by Damozel | I'm sure you've noticed it too: the feeling that we're speeding down the hill without brakes and there's no exit in sight. Nope. It's not a bad dream. It's the proof you're awake.
You know that 'rebound' you've been hearing about? According to Steven Pearlstein, it's just a mirage.
It ain't gonna happen. Not this summer. Not this fall. Not even next winter.
This thing's going down, fast and hard. Corporate bankruptcies, bond defaults, bank failures, hedge fund meltdowns and 6 percent unemployment. We're caught in one of those vicious, downward spirals that, once it gets going, is very hard to pull out of. (WaPo)
And that, it appears, is the good news.
The bad news is that this is a different breed of recession from the ones you've met any time recently. By comparison, those were tractable Recessions that could be tamed by the Fed.
But this?. This is the dreaded Recession-with-Overlaid-Inflation that even the weapons of the Federal Reserve can't slay:
That combo puts the Federal Reserve in a Catch-22 -- whatever it does to solve one problem only makes the other worse. Emerging from a two-day meeting this week, Fed officials signaled that further recession-fighting rate cuts are unlikely and that their next move will be to raise rates to contain inflationary expectations(WaPo)
It seems that the Recession-Deniers on Wall Street, at the Fed, and at the Treasury Department ---are making excuses for themselves: they could not have foreseen, they protest, that oil would shoot up to $140 a barrel.
Pearlstein:
'As excuses go, blaming it on an oil shock is a hardy perennial. That's what Jimmy Carter and Fed Chairman Arthur Burns did in the late '70s, and what George H.W. Bush and Alan Greenspan did in the early '90s. Don't believe it.'(WaPo)
Apparently, there is only way out --- and that's through. Furthermore, the only way through is to fix certain fundamentals that have made the economy vulnerable. According to Pearlstein, 'that means bringing what we consume in line with what we produce, letting the dollar fall to its natural level, wringing the excess capacity out of industries that overexpanded during the credit bubble and allowing real estate prices to fall in line with incomes.'(WaPo)
Of course, we're not very good these days as a people at belt-tightening or gratification deferring. But it looks as if we are going to have to learn how to be. 'At this point, there's not much to do but flee to safety, rescue those in trouble and let nature take its course. And don't let anyone fool you: It will be a while before things return to normal.''(WaPo; emphasis added)
At Newshoggers, Ron Beasley explains how we got into this mess:
We have constantly been told that the American economy is strong. An increasing number of Americans know this just isn't so. The problem is that Wall Street has come to equal the economy in the minds of policy makers. For a majority of Americans this is simply not the case. In fact Wall Street has become part of the problem.
The once noble purpose of Wall Street has been replaced by something that more closely resembles a Ponzi Scheme. The value of stocks seems to have little or no relation to the economy that most Americans experience. If you notice "stimulus" plans are usually designed to restore confidence - keep stock prices up. Once again the Federal Reserve is lowering the interest rates to prop stocks up. The last time this was done it resulted in a sub Ponzi Scheme - the housing bubble which did what it was intended to do, run up the market. Of course like all Ponzi schemes it couldn't last for ever and didn't.
We have reached a point where the Fed can no longer lower interest rates so the market plunges and the suffering has spread to the investor class - Wall Street itself is now seeing the "real" economy.
Jill at Brilliant at Breakfast discusses how 'the economic death watch' affects people who did try to plan ahead, were careful with their money, and did think about the future.
I know about investing for the long-term, but when you look at long-term fundamentals for this country, they look so bleak that it's hard to blame people for wondering why they should bother investing for future gain when it seems so unlikely that there will be any gain. My long-term timeframe suddenly isn't so long anymore, and it's hard to have any kind of optimism that this mess the Republicans (with the help of spineless, capitulating, corporate whore Democrats) have put us into is going to end in time for my money to not have gone down an empty hole....
[W]hen we've heard for years from politicians and citizens saying that people who haven't saved enough have no one but themselves to blame, at the same time as we ARE doing what we're supposed to -- foregoing short-term gratification for long-term security -- and seeing the money we're trying to put away for the future disappear as if we were lighting a match to it, it's difficult to judge others who have wanted to at least see trinkets as tangible evidence that they once had cash.
More blogger discussion here.
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