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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.

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