't people be happy about those developments?
The answer is no they shouldn't. As I noted in the first installment in this series, job and wage growth for this expansion is poor at best. Simply put, if you hadn't had a meaningful raise for the duration of "greatest story never told" you'd be frustrated, too. But that poor job and pay growth only tell part of the story. The bottom line is the underpinnings of the Bush economy are terrible -- and they are starting to come home to roost in a big way.
Before I move forward I'd like to address a point brought up in the first article in this series. Several people commented that the recession of the early 1980s was in fact the worst economy of our lifetime. I will admit that I was alive and well during that time, although I was just starting high school. While I would love to tell you I was economically aware at that time, the truth is I was more interested in playing guitar (stealing licks, playing in bands) going to parties and in general being a high school kid. I have no economic recollection of that early 1980s. So for people who were alive and, well, struggling during that time it may have been the worst economic period of their lives. But for me, watching friends struggle with getting by while being told everything is great in Republican-land for the last seven years has lead me to the conclusion that the current expansion is a cruel joke played on the vast majority of Americans. As the poll numbers indicate, I am far from alone; most Americans feel that way.
The question is, why? One of the primary reasons is the financial underpinnings of this expansion are poor. But let's back-up to 2001. According to the Bureau of Economic Analysis, the personal savings rate was .46 percent in the fourth quarter of 2001. Another way to state this statistic is Americans were spending 99.5 percent of their personal income in the fourth quarter of 2001. Now, let's look at the Census Bureau's median income statistics. Here is a chart from their latest national income report:
Notice how the median national income has stagnated? Yet over the duration of this expansion, personal consumption expenditures have increased 18.34 percent in chained (inflation-adjusted) dollars. So, at the beginning of this expansion people were already spending everything they made on a weekly basic. Over the last seven years income has stagnated, yet people have increased their purchases by 18.34 percent. Where did all this new money come from?
Tons of debt. Here is a chart compiled from information from the Federal Reserve's Flow of Funds Report.
Let's put some figures on that chart. In the fourth quarter of 2001, total household debt outstanding totaled $7.680 trillion dollars. In the second quarter of 2007, total household debt outstanding increased to $13.331 trillion -- a 73.56 percent increase.
Let's place those figures in perspective.
In the fourth quarter of 2001, total household debt was 75.10 percent of GDP. In the second quarter of 2007 it was 96.82 percent
In the fourth quarter of 2001, total household dent was 102 percent of disposable income at the national level. In the second quarter of 2007 it was 129.62 percent of personal income at the national level.
Now, there is no economic magic line that says "debt above this level is bad." However, let's look at some recent headlines from the financial services industry to see where this debt has gotten us.
Stocks fell in Europe and Asia after Citigroup Inc.'s announcement of as much as $11 billion in writedowns suggested financial companies may face more losses. U.S. index futures retreated.
Merrill Lynch & Co Inc (MER.N: Quote, Profile , Research) reported $7.9 billion in net write-downs for the third quarter on Wednesday as shaky risk management and bad bets on subprime mortgages and collateralized debt obligations triggered the company's first quarterly loss in six years.....
Merrill was the only big Wall Street firm to post a third-quarter loss. And its write-downs -- before hedges -- was bigger than the combined $3.6 billion in write-downs and charges recorded by rivals Goldman Sachs Group Inc (GS.N: Quote, Profile , Research), Bear Stearns Cos Inc (BSC.N: Quote, Profile , Research), Morgan Stanley (MS.N: Quote, Profile , Research) and Lehman Brothers Holdings Inc (LEH.N: Quote, Profile , Research).
And as this chart from the IMF shows, we have at least another three years of resets to go through before we're in the clear:
The problem with this debt is we have now partially crippled our economy going forward. The U.S. economy relies on the credit markets for a host of necessary economic activities. But those markets are not functioning smoothly right now. And the chart from the IMF indicates they won't function smoothly for some time into the future. As a result, the U.S. economy will limp alone for the foreseeable future as the credit markets work-out their self-imposed problems. And that's not good for anyone.
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The way you seem to look at the world, a bubbling stock market is GOOD, while the crash following the bubble is BAD.
