On November 31, 2008, the National Bureau of Economic Research—the nonprofit that officially defines our nation’s business cycles—declared that we’ve been in a recession since December 2007. The newspapers usually define a recession as two straight quarters (six months) when the GDP (the nation’s total output of goods and services) declines. The NBER considers a wider range of factors, including employment, incomes, manufacturing and retail sales, as well as GDP. This recession will be the longest since the Great Depression if it lasts past April 2009.
If you’re in your early-to-mid-twenties, you’re witnessing the first recession of your adult life: shriveling home values, rampant job loss, empty stores, consumer confidence at an all time low. But a recession doesn’t affect everyone equally. It will be harder to find work, and those of us who don’t hold senior positions are at higher risk of layoff than those with secure jobs.
President-Elect Obama is developing a stimulus plan that would generate 2.5 million new jobs by 2011. Nobel Laureate economist Joseph Stiglitz states that 2.5 million new jobs by 2011 is “too modest,” because nearly four million workers—including those fresh out of college—will enter the work force in the next two years. While eminent economists argue that more than half of the stimulus plan’s funds should go toward repairing highways, schools, and other public infrastructure, funding food stamps and similar aid, and subsidizing state governments.
#3 Housing Crisis
Thinking of buying a home? Wait. On December 4, word leaked out that the Treasury is contemplating cutting mortgage rates to 4.5 percent—the lowest in more than 50 years. But this is strictly for homebuyers, not for homeowners who need to refinance their mortgages. How effective will this be? We can’t solve the financial crisis without fixing the root of the problem—the rising numbers of homeowners facing foreclosure. Banks are failing because millions of homeowners are defaulting on their mortgages—a form of trickle-up poverty. The more people foreclose, the more banks will fail. TransUnion predicts that delinquent mortgages will almost double in the next year.
Obama insists that the bailout must help homeowners. He stressed this at a December 3 press conference, where he announced New Mexico Governor Bill Richardson as his commerce secretary.
In a recent interview, Elizabeth Warren, who chairs the Congressional panel overseeing the bailout, told the Times that the government seems to be bumbling from one maneuver to the next with no coherent plan.
The TARP (Troubled Asset Relief Program) legislation explicitly states that some of the bailout money should be used to stem foreclosures. But so far, Treasury Secretary Henry Paulson has pumped almost half the $700 billion into financial institutions—supposedly to help the banks start lending again. Paulson didn’t properly restrict how the banks used the money, and the banks are spending it recklessly—buying up other banks instead of extending credit.
One wonders what Fed chairman Ben Bernanke has learned from the current crisis. In a story titled “Officials Warn That Economy Will Remain Weak,” the Times quotes him as saying, “’The government should intervene in markets only in exceptional circumstances.’” We’ve seen how Lehman Brothers’ failure threatened our whole financial system. If the failure of an institution like Lehman Brothers can sink the whole system, these institutions should be regulated even during good times to prevent crises, rather than only rescued when they’re collapsing.
#7 Big Three
On December 3, the United Auto Workers offered to renegotiate its contracts with Ford, GM and Chrysler to help the Big Three secure government loans. One wishes the CEOs would sell their private jets to help fund healthcare and unemployment benefits for laid-off workers.
#8 (Most Disturbing) Environmental
In its last days, the Bush administration is scrambling to change federal rules and grant big gifts to big business. On December 2, the Environmental Protection Agency passed new regulations permitting coalmining companies to dump their waste in rivers and streams. This pollutes the water and threatens wildlife and public health.
In China, hundreds of thousands of migrant workers who left family farms for higher-paying urban-industrial work are now losing their jobs, according to the Wall Street Journal. China has experienced ten years of rapid economic growth partly due to low-cost labor supplied by these workers. Now many are returning to rural regions where they won’t be able to earn enough to feed their families.China is worried about social unrest. Protests are already beginning in China’s cities.
Last week’s terrorist attacks shut down India’s commercial center, Mumbai, but India was already suffering an economic slump. Its high-tech companies are laying off thousands of workers. “The downturn is exposing a deeper concern,” the Times reports. “India has become the world’s front office, handling customer service calls, and its back office, helping to process payments and run accounting and other computer systems. But it has not yet become the head office — making major new products, pioneering marketing techniques or helping to shape corporate strategy.” It just goes to show that no one is benefiting from the current global economic crisis, not even countries offering low cost labor.