Fixing our economy is going to be a long, painful slog. IMHO, anyone who tells you otherwise is engaged in an exercise of wishful thinking. As recent opinion polls have noted, the general consensus among the population is one of hope for the future, but it's combined with acute awareness of pain in the present concurrent with significant apprehension concerning the year ahead.
Putting it as nicely as possible, if I had to use a phrase to describe my thoughts about the current state of the economy, it would be (and there are scores of diaries that I've posted over a lengthy period of time which go into greater detail on this), still: an extremely fragile house of cards.
Today, and along these same lines of thought (again, see farther down, below), Krugman is even more economical with his words, as he describes our present situation as: "grim."
On Saturday, Digby posted a brief diary which discussed current Democratic realities, while speculating about potentially successful, political talking points we should consider (along with talking points that are being considered by our Party, as I write this) to dig our way out of our economically-induced political rut during the 2010 cycle. Check it out here: "Rebranding the Enemy."
Rebranding The Enemy
Saturday, January 02, 2010
From the WaPo, "2010 situation grows more difficult for Democrats."
An already difficult situation for Democrats in Congress is worsening as the 2010 political season opens.
To minimize expected losses in next fall's election, President Barack Obama's party is testing a line of attack that resurrects George W. Bush as a boogeyman and castigates Republicans as cozy with Wall Street.
Back to Digby...
It's not a bad idea. But it would have been a little bit more believable if the Democrats hadn't spent the last year scrupulously "looking forward not backward" and coddling Wall Street and the banksters.
There's another interesting sentence buried well within the WaPo piece...
...The one thing that heartens Democrats is that voters also don't think much of the GOP, which is bleeding backers, lacking a leader and facing a conservative revolt...
I'm reposting a link, right HERE, which I posted above, since it pertains quite precisely to this last quote.
Digby later updated her post with some suggested Democratic talking points from another WaPo piece, the gist of which has been discussed witin this community at length (there are diaries up on the boards right now about these matters, as I post this), by many, including yours truly: "Aughts were a lost decade for U.S. economy, workers."
"Aughts were a lost decade for U.S. economy, workers"
By Neil Irwin
Washington Post Staff Writer
Saturday, January 2, 2010
For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different.
The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation's growth.
It was, according to a wide range of data, a lost decade for American workers. The decade began in a moment of triumphalism -- there was a current of thought among economists in 1999 that recessions were a thing of the past. By the end, there were two, bookends to a debt-driven expansion that was neither robust nor sustainable...
The WaPo's Irwin also reminds us that:
1.) There was zero net job creation since December 1999, with our nation's economic output being the worst since the Great Depression.
2.) Middle-income households made less in 2008, after adjusting for inflation, than they did in 1999, as well. This has probably become even more severe since we've weathered 2009.
3.) American household net worth has declined--again, when adjusted for inflation--compared with sharp increases in every other decade, since they started collecting that data back in the 1950's.
Yes, we have a very, very long way to go (perhaps as much as a decade, based upon the Bureau of Labor Statistics' most recent projections, or more) before we're out of the economic woods. The economy, as Krugman notes below, stands as much of a chance of heading downwards or sideways as it does up, even as we progress through the year ahead.
I truly hope that everyone reading this will, at least, try to heed (or, at least consider) Paul Krugman's advice in his column in Monday's (today's) NY Times. But, to do that, as it relates to the pronounced sentiments of some in this community, you would have to understand and accept that all talk regarding the economy "...brings us to the still grim fundamentals of the economic situation." Those are not my words; this is what the Nobel Prize-winning economist's telling us in his column, today.
Clearly, congressional Wall Street bailout oversight panel chair Elizabeth Warren is of the same mindset. In "AMERICA WITHOUT A MIDDLE CLASS--IT'S NOT AS FAR AWAY AS YOU MIGHT THINK," she points out just how close we are to the abyss.
Today, one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can't make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings, has left family balance sheets upside down, and threatens to put ten million homeowners out on the street.