A bubbling real estate market is GOOD, while the crash after the bubble is BAD.
The truth is that the bubble itself is bad. It throws our economy and our federal budgets into a boom-bust cycle. Why tighten our belts when the stock market is soaring and revenue is pouring into the treasury? Everyone just eat, drink, and be merry. Break out the credit cards and borrow every dollar of value in your home because the future is bright and the good times will last forever.
And then at the first sign of trouble, what do we hear from the left? 'We need to bail out the suffering victims.'
Everyone goes into spasms of admiration over how Bill Clinton balanced the budget after 8 fat years of peace and prosperity. If Joseph had squandered away the 7 fat years, and just barely balanced Egypt's budget on the 8th year everyone would have died of starvation during the 7 lean that followed.
I think there is a strong case to be made that the late 90's were actually one of the worst economies ever. The apprent wealth was based on a lie. The overvaluation of the dollar was bleeding manufacturing jobs dry. The economy started faltering as early as Q1 2000, where GDP growth was a paltry 1.0%, and then again in Q3 where we experienced our first quarter of negative growth in almost 10 years. If fact, to find another economy that generated 3 quarters of negative growth out of 5, as happened just as Clinton was leaving office, you need to go all the way back to 1981, just after Carter left office.
There seems to be a pattern here where Dems always seem to kill the economy for their successors.
Gosh, I miss the smoke and mirrors economy of the Clinton years. Yea, sure, it collapsed like a house of cards on Black Friday, but damn, it was sure was good while it lasted. People happily buying every little Internet company there was, good times, good times. I hardly miss the 450K I lost once the bubble went pop!
Ron Paul may not have the correct understanding of global warming, but he does understand how to get us in a position where something can be done to combat it. He, unlike any candidate speaks with a straight tongue.
The Global warming consideration by all other candidates simply ends up putting more money in the oil company hands. The lies about Iraq from both sides and candidates other than Paul is now evident. The useless rhetoric by the candidates, and by existing congress is although laughable, excruciating.
Run all the charts you want, pro Bush or pro recession, and you don't create any worthwhile jobs, nor do you bring the point home to most who are out trying to keep their heads above water, although this post does try and bring light to the problems. For those who believe in their forthcoming retirement, there are funds to assist, IE social security, you will be ruined if that is what you are counting on. For those who continue to spend via debt, and those who continue to buy vehicles which provide 1960s type gas mileage, your heads are stuck irrevocably in the sand. Want to survive, quit spending, somehow start saving and prepare for the worst case scenario. If doom and gloom pundits are wrong, you will be quite happy, if they are right you will have some chance of getting through cataclysmic reorganization.
We live in a "get it now, pay later" society.
Most people buy cars that are too expensive, houses that are too expensive, and overspend by using credit cards.
What ever happened to driving a used car and buying a small home.
One of the most ridiculous stories here in Orlando was a couple who brought home $2,300 month and bought a large house for $1,800 month. Can't they do math?
People without self-control typically complain about the economy (yes, I do realize there are some heart breaking exceptions).
Yikes! I hope "stagnant" is as bad as it gets. I fear worse.
Didnt all this start when the democrapts got back in power?
Hale,
Can you sum it up what this policy is meant to do? The intended effect on its target--which is us?
I'm gonna post here just once today before I go out to organize the resistance, so it'll have to be a two parter.
Jobs (good jobs) are going...going...gone! Why pay an American what you can pay an Indian or East Asian half for? Result, a lot of highly educated people on the street. I know, I live in a high tech household. Job creation is a statistical lie, and the so-called "new jobs" can't support a middle class lifestyle OR the debt we've racked up to pay for our kids college, or now, even gas or heating for the coming winter. Not extravagances, necessities.
That's leg one of the chair we sit on, gone.
Pensions just plain gone! If you were unlucky enough to work for an Enron, among many others, your plans for the future are shot. And if you worked for a labor friendly company like Agilent, they purged everyone shortly before their retirement would kick in! And then went back and changed the deal on the folks that were left. Now Bush wants retroactive immunity for those theives, too.
Leg Two, courtesy of Ken Lay and friends, gone.
