Caracas Gringo visited the US twice in late 2009, the first time in September-October, and again since 23 November, traveling across the US Midwest, East Coast and Southeast, visiting old friends in eight states from the Rust Belt to the Sun Belt, from politically liberal “blue” states to conservative “red” states.
Our conclusion: Ignore – indeed, repudiate – Washington’s assurances that the worst economic downturn since the Great Depression is over.
Also, forget the financial “analysis” about the start of a “recovery” currently being served up by practically the entire mainstream financial news media and most leading US economists. No one in this bunch accurately predicted the onset of the worst US economic recession since the Great Depression of 1929-1933. They’re still lost in La-La land.
There are no “green shoots” anywhere in Main Street America where we traveled for ten weeks in total.
The past year’s surge on Wall Street is just another financial bubble created by President Barack Obama when he decided to pack his Cabinet with many of the same bankers responsible for breaking the United States. The New York Times reports that Wall Street’s elites are about to pay themselves the largest bonuses ever for the great results obtained in 2009.
However, out in the real world – in Main Street America – it’s tragically obvious that the US is broken. In every urban and rural community we visited, there are hundreds of signs on front lawns offering homes for sale or rent, countless shuttered strip malls and empty storefronts. It’s not clear where all the bailout money has gone, but it hasn’t reached small business, families and individual taxpayers.
And it’s going to get worse again in 2010. The US economy will sink into recession again this year – economists call it a W-shaped or “double-dip” recession. But a few economists believe that any economic recovery as of 2011 will be L-shaped – think Japan in the 1980s-1990s.
Wall Street is vastly richer at the start of 2010, having enjoyed one of their best years ever in 2009.
But Main Street America is screwed. US employers eliminated 4.2 million jobs in 2009. Unemployment soared into double digits for the first time in over 25 years. The official unemployment rate has been over 10% since last September. But the real unemployment rate – including the under-employed and those who have simply despaired and stopped looking – is over 17% and still rising. The Labor Departmenr reported that 85,000 jobs were eliminated in December 2009, confounding forecasts that only 8,000 jobs would be lost. But even worse, the department reported that 661,000 people dropped out of the labor force – i.e. stopped actively seeking jobs.
Legislators in Washington, DC are out of control. The Democratic congressional majority has been on a yearlong spending orgy that raised the budget deficit in 2009 to $1.4 trillion and the national debt to $12 trillion. But a $1.1 trillion appropriations bill sent to Obama at end-2009 would raise government spending by 12%. The bipartisan Peterson-Pew Commission on Budget Reform and the Committee for a Responsible Federal Budget just published a report – “Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt” – which says that the US national debt increased to 53% of GDP at end-2009 compared with 41% of GDP at end-2008. The report also warns that US government debt will reach 85% of GDP by 2018, 100% by 2022 and 200% in 2038. (Washington Times)
The US declined dramatically in first decade of the 21st Century. The IMF reports that the US share of global economic output fell from 32% of world GDP at the start of the decade to 24% at the end of the decade. Optimists may argue that this reflects how US leadership helped to raise living standards and economic prosperity across the globe – which is true, up to a point. But US unemployment was under 5.5% in 2000 and at the start of 2010 it’s at 10%, while another 7% of the US labor force is underemployed or has simply stopped looking for work. The median income of American families was stagnant during the past decade, but the US national debt doubled.
“The dollar lost half its value against the euro,” says Pat Buchanan. “Beijing holds the mortgage and grows impatient as we endlessly borrow on equity and refuse to begin paying it down. The possibility exists of an eventual run on the dollar or even a US debt default.” Jeffrey Sachs warned during a visit to Bolivia almost 25 years ago, in the mid-1980’s, that someday the US likely could suffer a sovereign debt crisis. No one took him seriously at the time.
Buchanan says, “We did it to ourselves. We believed all that hubristic blather about our being the ‘greatest empire since Rome,’ the ‘indispensable nation’ and ‘unipolar power’ advancing to ‘benevolent global hegemony’ in a series of ‘cakewalk’ wars to ‘end tyranny in our world.’ (But) after a decade of self-delusion and self-indulgence, we must stop deceiving ourselves. As Hurricane Katrina demonstrated, the “can-do” nation that won World War II in Europe and the Pacific in less than four years, that put a man on the moon in the same decade JFK said we would, is history…At the end of the first decade of the 21st century, the question is not whether we will preside over the creation of a New World Order, but whether America’s decline is irreversible.”
John Robb at Global Guerrillas says the “entire system has failed to produce anything resembling improvement in our lives for years: Median male incomes today are the same as they were in 1974 in the US (and likely all over the western world). No progress has been made despite a doubling of productivity and massive top line GDP growth. Worse, given that female incomes aren’t on par with male incomes yet, the typical American family makes much less per hour worked than in 1974. All of the requirements for entry into the middle class are now private expenses. From health care to a college education, if you can’t afford the minimum (let alone high quality versions), you aren’t allowed entry. Worse, those expenses are spiraling out of control at rates many times the rate of inflation. Nothing is being done to address this. The system is geared to make us fail. Not only has outsourcing/off-shoring just started (everything that can be moved offshore to take advantage of the arbitrage opportunity in wage disparities between western and workers in developing countries will be) we are being laden with un-repayable debt. To wit: there’s been NO job growth in the last decade (despite tens of millions in population growth) and total debt from all sources is still near ALL time historical highs. To add insult to injury, efforts to correct any of the above through governmental or regulatory reform have failed miserably (the government and both parties have been captured by transnational business interests): from endless bailouts to industries actually writing the legislation that covers them to guarantee rich profit growth while solving nothing meaningful (as we saw with both the recent health care and finance bills). We are at a dead end.”
At the recent American Economic Association’s yearly gathering in Atlanta, the majority consensus was that US GDP will expand by less than 2% annually over the next ten years. Housing and commercial real estate markets will remain depressed for years to come. US consumers remain heavily indebted. Consumer credit outstanding has fallen from its mid-2008 records, but still stands at some $2.5 trillion, or nearly one-fifth of total yearly spending in the US economy. (Reuters)
US consumers and business bankruptcy filings made 2009 the seventh-worst year on record, with over 1.43 million petitions submitted, up 32% from 2008. There were 116,000 recorded bankruptcies in December 2009, up 22% from the same month a year before. (AP) The Office of Thrift Supervision and the Office of the Comptroller of the Currency reported that for the first quarter ever, the number of homes in foreclosure with mortgages serviced by US national banks and savings and loans surpassed 1 million. The percentage of prime borrowers whose loans were 60 or more days past due doubled from the July-to-September period a year earlier. And over half of all homeowners whose payments had been lowered through modification plans defaulted again. (LA Times)
Former Salvadoran Finance Minister Manuel Hinds says that US banks have been “shirking on their day job of transforming increased deposits into increased private-sector credit. But they haven’t quit entirely, funneling significant new funds into nonbank financial institutions—which have not lent them on.” He also says US banks have behaved “exactly like developing country banks during earlier crises, such as Indonesian banks in the late 1990s—increasing lending to their worst borrowers to keep them alive, lest the banks themselves collapse from their borrowers’ defaults.” For US banks, these “zombie borrowers are their affiliated financial entities set up to manage so-called off-balance-sheet activities—such as the famous SIVs (structured investment vehicles) created by Citigroup and others during the boom. Thus, the massive fiscal and monetary bailouts of the banks have served to worsen the credit misallocation that led to the general economic collapse in 2008.” (International Finance)