‘The discretionary spending sector appears to be in freefall — as the economy restructures itself at a lower level around consumer necessities like food and energy. This is global.’
By Roger Baker / The Rag Blog / January 7, 2009
There is no concise definition for a depression, unlike a recession. Before the Great Depression, all economic contractions were termed depressions. But as now used the “D” word usually means notable price deflation which then inhibits new investment. The current situation certainly looks like, as Krugman observes, a downward spiral of contracting consumer demand. This leading to further layoffs and disinvestment until spending shifts and stabilizes at some new and depressed level. Americans are learning to cut back on their discretionary purchases, like learning to drive less while anticipating higher energy costs later.
The discretionary spending sector appears to be in freefall — as the economy restructures itself at a lower level around consumer necessities like food and energy. This is global. If you were a cold German family, wouldn’t you try to sacrifice your vacation pay to heat your home? Even by paying much more than what Germany used to pay the Russians until recently?
You now often read accounts about how the US economy is supposed to turn around later this year. The thinking is that if we in the US enjoyed good times up until about a year ago, then those days must certainly be poised to come back, at least part of the way. There is no clear explanation of why that should be so; no clear picture for where US citizens should best fit in to an integrated world economy a decade from now. The USA economy is based on an aging population in heavy debt to the rest of the world.
Obama’s stimulus package, applied domestically, is overstretched in trying to lift us out of the grand canyon of global debt that the deregulated investment banks have created through derivatives and securitization during the bubble expansion days (the world economy is mostly based on a big global finance system that uses the dollar as its standard unit of exchange).
Here’s a Nobel prize winning economist’s opinion:
“Let’s not mince words,” Krugman declared. “This looks an awful lot like the beginning of a second Great Depression.
World Socialist’s (usually smart economics writing) perspective , describing just how broad the contraction is:
…Most mass layoffs now go virtually unnoticed. To cite only a few other examples from Monday and Tuesday: Philadelphia-based health insurance corporation Cigna announced this week that it would cut 1,100 jobs; Los Angeles United School District intends to soon lay off as many as 3,000 teachers; in North Carolina the Robert Bosch Corp. will fire one tenth of the workforce at its North Charleston plant, about 200 workers; and IBM will soon lay off 1,600 workers, according to anonymous sources inside the company.
The layoffs come in advance of the Department of Labor’s report on unemployment, which is to be released Friday. According to a Reuters poll, economists anticipate that 500,000 jobs will have been lost in December, bringing the economy’s overall purge of workers for 2008 to nearly 2.5 million.
In one particularly graphic example of spiraling unemployment, in North Carolina the number of fired workers trying to sign up online for either new or continuing unemployment benefits was so great in recent days as to crash the system, the state’s Employment Security Commission said.
A downward spiral has clearly emerged in the US and global economy, with layoffs and pay cuts growing in response to contraction in economic activity, and then in turn fueling the latter…
In her San Francisco address, Yellen said that “many forecasters expect this to be one of the longest and deepest recessions since the Great Depression.”
On Tuesday, the minutes of the Federal Open Market Committee for December 15 and 16 were published by Federal Reserve Board of Governors. The minutes read like nothing so much as an encyclopedic description of the first months of the Great Depression, with descriptions of across-the-board economic decline in the US and internationally. In the meeting, the Fed determined to lower interests rates effectively to zero, thereby virtually exhausting monetary policy as a tool to counter the crisis, while promising to make the federal currency printing press available to the major financial interests.
To date the efforts of the Federal Reserve and the Treasury Department have done nothing to stem the crisis.
Also see US and global manufacturing collapsing by Joe Kishore / World Socialist / Jan. 3, 2008