How Bad Will It Get?

September 3, 2009
The Long Adjustment

How Bad Will It Get?

By MIKE WHITNEY

The U.S. economy is at the beginning of a protracted period of adjustment. The sharp decline in business activity, which began in the summer of 2007, has moderated slightly, but there are few indications that growth will return to pre-crisis levels. Stocks have performed well in the last six months, beating most analysts expectations, but weakness in the underlying economy will continue to crimp demand reducing any chance of a strong rebound. Bankruptcies, delinquencies and defaults are all on the rise, which is pushing down asset prices and increasing unemployment. As joblessness soars, debts pile up, consumer spending slows, and businesses are forced to cut back even further. This is the deflationary spiral Fed chairman Ben Bernanke was hoping to avoid. Surging equities and an impressive "green shoots" public relations campaign have helped to improve consumer confidence, but the hard data conflicts with the optimistic narrative reiterated in the financial media. For the millions of Americans who don't qualify for government bailouts, things have never been worse.

Kevin Harrington, managing director at Clarium Capital Management LLC, summed up the present economic situation in an interview with Bloomberg News: “If we have a recovery at all, it isn’t sustainable. This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later."

Reflecting on the Fed's unwillingness to force banks to report their losses on hard-to-value illiquid assets, Harrington added, “We haven’t fixed the problem. We’ve just slowed down the official recognition of it."

http://www.counterpunch.org/whitney09032009.html

The empty shell of a stock market comprised of companies who's revenues are dependent on consumer spending, but refuse to provide jobs here in the US to support that spending, is beginning to become the nightmare scenario many have predicted since Reagan promoted outsourcing, and Clinton promoted NAFTA.

I am always struggling to craft concise descriptions of our current economic dilemma. This cuts right to the point.

another snip...

The economy cannot recover without a strong consumer. But consumers and households have suffered massive losses and are deeply in debt. Credit lines have been reduced and, for many, the only source of revenue is the weekly paycheck. That means everything must fall within the family budget. The rebuilding of balance sheets will be an ongoing struggle as households try to lower their debt-load through additional cuts to spending. But if wages continue to stagnate and credit dries up, the economy will slip into a semi-permanent state of recession. Washington policymakers--steeped in 30 years of supply side "trickle down" ideology--are not prepared to make the changes required to put the economy on a sound footing. They see the drop in consumption as a temporary blip that can be fixed with low interest rates and fiscal stimulus. They think the economy has just hit a "rough patch" between periods of expansion. But a number of recent surveys indicate that they are mistaken, and that "This time it IS different". Working people have hit-the-wall. Consumers will not be able to lead the way out of the slump.

k&r

There is no natural right or reason for the US to consume around 25% of the world's resources, as it has for years. Eventually, the rest of the world tends to catch up, and the pie can't be made much larger.

We do complain a lot about the loss of good wages, but no one questions how we can mantain wages so far out of line with the rest of the world. Around here we've got cops making over a hundred grand and dockworkers making almost 200 grand. Not too long ago a law achool graduate could walk into a $125,000 job right out of school. The right MBAs did almost as well.

What is the appropriate wage for a systems analyst or freshly minted lawyer-- should it be decided in San Francisco, Tokyo, or New Delhi?

We didn't build our standard of living so much on wages as on credit. Granted, $200,000 dockworkers weren't driving the economy, but an awful lot of people tried to live like they made that kind of money.

And. of course, Plato had it right 2,500 years ago when he said the biggest problem with democracy is that politicians will always be giving public money away, but never send anyone a bill.

So, China and India are forcing some of our wages down, but we still haven't figured out why an American doctor should make at least 30% more than a French one, or just what an American auto mechanic, secretary, or customer service rep should make in a world market.

And we have no idea who is going to get stuck with the bills.

But will American CEO pay go down? :eyes:

My husband was right, when during the Bush years, he stated, "The best way to prepare for future America is to scale back your life style so you can live on an $8 an hour job."

Won't happen either; the wealthy sucking the money and life force out of everyone would lose too much.

the more people who understand how fucked we are, the more pressure there will be for a real solution, no more bankers' games.

The conversion to clean energy will be far more complex than we think it will. It will require more changes to our infrastructure than we can see at this time. An environmentally friendly New York City will not look anything like an environmentally friendly L.A. or Seattle.

They're the ones that are keeping us from doing the things that would save us:

1. Ending the illegal wars
2. Cutting the defense budget in half
3. Making the rich pay their fair share
4. Passing single payer
5. Passing cap and trade
6. Capping executive salary
7. Ending corporate welfare and tax loopholes

The list goes on but the point is, if we didn't have repukes, we would be able to turn this economy and our society around.

the House, the Senate and the Administration. All this time it's been the repukes.....no shit, who knew.:sarcasm: