By now you know the gist of it: Bush turned our surplus into a horrendous debt. To pay for the Republican spending spree, we have relied on foreign (especially Chinese) purchases of U.S. Treasury bills. The interest we pay greatly exceeds the cost of the Iraq war. Yet dollar depreciation has far outpaced the interest rate, which means that China has taken a bath. Nevertheless, the Chinese continue (at a slower rate) to buy T-Bills in order to prop up the American economy; otherwise, we might not purchase so many Chinese products or outsource our jobs to that country.
Thanks to "free trade," America no longer makes much of anything. For the longest time, Americans thought they could get rich by selling each other houses. The result was an ultra-cruel variant of tulip mania, which may end in mass foreclosures, sky-high rents and epic homelessness. The unpayable mortgages are held in part by companies in which our foreign "saviors" have invested. Thus, our coming recession may take the rest of the world sailing down the drain with us.
The current state of the US economy, says Klaus Kaldemorgen, the head of Germany's largest mutual fund company, DWS, reminds him of Japan in the early 1990s, when it slid into a recession lasting more than a decade. "In truth, America will have to sink even lower than that," says American economist Michael Burda of the Humboldt University in Berlin. "The country is in a serious dilemma. I expect a deep recession."The underlying cause is income inequality, which has increased at a frightening rate since Reagan's election. We've used an array of clever financial tricks to hide from ourselves the truth of our impoverishment. If your credit limit keeps expanding, you can maintain the illusion of a middle-class lifestyle -- for a while. The mortgage crisis really comes down to just that. Sub-prime borrowers would not be sub-prime borrowers if labor received a fair wage.
During Bush's term in office, the national debt has climbed to more than $9 trillion. The US president has turned the $236 billion budget surplus he inherited in 2000 into a deficit now approaching $250 billion. And at close to $760 billion, the balance of trade deficit makes up more than 6.5 percent of the US gross domestic product (GDP). "If the crisis continues well into the coming year," says Burda, "it may very well assume proportions like the worldwide depression in the 1930s."
These events should be read in conjunction with this Kos entry: "Could the 2008 Election be Like the 1932 Election?"
Whereas some experts might look at the historical record and expect a swing back against the Democrats or at least no major gains in 2008, I think the historical record suggests it’s more likely that 2006 was simply the first stage of at least a two-stage major Congressional realignment, especially since in 2006 the Republicans were protecting few open seats, but retirements are leaving competitive GOP-held seats without an incumbent.Can you spot the major problem with this parallel?
In 1932, Hoover had done his ineffectual best against an unfolding economic disaster for nearly four years. FDR was seen as the guy hired to clean up the previous fellow's mess.
Today, the hard times have yet to hit; Republican propagandists can still get away with saying that things are fine. Recession will hit -- on the next president's watch.
If that next president is a Democrat, cable news and the radio rightists will instruct the populace to blame liberalism and a progressive tax rate. They will blare that message every hour of every day. Progressive media voices will not defend a Democratic administration because the left always prefers the "circular firing squad" approach. We all know how the "liberal" media treated Clinton and Gore.
If the Dems win in 2008, a new administration may get away with blaming Bush throughout that year. That tactic will stop working in 2009. Yet Dubya's mismanagement has created a catastrophe which may take a decade to reverse.
Fixing the problem will require freeing the American mind from the thrall of Milton Friedmanism. CEOs will have to accept sharp pay cuts and tax hikes.
I just don't see those things happening.
The American fascist movement was strong in the 1930s -- stronger than most now know. FDR believed that he might well be the last president. If a Democratic administration and Congress cannot fix what Bush broke, if both parties become (fairly or unfairly) discredited, if the stigma of a lost war unsettles our national sense of identity, and if anti-war vets morph (as they surely will) into stab-in-the-back theorists -- where will Americans turn then?
Instead of looking to 1932 in America, perhaps we should glance at 1933 in Germany. What's past is future.
10 comments:
You may be right but I want to be hopeful, so I'll reject your prognosis and offer some hope. The recession has been with us but not felt as such because the layoffs happen to the outsourced jobs first. Fuel oil costing over $90/bbl means it's cost-effective to invest in synthetic fuels, which will allow us to realign our foreign policies. The weakened and fallen dollar will mean that US-made cars & SUVs are much cheaper than the cars traded in yen or euros.
Our main supplier of crude oil is still Saudi Arabia, but our next main supplier of fuel oil is Canada, who supplies us with more of it (mined bitumen from sand tar) than all the other Middle East states combined. Soon we will exploit the Rocky Mountain states and be self-sufficient for a decade or so, if we can figure out how to avoid the dire pollution. And if the US auto industry recaptures the US market, it's possible that steel manufacturing will renew itself here since it will again be profitable. The steel industry closed down for 3 reasons: it couldn't afford to meet the unions' demands; it couldn't compete with foreign steel prices; and it wouldn't invest in its own infrastructure (all steel plants were along rivers whose banks were eroding ever closer to the physical plants; re-tooling for modernization wasn't cost-effective; EPA standards were cost disincentives).
Eliminating trans fats will mean a recession in the margarine business across the board, but it will save $$$ in medical costs everywhere. The stem-cell breakthroughs reported in the news recently will save hundreds of billions of $$, starting as soon as the uncomplicated and cheap treatments begin, although Big Pharma will suffer a recession, while Dick Cheney will recover fully and announce his candidacy for President.
Hmmmm.
Interesting. Say more about FDR's fears, would you (for the ankle-biters)?
jen, I was rather hoping someone wouldn't ask me that.
Not long ago, I read an account of an exchange with FDR. One of his aides or associates told him "Sir, I think you will go down as our greatest president."
And Roosevelt answered "One thing is for sure. If I don't succeed, I'll be the last."
But...I don't recall where I read it!
So why WON'T you write for the blog, Jen?
And doc e, if you're reading this...jump back in any time! I think you'd be more popular than I am.
Joseph,
Several points to finesse what is essentially broad agreement.
1) Not sky-high rents. If anything rents are likely to be coming down. That doesnt make them affordable of course.
2) I recently had some meetings in Washington with officials. Terror wouldnt be quite the word, but certainly I could have sworn I saw what looked for all the world like horror. There seemed to be a growing realisation of what the likely future was and it is not pretty. Of course interest rates will come down, but they are only just starting to understand that the problem with the banks is not really one of their typical wolf-crying exercise.
3) Politically, watching this from overseas is facinating. Someone seems to have persuaded your working classes, and lower middle classes that they are poor because of Mexicans. Immigration will be blamed and it looks increasingly like this is how the Republicans will fight this election. However blocking immigration will massively damage the US and particularly the real estate and corporate sectors. Demographics will be critical going forward, and having a large number of young poor immigrants work for you could be the difference between a competitive and uncompetitive US. The "evil doers" who are pushing the "blame immigration" line for working class hardship are trying to push attention away from income inequality as an issue, and the moronic and partisan tax policies of the recent past.
Its all so depressing.
H
The profound progressive Joe Cannon has nailed the problem that shallow liberals won't talk about until it's too late. We'd better talk about it now, and not wait for a George W. Bush clone to win the White House in 2012 and end democracy altogether in this country.
Is it better for the Democratic Party to lose the 2008 Presidential election so as not to get blamed for the coming crash? Would a Democratic Congress still receive the blame for having "obstructed" President Huckabee's program?
Let's talk about this, now, before it's too late.
AitchD, your analysis has several flaws. First, the fact that the dollar’s value has fallen will NOT make those cars ‘cheaper’ in the US; it’ll make them cheaper abroad. This does not help us here, except that it might increase exports, but that’s not likely given the added cost of lower overall value (e.g., design, engineering, dependability, etc.).
Proposing that we’ll exploit oil from the Rockies seems wrong-headed as a priority over dealing with pollution, or even alternative fuels. Granted this is what we can expect from the short-sighted greedy energy corporations, though obviously not what will work to our advantage.
I would add a fourth reason for the demise of the steel industry, and that is the outrageously exorbitant salaries of management (I personally know one; trust me, OUTRGEOUS!). And this last point applies to the demise of several companies and industries, boiling down to greed yet again. Had the bosses of the steel industry had even the slightest consideration for anyone but each their respective selves, they would have given up salary to fix the problems. And there was enough of that money to solve those problems.
And Joe, astute and on the ‘money’ (pun intended), as usual! I agree, Jen would be a terrific addition, and I’m working on getting back into the fray soon, though every time I think I have things at a manageable level, something rears its ugly head. Life is just way too much with us, no? Often I feel like Lucille Ball trying to keep up with the chocolate pastry production belt!
A few quick points on the main post:
First, this issue has been very large on my radar for a long while. We’re so definitely heading for a deep recession, you can smell it. And I would not be the least bit surprised with a depression to dwarf The Big One. Though folks love to claim there are too many federal stop-gaps in place to allow for that, I can only laugh; the Republicans have been about the business of dismantling those since before Reagan, but with a vengeance since then, and just flat out brazenly with Bush. Add to that the OUTRAGEOUS spending of these bushy idiots, and what you have is less a freefall than nosedive initiated by one of those infamous defenestration spy ‘suicides’.
Second, I totally agree that the Dems are heading for a proverbial setup of trainwreck proportions if they don’t take this tiger by the tail. It would be to their great advantage to milk the situation for all it’s worth, using it as an opportunity for exposing the truth of our economic woes and for educating the public about what’s been behind this mudslide toward disaster that’s been sold as ‘trickle down economics’.
And there are numerous points on which these issues could be hammered home successfully. Edwards has started the movement by focusing on poverty, but he would do well to stress the fact that ALL of us – except the super rich – are flirting with poverty now. All of us have to work harder to achieve less financially than we did just over fifteen years ago when Bush’s father had sent us into a slightly tamer version of where we are now. And it’s such a vicious cycle, needing to work more and harder requires more of the gadgets and amenities that cost more, and so on. When a candidate is willing to show the courage it will take to address the unbridled consumer mentality that has contributed so much to our American zeitgeist, yet clearly now our demise, we’ll be looking at a true leader. (Carter really tried, but he was mercilessly derided by the ‘liberal’ media.)
Which brings us to that point in your post. Yeah, the media, holding such vast and ruthless interest in maintaining this whole status-quo scenario, will clearly kill any such virtuous messengers, pronto. The only good news on that front is that, right now at least, the public is pretty skeptical. The fact that a full 99% of the public response to the FCC’s 2003 attempt to roll back media ownership rules is a remarkable testament to just how savvy the public has become on this issue. Not to suggest that they’re immune to the powers of media persuasion, but currently there is a reasonable amount of skepticism. How else can we explain the stunning rejection of the war etc. despite all the media neutrality at best and support at its worst?
Also, any candidate taking on this necessary leadership role – necessary for saving the democracy, in that FDR quote sense – will also need to get very aggressive with the cause of the problem, namely unbridled corporate power. Someone needs to stand up and remind the world that Adam Smith himself recognized the need for governmental constraints on the ‘free’ market, lest it unleash rampant greed (I’ll have to find that quote, but it’s in Wealth of Nations). Someone needs to stand up and drive home the fact that all the rhetoric and propaganda and fearmongering about a ‘welfare state’ is simply feeding the greed of the mega-wealthy. Someone needs to stand up and make this the fiery issue of the day, that corporate greed and corruption have ruined this country, and that this greed is inextricably linked to this godforsaken war, not to mention the godforsaken push to expand it to Iran and beyond.
Someone needs to stand up and shout that this greed is NOT what America is about, that we have always been at our best when we recognized the radically LIBERAL concepts that we are only as strong as the weakest among us, and that we are only as good as our willingness to help even the weakest among us. That, my friends, is the ONLY trickle-down economy that makes any sense to me, that means anything to me, as an American.
In my humble opinion, whosoever makes this the foundation of their political platform will win by an enormous landslide next year. The message needs to focus specifically and relentlessly on this overarching point, and this point only: Every single woe we can speak to at this moment in our history – from our invasion and occupation of Iraq to the devastation of our once strong economy, and all the destruction of our diplomatic standing and relations in the world, the environment, the Constitution, and sense of national unity that swirls around those inherently coupled issues – comes back to the corrosive agenda of unbridled corporate power.
There are two several very encouraging moves in play right now that give some reason for hope along these lines. You express your concern that CEOs will never give up their tax breaks or high salaries, and with the Repugs dominating the rhetoric these days, I can understand why. However, that rhetoric rings exceedingly hollow in the ears of John Q. Public; more and more folks are staring welfare lines right in the face, not to mention the homelessness you note, and it doesn’t take a rocket scientist to make the obvious comparison of have’s and have not’s.
The comparisons to the Depression years are a bit harder to make to the uneducated public, but not impossible. I am dying to see someone do a bangup remake of Grapes of Wrath to drive the points home (what a courageous creation that was; more on it soon). Still, those comparisons are not impossible to make; try pithy points that simply list the parallels, because the disparity between wealthy and poor is not the only one. For starters, again pointing out the outrageous exploitation of corporate power as the culprit, again; it all comes down to greed. Greed and fear.
