As the (vastly underestimated) unemployment rate rises, retails sales disappoint, home sales continue to sink, the stock market takes another tumble, and the nation's top banks and mortgage lenders huddle together against the storm, economists have only one question: are we heading for recession, or are we already there.
The formal recognition of a start of a recession probably wouldn't come for at least six months if not more than a year, as official judges from the National Bureau of Economic Research (NBER) pour through various economic readings.
But top economists from two of the major Wall Street firms - Merrill Lynch and Goldman Sachs - say recession is likely already here.
Now or six months from now, there's little doubt that US economy has run out of steam, and unlike recent recessions, economists fear that we're going to be a long time recovering from this slump. Why? Because we've taken all the elastic out of the system.
- The conservative "shower the rich with gifts" strategy has drained the surplus and replaced it with a massive debt, while providing the middle class with no additional funds with which to build up a buffer against disaster.
- The "mystical magical invisible hand of greed will fix everything" conservative approach to the markets has allowed the housing market to devolve into a quivering mess, wrecking the investments of those who played it safe right along with those who gambled and lost.
- The "shop if you love your country" conservative philosophy has encouraged a negative savings rate, that leaves families, stores, and financial institutions all waving their arms at the brink of a cliff.
- The "preemptive strategy" of the neocons has ensured that the sands of Iraq have soaked up American dollars along with American and Iraqi blood. Funds that could be going to help US workers, are instead being spent paying mercenaries and bribing insurgents.
- The conservative "borrow against the future to satisfy my greed today" strategy has left international investors none too keen on the future of the US dollar, making our currency about as popular and stable as marks from the Weimar Republic.
With our treasury looted so completely that echoes and spider webs are all that remain, what can we do about it? Don't expect much movement from Bush. He's still busy
praising the wonderful state of our economy and has nothing to propose
except giving
more money to the rich and rewarding the people who have screwed up the fiscal markets with
less regulation.
Both "solutions," however, are largely responsible for the deteriorating macroeconomic situation we now face. A variety of economic indicators point to a serious economic downturn this year that will not be reversed by the same old conservative platitudes about tax cuts and financial deregulation.
Don't expect a lot from the Republican's sleepy-time front runner, John McCain, who expects the Fed to handle that nasty economy, so he can get back to his morning Farina.
The Republican candidates do seem to realize that the fog of Reaganomics is looking awfully tattered in the light of day. In response, they've generated a flood of generic mock populism -- when not debating on Fox. Unfortunately, when pressed for details, the Republicans have little to offer but more of what Bush has already delievered -- oh, and Huck's 30% sales tax (that's sure to get the economy humming).
The next president will inherit from the Republicans a nation at war, a government in horrendous debt, and an economy in shambles. Makes you wonder why so many people seem to want the job.
There are several things to watch out for as the candidates on both sides roll out their proposals for goosing the economy out of decline. First, this really is Stupid's economy. Applying more of what Bush has done so far -- shifting money to the top, tax burden to the middle, debt to the future, and regulatory responsibility to nowhere -- is certain to make things worse not better. Yes, small, targeted tax cuts aimed at the working class will likely have a stimulative effect. Extending Bush's tax cuts will not help at all in the short term, and will only increase the damage in the long term.
On the Democratic side, it would be terrific to see candidates whose solution doesn't begin and end with the phrase "tax cuts." It would also be nice to see one that wasn't made up of one time expenditures that left the basic problems in place. The stimulus effort that have worked best in the past involved a good injection of funds into public projects and into areas of the economy that could help reverse the downward slide. Tax cuts don't help if you're not making any money to be taxed on in the first place. Jobs help. Education helps.
A really smart candidate could even look at this economic downturn as an opportunity. This is a clear signal that the path we've been on for the last several years was a path to worse than nowhere. A stimulus packet that included a serious press for changes in energy policy could open the US to simultaneously create new jobs, improve the environment, and improve national security. Change has been on the tongue of every candidate. Changing the way out energy picture works has been a part of every stump speech. A need for change in our economic direction is becoming ever more obvious. Now, which candidate is smart enough to put it all together?