How bad can our economy get?

Eric in Kailua is a bit frustrated. Recent coverage of the Wall Street crisis has led us away from the issue of what's going to happen to the average person. "While some are saying that if we act quickly we may be able to avoid a recession (which I thought we were already in) others seem to suggest that we are as close to a second Great Depression as we have ever been," he writes. "What can the average non-millionaire family expect in the next few months?" One reason you don't hear more specific predictions, either for Hawaii or the nation, is that the Wall Street crisis is currently driven by loss of confidence by investors, and it is harder to measure nerves than such palpible stuff as supply and demand. Economists can't even agree on a definition of "recession," though I can tell you what the government thinks a recession is. I'm not an economist but I do understand words. Recession is economic shrinkage. Hawaii's tourism economy is in recession because it is shrinking. Hawaii's overall economy is still growing, however, so Hawaii is not in recession. How long does the economy have to shrink for the government to call it a recession? The U.S. Commerce Department says, two quarters. We have not yet had two straight quarters of economic shrinkage. There is an old joke. If your neighbor loses his job, it's a recession. If you lose your job, it's a depression. Like many jokes, this one hints at a truth. For you personally, it's all about what happens to you. And your own economic situation depends mostly on whether you have a job. Eric independently arrived at the same perspective. "For most people who count on a regular old paycheck to keep their family's economy going, their biggest fear is losing their job. How many jobs could be lost and in what sectors of the economy?" Because Wall Street, meaning the financial services industry, pays so well, it is tempting to say, jobs will be lost in the affluent sectors of the economy, affecting affluent tourist destinations like a Hawaii, but otherwise the country will be okay. It's not that simple, though. At a time when oil was already expensive on soaring demand in other countries, Wall Streeters scared by the stock market pulled out the money they were managing and put it into commodities, creating immense demand for contracts for future delivery of crude oil. Oil prices soared, accelerating the shift of consumers away from the big gas-guzzling vehicles that had become the mainstay of American auto manufacturers. That industry has laid off tens of thousands of people on the mainland, with more to come. So what lies ahead? If the Wall Street bailout plan "works," there will still be more job shrinkage on the mainland in companies that manage money or need petroleum. Many companies fit one description or the other. Farmers need fertilizer and the chemical process for making professional fertilizers uses petrochemicals.The worst may be over but the job loss won't be over. Neiman Marcus just reported lower profits as the rich curb their shopping. Ripples continue. Hawaii economists think we may escape recession altogether but our economic cooling will last another year, year and a half. Fifteen jobs are going away this weekend when Compadre's closes. The school system may trim some positions if state tax revenues keep slowing. Military deployments are hurting shops in Wahiawa. Ripples continue. Great Depression? No. Economists who say that are insulting people who really lived through the Great Depression. We're very lucky by comparison.

Comments

[dana]

yes we r not near a depression,, my mom said they had no shoes,, and had very little food. this went on for years,, people poached to put food on the table.. so yes that is a insult,, for we are very very lucky,, no matter what. we are not freezing,, we are not starving.. we will get through this and some day look back and laugh maybe..

[Eric]

Dana,

I take it you're fairly young, meaning you and your children -- perhaps their children -- will be the ones paying for this bailout in the form of higher taxes (lower wages), decreased benefits (from your employer, your state and the federal government)... and you'll probably be taking care of your mom as she'll probably lose a big chunk of her retirement investments. If you can laugh through this, you've quite an accomplished sense of humor.

[Nate]

It seems to me that things will continue downward for a couple years and it actually could go as far as people "poaching" for food. The prices for everything is going up, people are losing their jobs, and middle class families like mine are in serious debt with no help because the government just "gave" $800billion away to large corporations that caused this screw-up. I guess America never learned their lesson after the first depression.

[Harry]

revised

I am only 42 years old but have seen a few downturns in my day. I well remember the 1980's. but if you tune out all the comparing of this to other "recessions" and listen to what they are having to do to stave off "disaster" then it quickly becomes apparent this is no "recession". My guess is our leaders already know how bad this is going to get and are already changing the structure of government to deal with what happens when a very great number of people are out of work. Why I DON'T think this was a surprise to the government is because I read this in a 1980's journal.

"""" The possibility of today’s economic systems crashing has been a more frequent topic of discussion among economists lately. For instance, American financial commentator Sylvia Porter spoke of the real possibility of an "inflationary blowoff in this nation and the world, destroying the confidence in any investment in ‘paper’ [money], and so undermining the functioning of our international monetary system that trade among nations would grind to a near standstill." The columnist added:
"The blowout would then ripple out to cause a rash of bankruptcies among businesses, a collapse of the dangerously swollen credit bubble, an upsurge in unemployment, foreclosures of vastly overextended mortgage credit, and repossessions of goods bought on installment loans the debtors could not repay.
"The scenario becomes more scary even as I write it."
"Nations cannot go on borrowing to improve living standards"
Political commentator Jack Anderson similarly commented on the shaky money situation, stating:
"Nations cannot go on borrowing to improve living standards. The money can never be paid back unless it is invested in production instead of consumption. For many countries, the debt is already greater than they can absorb without a financial breakdown. . . .
"Skyrocketing prices keep adding to the bad debts until the whole banking system is threatened with collapse."
The American Institute for Economic Research makes the following observations:
"During the next several years, the following economic developments seem highly probable:
"A severe and prolonged worldwide depression. . . ."""

