Upbeat reports in the financial media, belie the effects of the ongoing credit contraction.
Massive injections of central bank liquidity have prevented the collapse of financial markets, but have done little to ease the deleveraging of households or stimulate activity the broader economy. The crisis has stripped $13 trillion in equity from working families who now find their access to credit either cut off or severely curtailed by the same banks that received hefty taxpayer-funded bailouts.
The fiscal strangulation of the millions of people who are no longer considered "creditworthy" is progressively weakening demand and spreading pessimism across all income levels.
Growing public desperation was the focus of a special weekend report by Bloomberg News:
The near-delirious optimism that followed the 2008 presidential election has fizzled in less than 12 months.
While the policies of the Obama administration have improved Wall Street's prospects for record profits and lavish bonuses, ordinary working people continue to fight to keep their jobs and maintain their standard of living.
Recent data show that household debt which
surged during the boom years is being pared back at a historic pace.
Household debt to disposable income has plummeted from 136 percent to 122
percent in a little more than a year, leaving many families with little to
spend at the malls or shopping centers.
This is from Bloomberg:
The Obama administration's $787 billion stimulus pushed GDP into positive territory for the first time in more than a year, but the maximum impact has already been felt.
President Obama - under advice from his chief advisors - has shifted his focus from soaring unemployment to long-term deficits. Additional stimulus will be no more than $200 billion, of which, a mere $50 billion will go towards jobs initiatives.
When the program ends, rates will rise, housing
prices will tumble, and liquidity will drain from the system. The end of QE
coupled with dwindling stimulus ensures that economy will slide back into
recession in the 2nd or 3rd Quarter of 2010.
Along with flagging consumption, economists Antonio Fatas and Ilian Mihov show why both investment and employment will not rebound in the way that many bullish analysts expect.
By tracking the rate of recovery in the last 5 recessions, the two economists show that demand will remain flat for a prolonged period of time, precipitating a "jobless" and "investmentless" recovery. Their research supports additional stimulus to reduce the output gap and engage the labor force in productive activity. The administration's policies are the exact opposite of the majority of professional economists who believe that deficits need to increase to effect overcapacity and underutilization.
Obama is deliberately steering the economy
into a double-dip recession.
In Europe, the ECB and IMF have begun to use the financial crisis to wrest control of the budgets of deficits-plagued nations to apply business-friendly austerity measures. The economic meltdown - that was generated by overleveraged banks trading dodgy investment paper - is now being used to assert corporate/bank control over sovereign nations.
...are all presently in the crosshairs of neoliberal restructuring.
Surely, the same policies will be applied within the United States under the guidance of supply-side economist and chief advisor to the president, Lawrence Summers.
Thus, in 2010, economic contraction will
continue to force state and local governments to lay off millions of more
workers while public assets and services are made available at fire-sale
prices to private industry.
The prospect of social unrest or sporadic incidents of violence can no longer be excluded.