HomeUncategorizedEconomy Slowly Easing Back

Despite the railings from the Republicans the economy they crashed appears to slowly be easing back to normal. It will probably be a slow arduous process as the damage done the economy by six years of Republican rule reached unprecedented levels. The only real good news on their handling of the economy is that under a change of leadership, almost sure depression has been upgraded to recession. The problems that were created over the last few decades will need time to heal.

That is the assessment of one of the President’s top economic advisors:

“Six months ago, when the president took office, we were talking about whether recession would become depression,” Lawrence H. Summers, Mr. Obama’s top economic adviser, said on “Face the Nation” on CBS. “Today we are talking about when recession is going to end.”

Still, he cautioned that “the economy is not going to be back to normal for quite some time. Our problems weren’t made in a month or a year, and they’re not going to be fixed in a month or a year.”


Just how deep was the damage done by President Bush and his rubber-stamp Republican Congress?? The numbers are startling as they cost families in America historically unprecedented amounts of wealth:

But behind even that cautious appraisal lies a huge guess about a supremely important unknown: How will American consumers react to the staggering losses in their personal wealth over the last two years?

American households have lost about $14 trillion in wealth, more than their collective earnings from all sources of income last year.

Never before have American families absorbed that kind of blow to their wealth, and the timing could not have been worse. It comes after years during which Americans had almost stopped saving and just before the vast population of baby boomers reaches retirement age.

After taking such a hit, American families will be more torn than ever between spending to revive the economy, or saving for their own financial security. After an unprecedented cycle in the housing industry it is anyone’s guess what consumer spending will do:

“Predicting consumer behavior over the next year or two is beyond hazardous,” said Alan Blinder, a professor of economics at Princeton. “There is nothing in the historical record like the boom and bust in house prices that we’ve just experienced.”

One thing is certain, with the most irresponsible administration in American history out of the White House, the bleeding may not have stopped but it has been slowed considerably by the new policies of the Obama Administration whose administration’s success hinges on economic recovery:

The political implications are momentous. With Mr. Obama’s poll ratings down measurably in the last month, the White House was quick to highlight estimates released Friday showing that the economy shrank by only 1 percent in the three months that ended in June – a much smaller decline than the 6.4 percent plunge in the previous quarter.

Even if the consumers do not go back to their spending ways of the last couple of decades and decide to hold back more money into savings, the administration does not necessarily see that as a bad thing, even if it does slow recovery:

White House officials say they fully expect consumers to pull back modestly on their spending but they add that rising exports and business investment could make up the difference.

“I’ve never counted on consumers going back to their profligate ways,” Christina D. Romer, who heads the White House Council of Economic Advisers, said in an interview on Friday. “My feeling is that people will be saving more, that the trade deficit will be lower and business investment will be higher.”

She went on: “I think that’s a good thing, and the president thinks that’s a good thing. You’re getting rid of the bubble-and-bust economy.”

This recession has put us in uncharted waters and even has the experts confounded as to what might happen. The problem is that the Bush Administration and their Republican enablers in the Congress brought about a whole new kind of collapse:

But some analysts caution that the wealth shock is different this time. It is not just the magnitude of the loss, they say. It is also that the loss comes largely from collapsing home values, while previous shocks have resulted from declining stock prices.

That contrast is significant, because if many or most people thought of the wealth in the homes as permanent, and as a big part of their retirement nest eggs, they might cut back their spending much more than if their loss had come from a potentially short-term plunge in stock prices.

Moreover, the decline in home values has prompted banks to cut back sharply on the amount homeowners can borrow against their houses, curtailing a significant source of consumer spending.

That is what is so frustrating and unprecedented about this particular recession; nobody can really guess whether consumers will spend to revive the economy, or save to protect the livelihoods of their own families:

“We don’t have any historical experience with the household sector taking this kind of a hit,” said Robert Barbera, chief economist at ITG, an investment advisory firm. “No one knows what a normal savings rate is.”

Many forecasters currently assume that the savings rate will peak around 7 or 8 percent, but others predict it will climb to 10 percent or higher. That would mark a return to the savings rates of 7 to 10 percent that prevailed from the end of World War II through the end of the 1980s.

Each percentage point is meaningful. If the savings rate hits 10 percent, officials at the Federal Reserve suspect that the recovery next year will be even weaker than expected. “The consumer would be a big retardant to the recovery,” said Mr. Blinder, the Princeton professor.

While the Republicans want to rail against President Obama and the stimulus the fact is they created a historically unprecedented mess in which nervous consumers are afraid to spend to expand the economy. After the losses incurred on the economy by the Republicans many of them are just trying to rebuild their nest eggs to what they once were. I know how it feels, My 401K had lost over 60% of its value and now is finally inching back up close to what it was before.

While we are all frustrated with the economy we need to keep a little perspective. The folks who are railing against our President left him an historically unprecedented mess. Already the measures taken have turned depression into recession, and our economy is slowly trying to rebound. Americans are worried about their own security and are saving more which in itself is a good thing. Hopefully in the end, that fact will assure that our economy will not be propped up on such a fragile foundation that can come crashing down so easily once again.

No matter what, the measures taken to revive the economy are slowly working, and Americans need to be patient for just a while longer. The damage done to the pocketbooks of Americans by Republican rule cannot be corrected in a few short months.




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