NY Times: Uncomfortable Answers to Economic Questions

Uncomfortable Answers to Economic Questions
By PETER S. GOODMAN
Published: July 19, 2008


You have heard that Fannie and Freddie, their gentle names notwithstanding, may cripple the financial system without a large infusion of taxpayer money. You have gleaned that jobs are disappearing, housing prices are plummeting, and paychecks are effectively shrinking as food and energy prices soar. You have noted the disturbing talk of crisis hovering over Wall Street.

Something has clearly gone wrong with the economy. But how bad are things, really? And how bad might they get before better days return? Even to many economists who recently thought the gloom was overblown, the situation looks grim. The economy is in the midst of a very rough patch. The worst is probably still ahead.

Job losses will probably accelerate through this year and into 2009, and the job market will probably stay weak even longer. Home prices will probably keep falling, shrinking household wealth and eroding spending power.

“The open question is whether we’re in for a bad couple of years, or a bad decade,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund, now a professor at Harvard.

Is this a recession?

Officially, no. The economy is not in recession until a panel at a private institution called the National Bureau of Economic Research says so. Unofficially, many economists think a recession started six or seven months ago, even as the economy has continued to expand — albeit at a tepid pace.

Many assume that if the economy expands at all, then it isn’t a recession, but that’s not true. The bureau defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months.” If enough people lose their jobs, factories stop making things, stores stop selling things, and less money lands in people’s pockets, it is probably a recession.

Whatever it is called, it is a painful time for tens of millions of people. Indeed, this may turn out to be the most wrenching downturn since the two recessions in the early 1980s; almost surely worse than the recession that ended the technology bubble at the beginning of this decade; perhaps worse than the downturn of the early 1990s that followed the last dip in real estate prices. ...........(more)

The complete piece is at: http://www.nytimes.com/2008/07/19/business/economy/19econ.html?_r=2&hp=&adxnnl=1&oref=slogin&adxnnlx=1216492227-f8h3eI6wTNidCNd4stZeTw&oref=slogin

"Home prices will probably keep falling, shrinking household wealth and eroding spending power."
-- a fair amount of the illusory 'growth' since the dot.com collapse in 2001 was consumer spending fueled by paper issued on home equity. That was an insane way to finance spending. A more serious question is what will happen to all those equity financed consumers forced to pay their burn rate on their actual income. The MBNA bankruptcy bill may go down as one of the most corrupt and criminal pieces of legislation ever put through our Corporate Congress.

It screamed George Dubya Bush asleep at the wheel of the car. :eyes:

If ever there was conformation that capitalism doesn't work for workers is the recent government resort to welfare checks. They were called "stimulus" checks. But they were, in fact, welfare checks.