Sobering reports on the economy

The New York Times published three eye-opening stories over the weekend on the national economy. Not a pretty picture.

Peter Goodman reports that things are going to get worse before they get better.

"Something has clearly gone wrong with the economy. But how bad are things, really? And how bad might they get before better days return? Even to many economists who recently thought the gloom was overblown, the situation looks grim. The economy is in the midst of a very rough patch. The worst is probably still ahead.

"Job losses will probably accelerate through this year and into 2009, and the job market will probably stay weak even longer. Home prices will probably keep falling, shrinking household wealth and eroding spending power.

“The open question is whether we’re in for a bad couple of years, or a bad decade,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund, now a professor at Harvard.

Goodman, in a second story, addresses the pros and cons of saving Fannie Mae and Freddie Mae and notes that the American financial establishment isn't practicing what it has long preached to foreigners.

"Since World War II, the United States has been the center of global finance, and it has used that position to virtually dictate the conditions under which many other nations — particularly developing countries — can get access to capital. Letting weak companies fail has been high on the list."

Goldman also points out the precarious position the U.S. finds itself because of its extensive borrowing from foreign sources.

"As American debts swell and foreigners hold more of it, nervousness grows that, some day, this arrangement will end badly."

Meanwhile, Gretchen Morgenson reports on the impact consumer debt is having on the economy and finds fault not only with free-spending consumers, but the credit card companies and other financial institutions which have enabled, indeed, encouraged them.

"Years of spending more than they earn have left a record number of Americans ... standing at the financial precipice. They have amassed a mountain of debt that grows ever bigger because of high interest rates and fees.

"While the circumstances surrounding these downfalls vary, one element is identical: the lucrative lending practices of America’s merchants of debt have led millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up."

For years, since at least the time of Ronald Reagan, we've had it beat into our collective heads that government should get out of the way and let business do its thing. Well, the chickens appear to coming home to roost.

Comments

[BobbyCat]

Make a stash. Horde some money - small bills preferably. Remember, it's hard to buy a loaf of bread with a gold coin worth $1000.

Stock up on canned goods and bulk foods. Aldi's is the cheap place to buy.

Store a few cans of gasoline. Leave room for expansion. Store away from sun.

Prepare for a storm. Lots of batteries, portable radio.

Stock up on propane.

[Don H]

Congress and the administration set great examples for their citizens. Spend more than income, borrow to do it, if necessary, and let the future take care of itself. Their solution to the recession: spend billons of borrowed money by getting it into the hands of citizens so they can spend more money. In short, the government thinks we can spend our way out of recession. Isn't that how we got into this mess in the first place?

[Barbara]

Hard to believe the Treasury Secretary when everything seems to be failing. Should we be putting our money in different banks? How do we know which ones are solid? We seem to be finding out this info only after something fails and it is too late. In Robert Sheridan's financial blog this morning, I read that this housing market is worse than the cycle during the Great Depression. (blog at http://www.sheridanpartners.com/market.php) Between the banks and the housing market, we are in serious trouble yet I see no one at either the financial institutions or the government with a real plan to do something about any of it.