It is blatantly obvious that the United States economy is suffering from a severe recession, and most Americans believe things will only get worse from here. What should we expect for the future? We may well find ourselves in a full-blown depression by 2011, according to MarketWatch.
We now seem primed for an economy of boom and bust far beyond what is normally associated with natural economic principles. America has all the ingredients necessary for creating a depression, the recipe is set and the buns are in the oven. The only questions that remain are 1.) when will the fall come and, 2.) how bad can things get?
The first sign of the times was the "dot.com bubble"- in 2001. The stock market never really recovered from the collapse of so many companies and their trumped up paper values. The second harbinger was the housing decline and subsequent subprime meltdown. The economy had been artificially inflating home values in the same fashion that it inflated the value of internet-based companies. The rapid collapse has been precisely the same. As homes lost value, mortgage holders lost profits and in their shortsighted mad-dash for revenue they increased mortgage rates and revealed the hidden subprime lending crisis.
Our recent history shows an economy built for extravagant boom and bust cycles. The government is supposed to intervene to lessen the effects of each cycle and maintain sound economic fundamentals. Instead the government seems to just interfere enough to exacerbate the good and bad inherent in the system.
Ben Bernanke, the world's foremost expert on the Great Depression, should have seen this coming. He, like the rest of those in government, was blinded by the money available to people in his position and balked at the notion of regulating trade.
When Henry Paulson first came into office he made many statements, public and private, regarding the problem presented by our unfettered derivatives and commercial paper markets. After a year or so as a Washington insider he changed his tune and stopped clamoring for change.
Now that the collapse is upon us everyone in the government wants to tell the people that they can handle this challenge, yet they all should have seen it coming in the first place and avoided it. There is a laundry list of reasons why this economy is in trouble, but no reason is more paramount than the complete lack of leadership at the top. People like Dennis Kucinich and Ron Paul are ignored because of their somewhat odd behavior and seemingly extreme policy preferences. But if the policy is sound why does it matter if it is extreme? Why are we not all on the side of extreme policies if those policies are good and helpful?
Former Goldman Sachs chairman John Whitehead believes that this lack of leadership and sound policy will eventually lead rating agencies like Moody's and Standard & Poor's to downgrade the United States Treasury from its status as a AAA borrower. Our country currently operates on foreign loans because our government constantly spends beyond its budget. With a lower credit rating, the government would find it more difficult to procure loans and eventually may be frozen out (just as "subprime"- borrowers are today) of its needed credit lines. When that happens, the end will have officially arrived and the United States will without a doubt be in a depression. The question is no longer whether or not this is possible, the question is when this possibility will materialize.
This article was published at www.economyincrisis.org on 11/19/08 and was written by Craig Harrington -