In these graphics, Warren explains how this crisis started more than a generation ago.
And, via this set of of graphics, Warren explains how, despite millions of families putting a second parent in the workforce, higher costs have outlapped additional income. She notes...
...higher housing and medical costs combined with new expenses for child care, the costs of a second car to get to work and higher taxes combined to squeeze families even harder. Even with two incomes, they tightened their belts. Families today spend less than they did a generation ago on food, clothing, furniture, appliances, and other flexible purchases -- but it hasn't been enough to save them. Today's families have spent all their income, have spent all their savings, and have gone into debt to pay for college, to cover serious medical problems, and just to stay afloat a little while longer.
...now the crisis has swamped millions of middle class families.
So, as I explain above, Krugman's words--combined with Digby's pragmatism--may comprise the most important policy guidance and communications suggestions Democrats should consider as they devise talking points and campaign strategy for the upcoming mid-terms this year: "That 1937 Feeling."
That 1937 Feeling
By Paul Krugman
New York Times
Published Online: January 3, 2010 In Print: January 4, 2010
Here's what's coming in economic news: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary -- and the calls we're already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.
But if those calls are heeded, we'll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened -- and the economy promptly plunged back into the depths.
This shouldn't be happening. Both Ben Bernanke, the Fed chairman, and Christina Romer, who heads President Obama's Council of Economic Advisers, are scholars of the Great Depression. Ms. Romer has warned explicitly against re-enacting the events of 1937. But those who remember the past sometimes repeat it anyway.
As you read the economic news, it will be important to remember, first of all, that blips -- occasional good numbers, signifying nothing -- are common even when the economy is, in fact, mired in a prolonged slump...
Bold type is diarist's emphasis.
Krugman continues on to discuss "statistical illusions," and how they're actually caused by an "inventory bounce." As Krugman tells us, businesses are stuck with large stocks of goods during recessions. They slash production as they work off their inventories. Once the inventories are disposed of production is raised again, and that shows up as a burst of growth in GDP.
BTW, we'll almost certainly see this effect manifested within the Institute for Supply Management's Manufacturing Survey results for December which will be announced early this week. But, again, as Krugman reminds us, it's all an illusion.
He notes that the traditional means by which we've come out of recessions in the past--housing, consumer spending, business investment, exports--are all toast. Housing has massive inventories of foreclosed and soon-to-be-foreclosed properties that haven't even hit the marketplace. Consumer spending is shot. And, with the commercial real estate fiasco just getting started, combined with excess capacity that's at record levels, business investment is going to be next to nil for many years, too. Lastly, as far as exports are concerned (and, remembering that Krugman's expertise is in international trade), Krugman's pointing out that the trade deficit is widening again, and that's due to "China and other surplus countries...refusing to let their currencies adjust."
As Krugman summarizes it, more likely than not, we are not on the road to a sustained recovery. And, his concern is that those that make policy will misinterpret these blips of good news and succumb to the same legislative branch pressure which precipitated the policy mistakes which FDR made in 1937, which then caused a double-dip in the Great Depression.
In fact, Krugman tells us this is already happening. Bernanke-led quantitative easing efforts are coming to an end over the next few weeks. Purchases of mortgage-backed securities by the Fed are now scheduled to come to a grinding halt over the next few months. And, the current stimulus program will peak by mid-year. (Krugman asks: How we can let the stimulus peter out with massive unemployment still in play?) He points out that this all amounts to monetary-tightening.
I'll add to Krugman's list the continued, planned evisceration of consumer credit lines (which are tantamount to monetary-tightening in the view of most economists' mindsets) within the marketplace.
So, what we're ending up with--potentially--is another slow-motion trainwreck playing out before us, just in time for the November elections. As Krugman explains it, in a guestion: Are these folks going to realize all of this before it's too late? In his own words: "If they don't, 2010 will be a year that began in false economic hope and ended in grief."
Looking at all of this from the vantage point of being a lifelong Democrat, I have to ask myself: "What are these folks thinking?"
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