Crab Nebula posted
this diary that contained a link to
a great piece in
Washington Monthly about the economy. The piece details how the current economic recovery has been largely fueled by consumer spending, and how this spending was fueled, not by Bush's measly middle class tax cut (as Bush continues to claim), but, rather by homeowners leveraging the surging equity in their homes through refinancing... essentially using their homes as ATMs.
The problem with a "recovery" like this is that it is not sustainable.
Conversely, I have been hearing stories from friends that suggest we may be in for a fall...
(more)
Here's what I've been hearing from a number of friends who work in real "baseline" industries (commercial real estate development, the food industry, mortgage business):
* Inflation is just around the corner -- Builders are seeing huge increases in the cost of raw materials. Steel and concrete providers are exercising out clauses to renegotiate contracts because their costs have soared. Some friends in the restaurant business have been watching butter and other dairy prices tick up steadily. In fact, one of the largest restaurant groups in Chicago is stockpiling butter as a hedge against what their consultants are predicting will be an enormous price rise in the very near future.
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* Even the Fed cannot hold back a surge in interest rates -- With the federal deficit growing and gobbling up available funds and the trade deficit widening to chasm-like levels -- along with a serious threat of inflation -- interest rates are likely to start a steady tick upwards within the next 60 days... well before the Bush folks want that to happen. Underlying measurements like year-to-year FICA are flat; that is, workers are not making any more money than they were last year at this time. Thus, the theory espoused in the Washington Monthly article seems accurate. Consumers have been borrowing against rising equity in homes while also taking on more credit card debt. All of this points to a recipe for disaster.
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* Job growth is not likely to occur -- With inflation about to rear its ugly head and interest rates on the way up (whether the government likes it or not), we are highly unlikely to see any real job growth. In fact, the economy is more likely to contract. That means fewer jobs, not more jobs.
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* What will the Asians do? -- And this is the real wild card in the whole deal. Right now, our deficit is heavily funded by Pacific Rim countries. If the U.S. economy takes a hit, the world economy takes a hit. And if those supporting our national debt have to call in their chips to cover their own operations back at home, there's no telling what could happen in the U.S. We are in a very precarious situation right now.
I invite dKos posters to submit their own anecdotal insights here regarding what you are seeing either in your business or in your trips to the grocery store (nevermind the gas station).
Thanks.