j***@deutch.nl
2008-11-15 16:26:12 UTC
Our Economy May Be in a Death Spiral -- Will Washington Stop the
Bleeding?
By J Holland, Posted November 15, 2008.
The Bush-Paulson plan isn't doing anything to address the underlying
problems threatening America's economic future.
In September, Treasury Secretary Hank Paulson sold his $700 billion
bailout to Congress on the premise that banks were hoarding money to
prop up their balance sheets and that this was bringing the economy to
a screeching halt.
Paulson has thrown a big chunk of that money at the banks -- all but
$60 billion of the first $350 billion authorized by Congress has been
committed -- and they've started lending to each other. But it has
done virtually nothing to prevent the worst-case economic scenario we
are all worried may come to pass -- a meltdown of the "brick and
mortar" economy -- because the banks still aren't lending to the
general public.
That's not just a result of the banks restricting loans that would
allow businesses to stay afloat, if not expand, and individuals to buy
so much of the stuff that the global economy produces. It's also
because there are fewer American families and businesses that are
credit-worthy.
In the housing market, that's indicated by a drop-off in the number of
new loan applications. Mortgage applications are down by about a third
from this time last year. As economist Dean Baker noted this week, "If
people with good credit were being turned down, we would expect the
number of applications to be rising, as they apply to several banks
before finally finding one that will issue a loan. The fact that
applications are actually declining ... is solid evidence that the
problem is not that otherwise credit-worthy borrowers can't get loans.
The problem is that people are not credit-worthy."
With the housing and financial crises hitting home after the middle
class had already absorbed an almost decade-long pummeling during the
Bush years, the economy is starting to spiral dangerously downward as
a vicious cycle begins to take hold. What started as a housing crisis
that shook the financial system is now hitting all kinds of businesses
hard, and they're shedding jobs at a rapid rate -- over a half-million
were lost in the course of the past two months. And that only tells
part of the story, as official jobless rates don't count the
underemployed or those who have given up trying to land a gig. The
broadest measure of underemployment is now a hair under 12 percent; 1
in 8 American workers aren't getting the number of hours on the job
they need to make ends meet.
Those people aren't spending much. Neither are the rest of us. Even
people who have a safe job fear for their futures, and the belts are
tightening.
With the bottom dropping out of the consumer market -- responsible for
two-thirds of the American economy -- businesses across the board are
feeling a major crunch. Electronic giant Circuit City filed for
bankruptcy this week, a move that came on the heels of bad news from
Neiman Marcus, Starbucks, Gap, Best Buy and Nordstrom that, as the
Washington Post reported, "show consumer spending contracting and
retail revenue shrinking." On Friday, Sun Microsystems announced that
it would slash 6,000 jobs; DHL killed off its U.S. business entirely
this week, sending 10,000 people to the unemployment lines, including
7,000 in the tiny town of Wilmington, Ohio (out of a population of
12,000).
Best Buy's CEO, Brad Anderson, told the <i>Post</i> that recent
economic changes were "seismic" and that the company was facing "the
most difficult climate we've ever seen." The New York Times reports
that America's "buying binge is grinding to a halt."
As profits drop, businesses are expected to lay off even more workers,
which will mean even less consumer spending. Firms are pulling back
across the board. The deflation in real estate values, which began in
residential, is now spreading into the commercial market. Commercial
real estate sales are expected to fall by half from last year's
levels. Already this year, $15 billion worth of planned commercial
real estate projects have been canceled. The Washington Post reported
that "growing layoffs and falling profits mean companies are giving up
office space at rapid rates. Nationwide, more than 19 million square
feet of space -- enough to fill more than 300 football fields -- has
been emptied by office users this year, the most since the months
after the Sept. 11, 2001, attacks."
Bleeding?
By J Holland, Posted November 15, 2008.
The Bush-Paulson plan isn't doing anything to address the underlying
problems threatening America's economic future.
In September, Treasury Secretary Hank Paulson sold his $700 billion
bailout to Congress on the premise that banks were hoarding money to
prop up their balance sheets and that this was bringing the economy to
a screeching halt.
Paulson has thrown a big chunk of that money at the banks -- all but
$60 billion of the first $350 billion authorized by Congress has been
committed -- and they've started lending to each other. But it has
done virtually nothing to prevent the worst-case economic scenario we
are all worried may come to pass -- a meltdown of the "brick and
mortar" economy -- because the banks still aren't lending to the
general public.
That's not just a result of the banks restricting loans that would
allow businesses to stay afloat, if not expand, and individuals to buy
so much of the stuff that the global economy produces. It's also
because there are fewer American families and businesses that are
credit-worthy.
In the housing market, that's indicated by a drop-off in the number of
new loan applications. Mortgage applications are down by about a third
from this time last year. As economist Dean Baker noted this week, "If
people with good credit were being turned down, we would expect the
number of applications to be rising, as they apply to several banks
before finally finding one that will issue a loan. The fact that
applications are actually declining ... is solid evidence that the
problem is not that otherwise credit-worthy borrowers can't get loans.
The problem is that people are not credit-worthy."
With the housing and financial crises hitting home after the middle
class had already absorbed an almost decade-long pummeling during the
Bush years, the economy is starting to spiral dangerously downward as
a vicious cycle begins to take hold. What started as a housing crisis
that shook the financial system is now hitting all kinds of businesses
hard, and they're shedding jobs at a rapid rate -- over a half-million
were lost in the course of the past two months. And that only tells
part of the story, as official jobless rates don't count the
underemployed or those who have given up trying to land a gig. The
broadest measure of underemployment is now a hair under 12 percent; 1
in 8 American workers aren't getting the number of hours on the job
they need to make ends meet.
Those people aren't spending much. Neither are the rest of us. Even
people who have a safe job fear for their futures, and the belts are
tightening.
With the bottom dropping out of the consumer market -- responsible for
two-thirds of the American economy -- businesses across the board are
feeling a major crunch. Electronic giant Circuit City filed for
bankruptcy this week, a move that came on the heels of bad news from
Neiman Marcus, Starbucks, Gap, Best Buy and Nordstrom that, as the
Washington Post reported, "show consumer spending contracting and
retail revenue shrinking." On Friday, Sun Microsystems announced that
it would slash 6,000 jobs; DHL killed off its U.S. business entirely
this week, sending 10,000 people to the unemployment lines, including
7,000 in the tiny town of Wilmington, Ohio (out of a population of
12,000).
Best Buy's CEO, Brad Anderson, told the <i>Post</i> that recent
economic changes were "seismic" and that the company was facing "the
most difficult climate we've ever seen." The New York Times reports
that America's "buying binge is grinding to a halt."
As profits drop, businesses are expected to lay off even more workers,
which will mean even less consumer spending. Firms are pulling back
across the board. The deflation in real estate values, which began in
residential, is now spreading into the commercial market. Commercial
real estate sales are expected to fall by half from last year's
levels. Already this year, $15 billion worth of planned commercial
real estate projects have been canceled. The Washington Post reported
that "growing layoffs and falling profits mean companies are giving up
office space at rapid rates. Nationwide, more than 19 million square
feet of space -- enough to fill more than 300 football fields -- has
been emptied by office users this year, the most since the months
after the Sept. 11, 2001, attacks."