Investments...still climbing back from the ever so misnamed high-tech meltdown. Remember, "everyone should be in the market and have equity in America!" That was a manipulated crash that allowed the old line Corporations to scoop up the vibrant new competition, cheap! The only other time in history that so many average people were invested was just before the Great Depression, and we know who came out of that richer and more powerful than ever.
So Leg 3 sawed off of working folk's security.
Continued...
the house of cards will collapse in '08... look for some pretty significant corrections leading up to the 10/08 CRASH!
we've passed the point of "if", smart people will be focusing on "when?"... it's going to be a blood bath for US stocks and the US economy... which will seriously affect the world economy.
Bush intervened in early 2001 to STAVE OFF a major recession/depression.
Many economists at the time disagreed with his policy. They thought he should sit idly by while the economy bottomed out, and that intervention would only slow the eventual recovery.
Bush was worried that too many people would suffer during the ensuing recession/depression, and that he must act to soften the blow. So, instead of a major recession/depression we ended up with a soft landing and slow recovery. Essentially we traded off few job losses then for lower job growth during the recovery.
The problem with this Monday morning quarterbacking by the left is that we can't rewind time and see what would have happened if not for Bush's tax cuts.
Without those tax cuts in place, could we have recovered at all from the trillion dollars of damage 9/11 did to our economy? Without the subsequent 2003 tax cuts, would we still be in economic doldrums today? Would we still be in a recession in the middle of two wars, and be making only guns and no butter?
Bonddad conveniently sweeps any such questions aside as he charges headlong into his criticism of Bush.
How about adding the devaluation from the Dollar into the equation, the values of your income sinks further. The Dollar lost 40% against the Euro this year. Interestingly enough the currency hit a record low during the Bush 41 administration at the end of his presidency. Not to mention the fact that our export deficits and federal deficits tighten the markets as well. At least when I had economy in high school, the going lesson was that high federal debt and deficit spending absorbs money in the credit market that would otherwise invested into the private sector. Since Americans cannot invest because of spending, who is buying our debt?
Hale, if you sign up for the U.S. Army today,
YOU could get an on-the-spot bonus of up to FIFTY THOUSAND DOLLARS! Remember, if you're
on the government dole for life, the 'economy'
is ALWAYS GOOD! Go to www.UncleSugar.com today,
and YOU can start living off your neighbors
right away! Watch, as Bush makes Congress
his bitch, to vote YOU more money out of
your neighbors' pockets! Well it doesn't ALL
go to you, most of it goes to HIS buddies, but
you get a fat slab o govcheese too! And, if
you hang around for 20 years, don't get busted
for anything, or get your ass shot off, you've
got income for life! Woohoo!
See? The economy or 'con me' IS good, just
depends on YOUR perspective. Recruiter's office
is 3 blocks down, on the right.
I was there in the 80s and the times are not so surprisingly similar tough job market (unless you want to wait tables or stock grocery shelves) employers not paying market wages, high food and fuel costs.
Don't suppose that supply side economics has anything to do with it?
all of these tinkerings with interest rates, subsequent interpretations of job rates, etc are completely useless because throughout history, when a centralized bank that has fiat money (baseless, just printed), plus debt (owed to other countries), you will have total collapse through internal inflation and devaluation of the dollar. the Fed is close to Dead.
We need sound money (based upon a commodity) and it needs to be monetized (if we don't have it, we dont spend it). period.
brush off the constitution and legalize gold and silver to compete with the fed, and it will go away, the market will flourish and stabilize, reduce federal spending, make whole the welfare programs that are bankcrupt, eliminate the income tax, don't entitle illegal actions, and we'll make it. hell, we'll be free again.
there is no other candidate running that knows more about the economy and how to fix it than ron paul.
that he agrees with kucinich on most things (just not how to fund it) is what is attracting many liberals to his message, and his book, and his campaign, and his uniting message: Peace, prosperity, and freedom.
watch the money flow in today
www.ronpaul2008.com not by lobby interests
inspired...not hired
blue dog dem for ron paul
You can chalk up a good percentage of that new credit card debt to energy purchases, especially gasoline. Those households that were already at the brink before gas prices skyrocketed had only their credit cards as a means of paying for it.
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