Wednesday, July 30, 2008

Are we currently in a recession? If so, for how long?

Mark Davis of the Kansas City Star offers this answer:
Is this a recession?

"The answer is yes," said Dave Anderson, a money manager at Financial Counselors Inc. in Kansas City.

Anderson cited slowing measures of industrial production and personal income as evidence of decline.

Those measures along with employment and retail sales reports will ultimately drive the official answer, which is dictated by an elite group of economists charged with making recession calls.

Many observers say those who doubt we're in recession simply need to be patient.

"We haven't seen the end of layoffs," Anderson said.

Many job hunters are struggling to find work. [Snip]

Some recession believers suggest these troubling times may prove to be more persistent than the mild recessions in the 1990s and early 2000s.

One key difference is debt, which has exploded in recent years as we tapped credit cards and home equity to sustain our lifestyle.

"The reason this one will be … at least longer lasting is because of all the leverage built into the economy," said Owen McPherson, president of CFW Capital Management Inc. in Prairie Village.

And it's not just the credit cards, subprime mortgages or the ballooning federal deficit. It’s also the nation’s appetite to consume more than it makes.

By importing so much oil, America is transferring its wealth overseas. Essentially, we're spending the national nest egg to keep our cars running.

Higher oil prices along with rising prices for other raw materials also threaten to rekindle the sort of inflation that racked the economy of the 1970s and early 1980s.

In at least one way, economist Peter Morici contends we may be heading toward something akin to the Great Depression.

Morici is not predicting the sort of massive unemployment and deflation that marked the 1930s. But he does believe this sluggish economy won't improve much for a long time.

"The thing about the depression was that no matter what Roosevelt did he couldn't get us out," Morici said. "A series of policy mistakes made it very deep, and then once you were in the funk you couldn't reverse it."
So unemployment is increasing and retail sales are dropping.

Add to this the series of mistakes ( described in
Until America admits that conservative economics has failed, the economy will continue to be bad.
) that brought America to this point. The current and increasing economic problems are a direct result of a lot of bad political management and financial including
  • the politically inspired diversion of the profits of higher productivity to the very wealthy instead of sharing it with labor in the last three decades,

  • The sharply increasing the price of higher education combined with making the higher priced dependent almost entirely on loans which cannot be discharged in bankruptcy,

  • Alan Greenspan's Federal Reserve lowering interest rates so low that savings was discouraged and the Housing Bubble was created in order to allow Bush to be reelected in 2004, then sharply increasing the interest rate right after the election,

  • Bush's tax cuts for the wealthy combined with out of control spending and an unnecessary and badly managed war in Iraq,

  • America's banks pushing for financial deregulation, then upon getting it building a massive financial house of cards based on highly leveraged financial instruments that required constant increases in continuously increasing revenue and profits to avoid failure,

  • The financialization of America's economy in which banking and insurance replace industrial production jobs that build a healthy middle class. The industrial jobs are still being exported by bankers and investors who are searching cheaper labor rather than training and supporting more productive American workers.,

  • The Bush administration replacement of trained and experienced government workers with political cronies who have the right ideological anti-government attitudes, along with the outsourcing of as much of the government as can be done rapidly,

  • The negative leverage caused by increasing debt, especially credit card debt, and

  • All of this combined with increasing demand for foreign oil as the supply ceases to expand - a shortage caused in part because of the refusal of automotive companies to develop higher gas mileage vehicles and the refusal of conservative politicians - both Republican and Democratic - to take actions to prepare for the well-anticipated shortage of oil supply.

  • Add to all this the conservative "No New Taxes" movement which has left us with roads and economic infrastructure that are literally falling apart like the bridge in Minnesota did, and which will require more money over a long period of time before it can be rebuilt. It has also left America with a patchwork health system that increasingly provides inadequate service for those with insurance and leaves nearly 50,000 people of our 330 million people without health insurance, depending at best on the overstressed and shrinking American emergency medicine system.
This is a series of bad management decisions almost all of which came out of the Reagan Revolution and the conservative movement.

The toxic results of the Reagan Revolution took nearly three decades to bring America to this current economic crisis. They won't be reversed soon, even if the obstructionist Republican Senators lose their ability to filibuster any effort solve America's problems by losing their 40 + Senate minority.

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