This by the way was found in a Jan 22 1980 Awake article. And since it knew and the expert quoted knew this was coming, the Gov must have known.
I did not include the rest of the article but it had an interesting ending. Things have to change this much is apparent. We should be worried about how bad its going to get and how much the government will change also to meet the "challenge". I don't think most will like the answer. I'll have to go back and read the rest of the article again.

[Todd Singleton]

As long as we continue to keep bailing out banks it could get this bad...

I’ve been playing through scenarios in my head to build an image of just how bad the economy could get in America. Imagine this…

40-50% unemployment. 1 in every 2 Americans eligible working Americans without a job. The “great” depression had a national unemployment rate of just over 20%. This will result in closed schools becoming shelters as foreclosures skyrocket to 60-70% while the government continues to protect the banks by pumping more money into them. This will be done so those who still have money without working can keep it. But they won’t spend it. There won’t be job creation and there won’t be any “re-distribution of wealth” in the private sector.

Once it is agreed there won’t be any continued redistribution of money the anti-socialists will cheer - hooray! Capitalism has won. America is a class system. The divide that we see between the haves and have-nots today will pale in comparison as those who have wealth begin to protect themselves in fortress style residences. The personal and private security industries will flourish. Guns will be everywhere.

Education will begin to take place inside of shelters and communal living facilities while schools sit empty as shaky municipal governments struggle to pay the increasing tax burden created to support the banks. The rallying cry of politicians will continue to be saving the banks to protect what little money is left in the hands of a few.

People will walk, not drive, past their old houses which will sit empty and unkempt. Infrastructure will crumble. Third world conditions will truly exist literally in our back yards. Medical care will become impossible to find and deteriorating sanitation conditions will result in a 8-14% casualty rate with the youngest children dying at the fastest rate. Whether you live or die will be determined by nepotism (those born into the wealthy families will survive).

This is the current path America is on because we’ve decided against natural capitalism. Banks are a business and many have already failed. This is what everyone is forgetting. The banks have already failed. If they had not, we would not be continuing their operations with tax payer dollars. This is so a certain segment of our population has a “safe haven” for their money.

How can you tell which side of this fallout you will be on? Easy. If you could currently take out all of your money from the bank and begin living by cashing your paycheck somewhere other than a bank and paying your bills with cash - you’re screwed. It’s only those with vast wealth (100’s of thousands) and capital assets that will keep their homes, fortify them, and live in the top class.

In other words, this is the beginning of the end for the middle class. There will be wealthy and poor and the transition will not be smooth. Look for a rampant increase in crime, black market activity and underworld riches to evolve. Education will be a privilege. The majority of children will learn only what their parents can teach them.

How do we avoid this? That’s easy too. Stop the bailouts. Let industries and businesses naturally fail as they should. There is a worse thing than banks failing in a downward economy. It’s when they don’t.

[Maybe some of Todd's points are valid. But I was surprised to learn, in reading recently about the Great Depression, that the real trouble began when the government began to let banks fail "naturally." HMD]

[BILLIE JO]

WHAT I DON'T UNDERSTAND WE GIVE BILLIONS TO AIG THEY PISS IT AWAY! WHY DID WE BAIL THEM OUT? DID IT HELP US IN ANYWAY? THEY SHOULD JUST GIVE A MILLION DOLLARS TO EVERY HOUSEHOLD! THEN THE BANKS WOULDN'T GO UNDER BECAUSE PEOPLE WOULD BE ABLE TO PAY THERE MORTGAGES ETC. THEN YOU WOULDN'T HAVE VACANT HOUSES SITTING AND ROTTING. WE'RE SUPPOSE TO PROTECT THE AMERICANS. WELL, WE EARNED THE MONEY THAT THEY ARE USING FOR BAILOUTS BUT HERE WE ARE HOMELESS AND HUNGRY! I SAY BAIL US OUT NOT THE BANKS OR AIG OR WHOEVER ELSE WE HAVE NO IDEA WHERE THE MONEY WENT IF WE HAD THE MONEY THERE GIVING OUT NO ONE WOULD BE LOSING HOUSES OR JOBS BECAUSE WE WOULD PUT IT RIGHT BACK TO THE BANKS INSTEAD THEY WOULD RATHER KICK PEOPLE OUT OF THERE HOMES AND JOBS WHAT THE GOOD IS THAT DOING FOR WE THE PEOPLE?WE HELP EVERYONE BUT US I SAY GIVE US THE MONEY AND THEN THE ECONOMY COULD GET BACK OH BUT WERE TO BUSY DOING BAILOUTS FOR PEOPLE THAT DON'T EVEN NEED IT DO YOU THINK THERE NOT GOING TO STILL HAVE THERE LEXUS THRE HOMES WITHOUT OUR HELP YOU TELL ME WHAT YOU THINK I'M BROKE TREADING WATER EATING RAMEN NOODLES WELL THESE PEOPLE GET A BAILOUT AND SPEND 400,000 ON GET THERE ASS WAXED WITH OUR MONEY I'M SO THANKFUL WE BAILED THEM AND WHOEVER ELSE OUT!!!!!!!!!!!!!!!!!

[ You don't have to shout. HMD]