September 30, 2006 at 06:30:20

Post-election Recession More Republican Chicanery

SAVE AS FAVORITE

VIEW FAVORITES

By Joel S. Hirschhorn (about the author) Page 2 of 2 page(s)

opednews.com Permalink

In Dubai a news story said: "Economists and currency experts are warning of a possibility of outright recession in the US economy." Addressing a group of corporate customers in Dubai, David Bloom, Global Head, Market Strategy - HSBC Global Markets ... said that there is a growing risk of outright recession in the US economy. "The US has become a 'push-me, pull-you' economy: companies may be profitable but households, who have been the key drivers of growth, are in trouble. A cocktail of higher energy prices, tighter monetary policy, an end to tax cuts and, more recently, a housing market that appears to be in free-fall threatens to poison the upswing," Bloom said. He believes that recent economic growth was built on the most fragile of foundations. Loose monetary and fiscal policies led to unwarranted gains in the housing market which are now reversing. "The US is now facing an economic adjustment, with feast followed by famine. We are cutting our 2007 US growth forecast to just 1.9 per cent and issuing a 'recession risk' warning" Bloom said.

Mike Doyle, chief credit officer at US Bancorp, said that consumers have started paying down their debt at a faster rate and will remain able to make payments as long as unemployment doesn't spike upwards. But what about all the layoffs associated with the downturn in housing and at auto companies, continued mass illegal immigration, and continued outsourcing of good jobs? Doyle said that with consumption largely supporting economic growth "we don't want a consumer-led recession." Yes, consumers have the power to control the economy, which means they have the power to get better government decisions and actions!

In the Asia Times Jephraim P Gundzik wrote: "The risk of economic recession in the United States in 2007 is increasing rapidly. Rather than overly tight monetary policy at the Federal Reserve, the declining value of US homes is undermining personal consumption expenditure. The decline in home values is likely to accelerate next year as housing oversupply is met by increasingly weaker demand for new homes. ... the US economy slowed sharply between the first and second quarters. This slowdown was led by weakening personal consumption expenditure, which declined from an annual rate of 4.8% in the first quarter of 2006 to 2.8% in the second quarter. ...With monetary policy still very accommodative and likely to remain so until after crucial mid-term US elections in November, the primary factor undermining personal consumption expenditure in the second quarter was much weaker gains in home values. ...Since 2001, rapidly rising home values have fueled US personal consumption expenditure by increasing household income via cash-out mortgage refinancing. [Pay attention to this.] According to statistics produced by Freddie Mac (the Federal Home Loan Mortgage Corp), one of America's largest mortgage lenders, cash-out mortgage refinancing accounted for about 50% of all mortgage refinancing between 2001 and 2004. In 2005, cash-out mortgage refinancing accounted for 73% of all mortgage refinancing. In the first half of 2006, cash-out refinancing accounted for a staggering 87% of all refinancing. If US home values contract in 2007, household income will also contract. This could lead to much weaker or even contracting real growth of personal consumption expenditure in the US. Lower official interest rates are unlikely to reverse the fall in home values because the overhanging inventory of unsold homes is so large. Home prices must decline to clear this inventory." In other words, the current busting of the housing bubble means likely reductions in consumer spending, especially with wage stagnation, pushing the economy into recession.

In the India Daily a story talked about the U.S. situation: "Early signs of deep recession as investment bankers start cutting costs to survive the downturn - Credit Suisse takes the lead. It is another sign of coming recession - a very early one from those feeling the impact first. According to a media report Credit Suisse has internally banned color copying to cut costs fast. That is producing a ripple effect in the financial world. At the dotcom bubble burst, investment bankers were the first to start cutting unnecessary costs. ...No one knows how bad the coming recession will be. It may be time for the Fed to preempt fast with aggressive interest rate cut." But the Fed can't do that before the elections and also play Republican politics.

So what do Republicans most fear? One, that our sagging economy could become a major news story before the elections. Two, that this news will lower consumer confidence (as it should) and cause people to stop borrowing and spending, and start saving and paying off debt. They hope that the rigged cut in gas prices will be enough to keep people voting for Republicans, despite the housing bubble burst and the looming recession.

WE THE PEOPLE HAVE CONSUMER POWER. WHEN WILL WE USE IT AS POLITICAL POWER? Maybe what we need, as a good kick in the collective ass, is a deep painful recession. With enough pain working- and middle-class Americans may rise up in revolt.

[Learn about the authors new book on www.delusionaldemocracy.com.]

1 | 2

www.delusionaldemocracy.com

Joel S. Hirschhorn is the author of Delusional Democracy - Fixing the Republic Without Overthrowing the Government (www.delusionaldemocracy.com). His current political writings have been greatly influenced by working as a senior staffer for the (more...)

The views expressed in this article are the sole responsibility of the author
and do not necessarily reflect those of this website or its editors.

Contact Author

Contact Editor

View Authors' Articles

Book Recommendations for "2006 Elections Bush"

A Divider, Not a Uniter: George W. Bush and the American People, The 2006 Election and Beyond
by Gary C. Jacobson

$18.40
Lowest New Price $5.24
Number of pages: 352
Publisher: Longman

The polls: presidential referendum effects in the 2006 midterm elections.: An article from: Presidential Studies Quarterly
by Jeffrey E. Cohen

$9.95

Number of pages: 23
Publisher: Thomson Gale

The President's news conference.(Week Ending Friday, January 27, 2006)(democracy and Palestinian elections): An article from: Weekly Compilation of Presidential Documents

$5.95

Number of pages: 30
Publisher: Thomson Gale

The Sixth Year Itch: The Rise and Fall of the George W. Bush Presidency
by Larry J. Sabato

$17.40
Lowest New Price $3.19
Number of pages: 528
Publisher: Longman

View All Book Recommendations

Share this page: (what's this?) Tell a Friend:

(More...)