U.S. 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.

Comments

[ctom]

Let the economy run its course. Sooner it bottoms, the faster it rebounds. I'd hate to see tax dollars used to bail out investors who rightly deserve to lose for making the wrong bet. As for lenders, the same applies. For down and out homeowners....now that at least looks like helping out a friend. Perhaps reamortized loans for single-home owners but screw the rest (they could afford it).

[joebhed]

"We are facing the prospect of millions losing their homes, their jobs, their retirement savings, their health insurance, and their livelihoods."

Ummmm, that is not a prospect. That is a fer-sure.

The question is, what are the bankers facing?
An increase in the price of milk? That's rough.

Now, y'all remember the business cycle, don't you?
This here is part of the business cycle known as the downturn.
This here is an economic contraction.
That's the wealth-grabbing part of the capitalist business cycle.

Your house?
Your job?
Your health insurance?
Sorry, we're in a downturn, folks.
Gotta grin and bear it for a few years.
The kids didn't need college anyway.
They can go nanny for some Saudi prince, or answer the door at the banker's estate.

Or, let's have a friggin revolution, and make sure this shit never happens again.
No guns.
The pen IS mightier than the sword.

Abolish the Un-Constitutional right of private bankers to create the nation's money.
Abolish the fractional-reserve banking system, where ALL new money, every year, is created as debt, payable by the taxpayers, in triplicate.
Payable with new debt.
Payable in triplicate.
Et cetera.

[scubafox]

Weisbrot writes, "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."

This is sadly mistaken. The rate growth of goods exports has NOT increased. It has fallen. Services exports did increase as the U.S. has a services surplus. What's happened is that the growth of goods imports has decreased rapidly as the U.S. economy has begun to collapse. And the dollar's decline IS bad economic news because it represents, like inflation, a theft from everyone who holds dollars. See "Trade Truth #2: The Dollar & The Deficit" at
http://www.exponentialimprovement.com/cms/dollanddef.shtml

[dadw5boys]

Read this before you miss the change too.

http://www.huffingtonpost.com/raymond-j-learsy/the-oil-industry-is-drivi_b_19671.html

[swift goat pet for truth]

Thank goodness Congress, in a bi-partisan mood, made it really hard for the middle class to declare bankruptcy. Now big corps have more legal muscle to squeeze blood out from the middle class turnips.

Thank goodness SOME ONE is watching out for multi-billion dollar multi-national corporations.

[Cathexis]

They cling to semantics because they have nothing else -- a recession has not been *officially* declared, so they continue to assert that we are not in one. This allow sthem to conveniently ignore the abyssmal conditions and the fact that recessions are always declared *after the fact* -- and the period we've been in will certainly be declared so, in the future.

But, as usual, use of the literal meanings over the reality still constitutes misrepresentation (also referred to as "lying").

[outnow]

They don't burn books, they cook 'em. The US does not have a manufacturing base. We will have to make it in finance. Guess what"? It ain't working for mos Americans. The US has been made into a Banana Republic by the Bush Junta. Your kids will pay the price.

[JBS]

If you're in finance, you ain't "making" nothin'.

Better find some way to rebuild a U.S. manufacturing base, because the day is coming soon when other countries are going to stop accepting U.S IOUs instead of real money, and there ain't gonna' be no more cheap imports.

[dadw5boys]

BUSH LIED WHEN HE SAID GO BUY SOMETHING!!!!!!

DEMAND FORCES PRICES HIGHER.

SAVE!!!!

[WorkingClass]

"The first quarter of 2008 came in at 0.6 percent"...............

I would bet my life against your stimulus check that this is a lie. Just like the lying generals on your teevee.

[Cathexis]

Amazing how so many of these figures get quietly "re-adjusted down" some time after the initial big announcement of "See? We missed the bullet!"

[WIpatriot]

All brought to you by the Ministry of Lying Statistics.

[magen]

Wouldn't simply stopping the bleeding of dollars to the ridiculous Iraq war so it could be used to help Americans in financial trouble fix this??????????????

Why is Iraq's infrastructure and security more important to republiCONS than America's??????????

If it was up to me, I wouldn't send another effin penny to Iraq to be squandered by contractors and the illegitimate "government" of Iraq who only have incentives to keep the war going so more of our taxpayer dollars get wasted on them.

[BrighterStar]

The reason the economy might get worse is because the price of oil keeps going up. And oil keeps going up because Democrats have had a concentrated effort to limit the amount of oil exploited in this country. In this election we will see if the democrats can get away will instituting policies that hurt the economy and them blaming the Republicans for the damage. God help us all if they get away with it.

[Robert59]

Not quite the truth. Florida, under Jeb Bush, cried foul when there was discussion about drilling offshore. Alabama sang the same song. Both are RED states. ANWR is opposed by lots, not just for environmental reasons, but for the way it's been used to perpetuate a lie. Drilling there is no panacea.

We might get the oil in 10 years. The yield, 16 billion barrels. Not enough to sustain us for two years. Most expect a flow of 1 million BBLs per day. What they don't talk about is whether it adds to the 5 million BBLs per day already in production or makes up for decline.

