The economic downturn has already gone way beyond the subprime mortgages and risky derivatives. The crisis began with housing, but the implosion of the Bush era laissez-faire policies of deregulation, where bankers and the financiers did as they pleased with little regard of the consequences, has finally caused a negative reaction throughout all economic sectors, not just in the U.S. but around the world. Jobs are being lost by the millions worldwide. The Bush regime caused this economic calamity not only through bank deregulation, but also through giving excessive tax cuts to the wealthy while, at the same time, spending on an expensive budget-busting, deficit-increasing, $12 billion dollars-a-month, unnecessary war.
The dominoes are falling. Here is what is happening now:
· Consumers, their wealth decimated and their optimism shattered by collapsing home prices and a sliding stock market, have cut back their spending and sharply increased their saving which is a huge blow to the economy right now. Savings are good in the long run, but a sudden turning off of the shopping spigot worsened the economic downturn. This has caused massive job loss worldwide in retail and manufacturing.
· Credit is still tight while some banks continue to fail. Not only are those who worked in the financial sector losing their jobs, but people are losing their savings, including retirement savings. Others cannot get loans to purchase houses, cars, appliances, etc, regardless of credit rating.
· Real estate developers, watching rents fall and financing costs soar, have stopped building, with many completely shutting the doors of their businesses, causing major job losses in the construction and real estate sectors.
· Manufacturing and retailers are canceling plans to expand capacity, since they aren’t selling enough to use the capacity they have. There is no demand for their products.
· Exports (goods sold to other countries), which were one of the U.S. economy’s few areas of strength over the last couple of years, are now plunging.
By decreasing interest rates, the Federal Reserve has always been our main line of defense against recessions, but they have already cut the prime lending rate (the rate for banks lending to each other) to near zero and can do nothing more to stop or even slow down the economic free fall.
This country is moving closer to an extremely deep, catastrophic recession, if not a depression, as Congressional Republicans stubbornly spout their worn out clichés about wasteful government spending and the wonders of tax cuts — as if the economic failure of the last eight years never happened. Republicans seem to have no sense of reality. Because their ideology gets in the way, they lack the ability to understand that the U.S. is falling into an abyss, and once we do, it will be very hard to get out again. These old disciples of Reaganomics are clueless that allowing the market to “work through” this problem will likely send us into a depression. In fact, Gordon Brown, the British Prime Minister, said this past Tuesday that the world economy was already heading for a 1930s-style depression.
Republicans seem to be confused about the nature of bipartisanship. Since President Obama spent time inviting Republicans to the Whitehouse and visiting them on the Hill in the spirit of bipartisanship, Republicans act as if they have a free pass to rewrite the entire legislative package and its intent. But that is not what bipartisanship is. Bipartisanship is the willingness to compromise and incorporate ideas that Republicans and Democrats alike agree are good for the country. Yet, even though Democrats, at the insistence of the President, removed some spending items from the stimulus bill and put in tax cuts to please Republicans, Congressional Republicans formed a locked-step barricade to a Recovery and Relief bill that is our best chance to try to stop an impending catastrophe. They proudly point to sticking together to vote against the Democrats’ economic stimulus plan, and to how the Senate Republicans, except for about three moderates, are doing the same.
There is no true willingness on the part of Republicans to compromise, even though they say they are willing. There seems to be only a desire to beat the Democrats, weaken the President, and have things their way. This is not bipartisanship. They should listen to Republican Governor Charlie Crist who said, “My guy didn't win but President Obama is my man now and he's my president. I want him to succeed because that means my country succeeds. That's the only way a true American should feel.”
After the stimulus bill left the House last week, a small bipartisan group of moderates from the Senate worked around the clock over the past few days to hammer out a better compromise that they felt both sides of the aisle could approve. They added more tax cuts and cut spending further, including cutting out aid to the states, to where the bill is now about 45% tax cuts and 55% spending. As Susan Collins, R-ME, and Ben Nelson, D-NE, introduced the new compromise to the Senate, Republicans objected before even having read the bill. Why? Because they want tax cuts only – tax cuts for everyone, including the wealthy and big business. They continue to insist that tax cuts trickle down and create jobs regardless of the fact that the Bush cuts did no such thing over the last eight years.
