Economics 11/26/2009

• RGE – A Tale of Two American Economies

  tags: Economics

  • The story of the U.S. is, indeed, one of two economies. There is a
    
    smaller one that is slowly recovering and a larger one that is still in
    
    a deep and persistent downturn.
  • Many of the lost jobs – in construction, finance, and outsourced
    
    manufacturing and services – are gone forever, and recent studies
    
    suggest that a quarter of U.S. jobs can be fully outsourced over time
    
    to other countries.
  • And the credit crunch for
    
    non-investment-grade firms and smaller firms, which rely mostly on
    
    access to bank loans rather than capital markets, is still severe.
  • Larger firms – even those with large debt problems – can refinance
    
    their excessive liabilities in or out of court, but an unprecedented
    
    number of small businesses are going bankrupt. The same holds for
    
    households, with millions of weaker and poorer borrowers defaulting on
    
    mortgages, credit cards, auto loans, student loans and other consumer
    
    credit.

  • With
    
    the stock market rising and home prices still falling, the wealthy are
    
    becoming richer, while the middle class and the poor – whose main
    
    wealth is a house rather than equities – are becoming poorer and being
    
    saddled with an unsustainable debt burden.

    So, while the United States may technically be close to the end of a
    
    severe recession, most of America is facing a near-depression. Little
    
    wonder, then, that few Americans believe that what walks like a duck
    
    and quacks like a duck is actually the phoenix of recovery.

• RGE – The Worst is yet to Come: Unemployed Americans Should Hunker Down for More Job Losses

  tags: Economics

  • Also, remember: The last recession ended in November
    
    2001, but job losses continued for more than a year and half until June
    
    of 2003; ditto for the 1990-91 recession.

    So we can expect that
    
    job losses will continue until the end of 2010 at the earliest. In
    
    other words, if you are unemployed and looking for work and just
    
    waiting for the economy to turn the corner, you had better hunker down.
    
    All the economic numbers suggest this will take a while. The jobs just
    
    are not coming back.

  • As a
    
    result of these terribly weak labor markets, we can expect weak
    
    recovery of consumption and economic growth; larger budget deficits;
    
    greater delinquencies in residential and commercial real estate and
    
    greater fall in home and commercial real estate prices; greater losses
    
    for banks and financial institutions on residential and commercial real
    
    estate mortgages, and in credit cards, auto loans and student loans and
    
    thus a greater rate of failures of banks; and greater protectionist
    
    pressures.

    The damage will be extensive and severe unless bold policy action is undertaken now.

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