mm289: Recession: Paying the price for letting our power bleed away

MUDGE’S Musings

Distracting as the events of the day can be, when we get right down to it, the dire rumblings of our deteriorating economic state cannot be deflected for long.

Almost official

Last Thursday, our scholarly if modestly effective Chairman of the Federal Reserve, Ben Bernanke, finally said what he’s been hinting at for months: the economy hasn’t seen the floor yet.

yahoonews

Bernanke warns of worsening economy

By MARTIN CRUTSINGER, AP Economics Writer Thu Feb 14, 11:07 PM ET

WASHINGTON – Using words like “sluggish” and “deteriorated,” Federal Reserve Chairman Ben Bernanke gave a starkly pessimistic assessment of the nation’s economy on Thursday and signaled that the Fed will cut interest rate cuts further if needed to combat the adverse effects of a prolonged housing slump and a severe credit crisis.

He stubbornly won’t call this elevator plunge a recession, but his prediction for growth later in the year comes with substantial caveats.

Bernanke said that in his own economic forecast he did not predict a recession but a period of sluggish growth “followed by a somewhat stronger pace of growth starting later this year” as the impacts of the Fed’s rate cuts and the $168 billion economic stimulus package of tax rebates begin to be felt.

However, he also said there were significant downside risks ranging from the threat that the housing slide could become even more severe, the job market could deteriorate more than currently expected or that the credit squeeze will intensify. He said the Fed would be monitoring the economy closely and would “act in a timely manner as needed to support growth and provide adequate insurance against downside risks.”

So, interest rates will plummet further, in an effort to convince lenders to resume lending.

And with all those foreclosures out there, bargains abound.

[Please click the link below for the complete article — but then please come on back!]

Bernanke warns of worsening economy – Yahoo! News

Why now?

Robert Reich, academic and politician (served as Secretary of Labor in the first Clinton administration), wrote last week in the NYTimes a useful explanation for our present crisis, and why the George III $150billion “rebate” is an inadequate fix.

nytimes

Totally Spent

By ROBERT B. REICH |Published: February 13, 2008 |Berkeley, Calif.

WE’RE sliding into recession, or worse, and Washington is turning to the normal remedies for economic downturns. But the normal remedies are not likely to work this time, because this isn’t a normal downturn.

The problem lies deeper. It is the culmination of three decades during which American consumers have spent beyond their means. That era is now coming to an end. Consumers have run out of ways to keep the spending binge going.

The only lasting remedy, other than for Americans to accept a lower standard of living and for businesses to adjust to a smaller economy, is to give middle- and lower-income Americans more buying power — and not just temporarily.

Reich’s key point:

The underlying problem has been building for decades. America’s median hourly wage is barely higher than it was 35 years ago, adjusted for inflation. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. Most of what’s been earned in America since then has gone to the richest 5 percent.

And what the rich spend their money on, remarkably enough, doesn’t stimulate the economy in the way it needs now.

And, he points out that the three ways that American workers compensated for the shortfall have finally come up empty. We sent our wives to work; we work longer hours than most workers in developed countries; we’ve borrowed ourselves into foreclosure.

[Please click the link below for the complete article — but then please come on back!]

Totally Spent – New York Times

He has some useful ideas for stimulating the economy with a larger tax credit for workers at the bottom.

And, Reich concludes, we need stronger unions (ex-Labor secretary, after all), and easier means to create and join them.

Which brings us to…

Unions: the people who brought you weekends

In the course of researching this post, happened on a quirkily interesting blog not previously encountered, The Politics of Debt, a new member of our blogroll2 blogroll.

politicsofdebt

By Franklin in Economics, Economy on February 14th, 2008

… [T]he current extremely low inflation rate, hits Americans much harder than previous higher inflation rates did. Why is that?

The answer is painfully simple, in 1973 24% of the American workers belonged to a Union, in 2006, only 12% did. The numbers among factory workers are even worst, and they dropped from 38.9% in 1973 to 11.7% in 2006.

These numbers count for the increasing gap between the needs and wants of salaried workers and the means to obtain them.

This is based on sound economic principles as follows: The traditional economic theory assumes that salaries will remain high enough for workers to decide to go to work, and if they go too low, workers will refuse to work for that salary. The reality is that for that to actually work you need that the worker has 0 liabilities (no debt), enough savings to endure without work until a better opportunity shows, and there needs to be full employment.

So, with some useful charts and graphs our blogger concludes what Robert Reich does, that our individual bargaining power is nonexistent, and we suffer because of it.

So, to answer the question of why inflation hurts so much, it is because you relinquished your bargaining power when you left the Unions.

You may not like the local chapter of your Union, you may not like traditional Unions at all, but you will have to find a way to increase your bargaining power if you don’t want to lose every chance to realistic well being.

[Please click the link below for the complete article — but then please come on back!]

The Politics of Debt » Why Current Inflation Hurts So Much?

Short term fixes from Washington look good to the folks back home, starved as we are for good news, but they are not nearly enough to prevent 95% of us from sinking to a permanently lower standard of living.

Unrestrained capitalism led to the unions in the first place; of late capitalism has once again been unencumbered, investing its treasure overseas while paying obscene bonuses to its rapacious CEOs.

Will hard times see the rebirth of the moribund American labor movement? Conditions would seem to be pointing there.

It’s it for now. Thanks,

–MUDGE

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