Another source for these comparisons comes from two Naomi’s, Klein and Wolfe. These two gorgeous and brave women are coming at the same issues from only slightly different angles, angles that are parallel but importantly complimentary. Klein’s recognition of the historical evolution of the Shock Doctrine, a la Milton Friedman himself, exposes how the greedy and powerful have actively worked to keep economies (that would serve their plundering and looting agenda) under control, economies that now include our own. Wolfe’s contribution looks directly at those comparisons with the thirties, but more blatantly at Germany’s devolution to fascism. Though we’ve made many of those comparisons before, if only in passing, she’s drawn out the parallels in disturbingly geometric precision, and it’s frightening. That someone out there we’re hoping to have the leadership and courage to take up this banner with bold conviction needs to stop shying away from that F word; fascism is upon us, and it’s gaining ground at frightening speed.
Finally – only because this is so overlong and I don’t have time to edit it (there’s so much more) – the one comparison we as a nation of citizens need to be very very careful about in addressing these comparisons and working toward a solution: the power of the executive.
Though it’s quite clear that FDR was a genius in crafting his political agenda and then implementing it to the desired effect (presumably of keeping him in office so none of it would be dismantled before it could prove itself), it required a great deal of executive power. This has long been the rallying cry of all those Repugs out there in blasting FDR and his policies; he had too much power. Why, all that power in the executive is un-American, it’s unconstitutional!! Nothing achieved with so much power should be allowed to stand! Makes you want to chuckle out loud, don’t it?
Yet, in the face of all that irony, we may get to chuckle at yet another, and at the expense of all those greedy and corrupt Repugs. They have crafted an executive with infinitely more power than FDR ever dreamed of, and they have abused it, relentlessly. It will take just such a forceful hand to even begin to whip us back into shape again, as much as I hate to admit it. With all the Repug rhetoric about the need for executive power, won’t it be a hoot to see it flung back in their faces by the Dems who recover power? (And this is no small aside, but Joe, your concerns about Romney or Paul winning in ’08 may be valid, but there is no getting around the fact that the Dems will win very large in Congress; good for a Dem prez, and very bad for a Repug prez, to that may tweek your predictions about blowback against the Dems in ’10 a bit.)
All this pointing yet again to the way in which the situation needs to be framed, hard and uncompromisingly; look at what the Repugs did with their power, they exploited it for greed, nothing more, and in the process they have dismantled our economy, our good standing in the world, our Constitution, and our sense of ourselves as a people. OUR ONLY HOPE is to WORK TOGETHER to TAKE THAT POWER BACK!
As always, your posts inspire much thought. Thanks for that, and apologies for all the hot air.
I generally agree with everything but your diagnosing the increasing income equality for this particular problem.
Even had wages fully doubled in real terms, that increased purchasing power would have been no match for the double-digit annual compounding increases in real estate, which did far more than double over that same period of time.
So, with housing costs so exorbitant, people wanting to buy found the houses they wanted to be so much money that they couldn't qualify for standard loan arrangements, and therefore settled for gimmick loans-- teaser low rates that ballooned, interest only payments for a period of time (with a balloon payment due at the end), etc.
Had the average earnings doubled, of course, more people could afford more house. But since prices went up perhaps 10 times in nominal value over that same period of time, there still would have been something that had to give.
...sofla
From Paul Krugman's blog, further casting doubt on income inequality's primary role in this incipient financial crisis:
___________
The big scam
Brad DeLong has this line about the Bush administration — that it’s worse than you could have imagined, even when you take into account the fact that it’s worse than you could have imagined.
The same appears to be true about the housing mess.
Many borrowers whose credit scores might have qualified them for more conventional loans say they were pushed into risky subprime loans. They say lenders or brokers aggressively marketed the loans, offering easier and faster approvals — and playing down or hiding the onerous price paid over the long haul in higher interest rates or stricter repayment terms.
The shocker is the fraction of subprime borrowers who appear to have had credit scores good enough to receive cheaper, conventional loans: 55 percent!
_____________
This figure shows that the majority of these subprime borrowers were more or less stampeded into gimmick mortgages when it wasn't necessary. But it may have been necessary to get the high ticket home they wanted.
....sofla
[i]Instead of looking to 1932 in America, perhaps we should glance at 1933 in Germany. What's past is future.[/i]
Hell, I'll take the 1933-1938 Hitler over any of the presidential candidates I see right now.
i love this blog and have for a long time.
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