Since the price is tied to futures and the future supply is fret with uncertainty due to WAR, put the blame where it lies, on the Republicans. Get out a piece of paper and build a graph. The invasion of Iraq started the climb and has kept it climbing.

[therealredstateblues]

If everyone simply had their tires inflated properly and autos properly maintained we sould save an Anwr's worth of oil every month.

Dtilling more oil is not the way out of this problem. increased efficiency and alternative energies are. If we had implemented these things that carter proposed in the 70's just think how far ahead of the game we would be now.

Most of Alaska's oil gets sold to Asia anyway

[dadw5boys]

One thing you should have learned when a Republican crys foul they do it to say " HEY WHATS IN THIS FOR ME IF I VOTE FOR IT". WHERE IS MY PAYOFF IN OTHER WORDS.

[therealredstateblues]

Oil prices are rising primarily because of dollar devaluation making imports more expensive, instability in major oil producing regions and specualtion. The dollar devaluation and inflation of commodity prices and specualtion are directly related to the Fed policies of too cheap and easy credit and artifiicially low interest.

There is also increased worldwide pressure on supply from the pro global neoliberal/neoconservative trade policies - its a "well, duh!" that as we sent industry and infrastructure to the the third world and communist china that their demand for oil would increase

[bgregs]

How about the reason that oil is going up is because the oil companies are gouging the hell out of us, because they know that the president won't do anything to slow or stop the gouging!

[spencer628]

the oil companies might be making money but the price of oil is going up because of the weak dollar, demand in india and china, and the lack of refining capacity in the US. If you think the oil companies have something to do with the price going up your just as nuts as BrightStar. He/she thinks that if we would only drill in the US the price of oil would go down.

http://www.chron.com/disp/story.mpl/business/5796276.html

if we started drilling in Anwar the price of oil would rop 75 cents.

[StinkyPete]

Something new is at work here -

Part 1

http://tinyurl.com/5xhx2w

Part 2

http://tinyurl.com/4hcghm

An opinion by George Soros

http://tinyurl.com/58m3yh

[StinkyPete]

The German government seems to have caught on -

http://tinyurl.com/52uear

Our candidates have been very, very quiet about the problem. One claims it is a taxation problem, another claiming that viewing it as a taxation problem is the same old politics - without offering any thing else as an improvement. The third seems to be unaware of the problem.

[JBS]

Well, I found out today how my "stimulus" is gonna' be spent.

The VA took it.

[Henry]

Social health care goes a long ways to adjusty the economic ails of the country. The strange thing is that this will prove more efficient. Imagine a small business with no requirement to provide health care for its workers. Strange how collectively stupid we are.

[Robert59]

It's one of many steps we need to take. I wonder what health care will really cost when it's available to all Americans. I think we'll be surprised at how much we've been overcharged. All I know is those French and Canadians seem happy with their health care, both as providers and as recipients.

[RoloTomassi]

I saw a PBS program on Harry Truman the other night, and I was struck by the similarity of the times and the situations; Truman tried to push through more keynesian programs and a much broader social safety net for all Americans [including a UHC program, during a period of time when many European countries were doing the same].

Truman decried the Republican efforts to strip away the corporate and financial regulations put in place by FDR, and predicted that we would return to steep boom/bust cycles [as in the Great Depression] if capitalistism wasn't adequately regulated.

Apparently Harry was on to something; predictably, the Republicans have sunk us into difficulty after difficulty with their Fuedalist mentality and insistance on unregulated trade.

We have been our own worst enemies on this issue, and we will be fooled again if we do not go to extreme measures to prevent the means of this travesty.

[Robert59]

When you're right you're right. This downturn is in its infancy. Wait until next year when the second wave of home defaults hit. Gas prices staying in the 4 to 5 dollar range will have an impact as they will alter consumer behavior. Less consumption which is the real driver of the economy. Spending on the Iraq War will drag the dollar down as will the continued bailout of the housing industry and another economic stimulus package aimed at taxpayers.

We're in for a very hard landing. We're a resilient people and we'll recover but it will be painful and in the end we're going to be living in a very different America. Not all of it will be bad. There will be a reverse flow of people from the suburbs to the cities. Vacations won't be cross country or overseas, but close by. People will use public transportation, car pool, and go hybrid or all electric.

We'll enter a period of isolationism, focusing on fixing and upgrading our infrastructure creating an America very different from the current one.

[mcthorogood]

And UnbiasView will watch less sports on cable TV. Sorry, inside joke.

[KillTheMessenger]

I would like to suggest that instead of "restarting the US economy", we should be talking about "rebuilding the US economy". We do not need more of the same. Instead we need something else: an economy that strives towards sustainability and equalizes the crassest differences between the poor and the rich. That's a significantly harder task and can not be undertaken by the designers of the old economy who failed to even make their own brainchild run without periodic meltdowns.

[JimR]

Agreed. And we need an economy that encourages and supports small business.

[therealredstateblues]

The most effective and lasting stimulous would be infrastructure rebuilding - the electrical grid, roads bridges, high speed rail, updated air traffic control ,alternative energies, reinvigorating our manufacturing base

This would also be the way to more fairly share propserity