Today's most important economic news: U.S. household debt fell for the seventh straight quarter in the first three months of 2010 as Americans continued to respond to the recession's fallout.
But like all economic news, its significance depends on where you're standing -- whether you're a typical American or someone at the top.
The common wisdom is that excessive debt-financed spending was one of the causes of the recent recession, so the news that household debt is dropping is being celebrated by business cheerleaders as reason to believe we're on the mend.
Baloney. The reason so many Americans went into such deep debt was because their wages didn't keep up. The median wage (adjusted for inflation) dropped between 2001 and 2007, the last so-called economic expansion. So the only way typical Americans could keep spending at the rate necessary to keep themselves -- and the economy -- going was to borrow, especially against the value of their homes. But that borrowing ended when the housing bubble burst.
So now Americans have no choice but to pare back their debt. That's bad news because consumer spending is 70 percent of the economy. It helps explain why we so few jobs are being created, and why we can't escape the gravitational pull of the Great Recession without far more government spending.
It's also a bad omen for the future. The cheerleaders are saying that for too long American consumers lived beyond their means, so the retrenchment in consumer spending is good for the long-term health of the economy. Wrong again. The problem wasn't that consumers lived beyond their means. It was that their means didn't keep up with what the growing economy was capable of producing at or near full-employment. A larger and larger share of total income went to people at the top.
So in the longer term, it's hard to see where the buying power will come from unless America's vast middle class has more take-home pay. Yet the economy is moving in exactly the opposite direction: Businesses continue to slash payrolls. And the hourly wage of the typical American with a job continues to drop, adjusted for inflation.
Here's more news: A Federal Reserve report Thursday showed the net worth of Americans rose a fourth straight quarter in January-March. Don't be fooled by this one either. That increase was almost entirely based on the stock market's rise in the first quarter. But the market has since fallen back to where it was at the start of the year. More to the point, most Americans don't have many assets in the stock market. To the extent they have any net worth, it's in their homes. And home prices continue to languish.
Don't be fooled by the cheerleaders. The economic news continues to be dismal.
This post originally appeared at RobertReich.org.
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1) "household debt fell for the seventh straight quarter in the first three months of 2010 as Americans continued to respond to the recession's fallout" or maybe because 100's of thousands of Americans are filing bankruptcy every month....
2) "The reason so many Americans went into such deep debt was because" the unsecured debt was used for the black market.... more debt the bigger the bet....
3) "Wrong again. The problem wasn't that consumers lived beyond their means. It was that their means didn't keep up with what the growing economy was capable of producing at or near full-employment." When is the government going to really solve the job crisis and address corporate outsourcing?????
4) "America's vast middle class", the experiment of replacing the middle class with self employed is not working, it may have been possible years ago, but the gov and financial sector shot that to H...
"Federal Reserve report Thursday showed the net worth of Americans rose a fourth straight quarter" what a bunch of bull, report the statistical data used, and hold nothing back... I'm sure we could figure out what used/ undisclosed to reach this statement.
If I was a politician/public servant I would be hiding my face in shame and would be embarrassed to be part of the system that has allowed all this....
And it's in the best interest of the minority rich to see that this system is changed to one that's fairer because if things continue as they are now, the only thing that can follow will be anarchy. If any of them thinks otherwise then they're either not students of history or they don't believe history can repeat itself. Either way, they'd be very wrong and they might realize that too late, just like King Louis of France did long ago, right before he lost his head...... literally.
If Reich wants peoples income to go up, stop increasing taxes and lower them. Suspend income taxes for 2 years, suspend property taxes for 2 years. Many people are being foreclosed because they can't pay or want to pay the property taxes for $400 - $600 per month. If not, sooner or later you run out of billionaires.
Companies will not hire anybody until this administration and progressive democrats are removed from congress. If government continues this anti-business policy, I believe that not only the jobs will be moving overseas but the corporate headquarters will be moving too. Two major corporations have already filed the preliminary papers. Honestly, if you had a business, would you trust this adminstration?
Or is that too simple for progressives to consider.
Jobs have been increasing every month--and employers are hiring again. I see many signs of recovery here in the Chicago area. But confidence is low because employers don't know who to trust--and Reich isn't helping to build confidence. BP has only added to the uncertainty. If we can't trust the Blue Chip industries, who is left? Reich here is only adding fuel to the fire, unfortunately. And he knows it. All economists know that 'perception' is a significant part of economic modeling formulas.
People, quit your bellyaching, roll up your sleeves and stop expecting the government to fix everything! Jeez! Invent your own job, then. Clean houses. Take in laundry. Rent out a room. Grow a garden.
We have the best country in the world, and most of us are going to bed with food in our stomachs tonight--certainly all you who post here. We don't have to worry we will be roused from our beds by machete-wielding rapist rebels. There are business cycles, and we will get through this one, too. Try to be thankful! We are safe, we are fed, we are mostly housed.
Sorry but that's just a bald faced lie. The government creates hundreds of thousands of jobs out of thin air that they say were created but were never actually counted or confirmed to exist. They call this the "birth-death model" This factor alone makes job growth negative. When you consider that 200,000 people enter the workplace in search of jobs, that means even a stagnant number means -200k each month. When you factor in the million+ census workers hired that will be laid off from their temporary job in a couple of months, you are severely negative.
All of this continued job loss doesn't factor the loss of wages and slashing of benefits and hours among those fortunate enough to still have jobs. Nor does this factor the fraudulent accounting practices of the FED and the banks, which will lead to hundreds of billions more write downs in the near future, further depressing the economy.
Blind optimism and hope is just as counterproductive as blind pessimism.
"Clean houses. Take in laundry. Rent out a room. Grow a garden." I hope you have a job because I need you.
That's the only coherent argument democrats have. Neither party should govern. Neither are responsible so their jobs should be eliminated. Reduce their staffs to 5 people. Eliminate redundant departments and agencies and consolidate responsibilities. 400 agencies regulating AIG. That did well, didn't it? 4 agencies approved BP's drilling plans. That did well, didn't it?
BRAVO! Businesses (the corporate oligarchy--the real seat of power in America) continues on with its Pvertyy Engineering program.
"The problem is never how to get new, innovative thoughts into your minds, but, how to get the old ones out." Dee Hock
To illustrate their point, they printed a picture with the article. It showed a 'help wanted' sign on the window of a cell phone store in NY.