Thursday, September 10, 2009

The Morning After

Despite all the outbursts of optimism the American economic crisis is anything but over. Debt, debt and more debt that, sooner or later, somebody has to pay.

McClatchey Newspapers proclaims that America's consumer economy is dead. For an economy more reliant than most on consumer spending that's bad news of the lasting kind. US retail sales could slump in the order of a mere trillion dollars this year.

The early impact of the worst recession since the 1930s pushed median incomes down, forced almost 40 million more people into poverty and left more Americans without health care in 2008, according to new annual survey data from the U.S. Census Bureau.

Poor people, working people, blacks, Hispanics and children bore a disproportionate share of the hardship. The new figures, however, likely understate the severity of the economic downturn because a large portion of nation's job losses and unemployment rate increases occurred after the Census survey data was collected in March as part of the annual Current Population Survey.
The poor performances of key economic and social indicators come as little surprise, since the recession officially began in December 2007 and continued to create economic carnage for 18 months before appearing to bottom out over the summer.

_ Along the way, the nation's real median income — the point at which half the nation earns less and half more — fell 3.6 percent from $52,163 in 2007 to $50,303 in 2008. That was the first such decline in three years and the worst in the first year of any recession since Census Bureau began collecting the data during World War II, said Lawrence F. Katz, an economics professor at Harvard University.

The news service reports that Americans are beginning to do something they've not done for quite some while - they're saving or at least trying to save. During the fiercest of America's Mardi Gras days, Lewis Lapham wrote that his country's undoing began during the Nixon years when Americans came to equate wealth with virtue. Today virtue is being seen as frugality. Now that's a healthy change in many ways but it will take some time before it sorts itself out in the American economy.

In June my partner and I rode our motorcycles along the Pacific coast highway down to southern California. We went to some fabulous places, the sort that made home look positively plebian. I asked her to look around, take it all in, because she was looking at something that was about to slip away, America at its absolute zenith. It was going because it was in no small part illusion, the product of borrowed money, indulgence and a rapacious appetite for more. We were looking at the fiscal equivalent of a Hollywood back lot.

You can't build wealth on debt. Wealth is fragile and transitory. Your stock in Lehman Brothers goes from huge to zero almost overnight. A house that may have sold for a million dollars last year could be worth half a million next year. What is solid as concrete, however, is debt. The house may lose half its value but the debt associated with acquiring that house doesn't lose a penny of its value. In relative terms, it grows and worsens.

This isn't a morality lesson but a warning that it's going to take America a very long time to recover because it isn't just pulling itself out of the downturn that challenges the American people and their society, it's redressing nearly three decades of excess that will make or break the United States. More than a year before the meltdown America's last Comptroller General was telling anyone who would listen that the federal government's debt and unfunded liabilities worked out to $480,000 per household and that was before the trillions of borrowed money infused into the US economy by Bush and Obama.

Barack Obama hasn't salvaged the American economy, he's merely kept it from utterly collapsing, in itself a Herculean achievement. But that has necessitated adding a huge layer of new debt onto a pre-existing mountain of accumulated debt. It was a good thing to do and a reasonable amount of that money will be recovered but Washington hasn't begun to address how to bring the nation's books into order.

Despite their decadal mass psychosis that took hold in the Reagan years there is an abiding strength in the United States and the American people that may just help restore their nation and their society. It certainly won't be easy. America has to deal with fiscal and social and cultural imbalances at the same time as the entire world is confronted with truly existential environmental, energy and security threats.

As Canadians we're far too tightly tied to the United States and we'll ride the swells of its recovery and its setbacks. It's probably far too late to do much about that now but it's clear we're in for a hell of a ride.

And then there's that cheap fraud, Stephen Harper. This is the guy who castigated his own country and his countrymen for being so backward as not to embrace the very mentality that has laid America so low today. The man positively worshiped the very worst of American madness. At least the prime ministerial punk has figured out to stow that nonsense.

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