What is most amazing is that after not saying one word against the budget-busting $12 billion per month spending on the Iraq War, often insisting that heavy military spending helps the economy, Republicans are now screaming about how much the $830 billion stimulus will add to the deficit. These hypocrites will spend us into a chasm when it comes to military spending, but insist that government stimulus spending will put the deficit into unmanageable territory. In fact, Former Treasury Secretary Paul O'Neill was told "deficits don't matter" when he warned of a looming fiscal crisis. O'Neill, fired in a shakeup of Bush's economic team in December 2002, raised objections to a new round of tax cuts and said the president balked at his more aggressive plan to combat corporate crime after a string of accounting scandals because of opposition from "the corporate crowd," a key Bush constituency. O'Neill said he tried to warn Vice President Dick Cheney that growing budget deficits topping $500 billion that year posed a threat to the economy, but Cheney told him, "You know, Paul, Reagan proved deficits don't matter," he said, according to excerpts. Cheney continued: "We won the midterms (congressional elections). This is our due." A month later, Cheney told the Treasury secretary he was fired.
That being said, now is not the time for our government to pull back from deficit spending. According to most economists, government spending is what is needed because for every dollar directly spent by government, we will get $1.50 in stimulus — this is not the case with tax cuts. Once things stabilize, Congress can work on reducing the deficit. But for now, they absolutely must spend on goods to increase “demand” and fill the void left by consumers who have cut back.
While many Republicans appear to be blind, deaf, and dumb as to the causes of this terrible economic mess, the victims within the middle and working classes are seeing their livelihoods ruined, jobs taken away, pensions eroded, and homes foreclosed on. They are struggling with gas and food price inflation, saddled with ever-increasing debt, and forced to work under more and more stress due to fear of layoffs. The Iraq war notwithstanding, this is the reason why the GOP no longer has a single House member from any of the six New England states and no Senators from the Pacific Coast states.
Not all Republicans are against the Recovery (stimulus) bill. Republican governors and mayors around the nation have called on the Republicans in Congress to get out of the way. The Republicans Governors around this country need this stimulus money to get their folk back to work. They are backing Barack Obama, as Governor Charlie Crist of Florida stated on Hardball with Chris Matthews this past Tuesday:
“Here in Florida, we just came through a special session where we had to cut over a billion dollars more as it relates to making sure that we stay in balance. This program (the stimulus bill) will help us with education, with health care, Medicaid specifically, infrastructure. These are the kinds of things that produce jobs. It could mean $13 billion to the Sunshine State. It comes at a time when we need it. People need jobs. It‘s about jobs, jobs, jobs. This will help us produce that, and I think it‘s important to move forward. …And I think that‘s what this (bill) can offer to people. I don‘t think it‘s perfect, but I think we need to do something in order to help our country.”
Van Jones, author of The Green Economy, spoke of what will happen if the stimulus is not big enough: “You can't jump halfway across a chasm — you just end up falling into the abyss.” Jones explained further: “… when I look at it (the stimulus bill) in its entirety, I fear that we may soon look back and say that we missed a huge chance to go bigger and bolder. After all, there were three flaws with the old economy that has crashed: it favored consumption over production; debt over smart savings; and environmental damage over environmental renewal."
Many economists, including Nobel Prize winning Paul Krugman, say that in the absence of bold and timely Congressional action, we’re headed for a deep, prolonged slump with unemployment in the double-digits. We are talking about white collar workers, not just blue collar, in soup lines.
So far, my husband and I are doing okay because for at least this year our state is managing to keep the school system afloat, continuing to pay teacher salaries. But the next school year may be a different story altogether with layoffs and IOUs instead of paychecks (as they did during the Great Depression). We have been putting off buying big ticket items, spending only on necessities, and saving every penny we can — just in case.
I hope you all have lifeboats.