EconomicCrisis.US

We are in a global debt crisis. In some parts of the world and in some parts of the U.S. economy, the extent of the damage isn’t even apparent yet.

The main reason?

It wasn’t investment banks borrowing wildly. It wasn’t corporations running up debt instead of issuing new stock shares. It wasn’t the federal government.

A new analysis by the McKinsey Global Institute lays most of this debt at the feet of middle-class consumers – Americans, Britons, Canadians and others – who bought more house than they could afford.

American consumers have responded by paying down their debts, curbing purchases and putting more into savings. Similar actions are spreading across the developed world.
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With his senate confirmation for a second term as a chairman of the US Federal Reserve Board delayed, Ben Bernanke took time to attend the annual meetings of the American Economic Association (AEA) in Atlanta on January 3. His pronouncements, however, must have confused many of those at the meetings as he tried to convince his audience that the low interest rates that had been engineered by the Fed during 2002-2004 had no part in fueling the housing bubble.

In response to the 2001 recession, the target federal funds rate had been lowered from 6.5% in 2000 to1.75% in December 2001, and to 1% in June 2003. After reaching a record low of 1%, the target rate remained at that level for a year. The Fed could not keep interest rates at such a low, as illustrated by the current near-zero interest rate policy, without massive liquidity injection. Most disappointing was his assertion that the US Fed had no responsibility in producing the ongoing financial crisis and that the housing crisis was purely the responsibility of supervisors and regulators.
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Even when the U.S. labor market finally starts adding more workers than it loses, many of the unemployed will find that the types of jobs they once had simply don’t exist anymore.

The downturn that started in December 2007 delivered a body blow to U.S. workers. In two years, the economy shed 7.2 million jobs, pushing the jobless rate from 5% to 10%, according to the Labor Department. The severity of the recession is reshaping the labor market. Some lost jobs will come back. But some are gone forever, going the way of typewriter repairmen and streetcar operators.
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Using different words, national and state economists offered the same message Thursday in delivering the 2010 Economic Report to the Governor.

“A theme of emerging recovery” is how Juliette Tennert, chief economist in the Governor’s Office of Planning & Budget, characterized conditions in Utah.

Nationally, “the worst is over. We’ve hit bottom,” echoed David Wyss, chief economist for Standard & Poor’s, a 150-year-old financial-services company whose stock, bond and credit ratings are watched closely by the business community.

“We’re at the stage of the cycle where things are not getting worse,” he added, cautioning that there will be a slow recovery from “a terrible recession that could have been a lot worse. … But half a recovery is better than none. You take what you can get.”
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