EconomyInCrisis Articles

Another Sign of a Recession

Thu, 21 Aug 2008 00:00:00 -0400

In yet another sign that the economy is already well within a recession and shows no signs of coming out of it any time soon a private business group’s measure of the health of the U.S. economy fell much lower than expected in July. The New York-based group The Conference Board reported Thursday that forecasts for future economic activity fell 0.7 percent, much more than the expected 0.2 percent. The index held steady in June, with no change, after falling 0.9 percent for the six months ending in July.

The decline was the steepest in the index this year and the largest decline seen in the index since August 2007, and paints a very bleak picture of potential economic growth in the near future.

The numbers are ``consistent with the weak economy right now, probably an economy in recession,'' James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said in a Bloomberg Television interview.

The Honeymoon is Over

Thu, 21 Aug 2008 00:00:00 -0400

Modern currencies are not backed by gold or silver, they are backed by the confidence of the consumers who hold and use them. In recent weeks, the dollar seemed to have regained some of the confidence it had lost during the last year; but with alarms sounding throughout the United States economy many investors chose to pull out of the dollar market and seek stability elsewhere, according to CNN Money .

The investors found the stability they sought in oil, elevating crude futures to $119.43 Wednesday, an increase of $3.87 from the previous day of trading.

Typically, a strong dollar lowers the price of oil regardless of consumption, because investments which otherwise would go to commodities such as energy end up going to currency markets. Similarly, when the dollar is weak the price of oil tends to rise, as investors “bid up” prices on the commodities market. This was precisely the case Wednesday, as investors used commodities as a “hedge” against a presumed future devaluation of the dollar.

Into the Abyss: Fannie Mae and Freddie Mac

Thu, 21 Aug 2008 00:00:00 -0400

Fannie Mae and Freddie Mac are now nearly worthless, having each lost nearly 90 percent of their value in the last year alone. Fannie Mae shares dropped to just $3.75 on Thursday; Freddie Mac shares bottomed at one point at $2.68. A government bailout is now all but certain, and the possibility that the two federally-sponsored giants will be dismantled and sold for scrap is now a serious concern, according to Reuters.

You Decide 2008: Stagnating Wages

Thu, 21 Aug 2008 00:00:00 -0400

As Labor Day approaches and the presidential campaign kicks into high gear we begin a series examining Democrat Barack Obama and Republican John McCain’s plans to revive America’s falling economy.

As wages for American workers continue to stagnate and the economy falls deeper and deeper into recession both major party presidential candidates have offered solutions to fix the ailing economy and improve the quality of life for the average American. However, there are stark differences between the two candidates when it comes to their solutions. Today we look examine how each candidate plans to deal with stagnating wages.

Help Wanted

Thu, 21 Aug 2008 00:00:00 -0400

Jobless claims fell last week for the second week in a row, but signs of a weakening labor market are omnipresent. The moving average of new jobless claims actually rose to 445,750 up from 438, 500 the previous week- the highest level in almost seven years, according to Reuters.

Mortgage Applications at Six Year Low

Wed, 20 Aug 2008 00:00:00 -0400

In another grim reminder of the struggling real estate market and the recession of 2008, the Mortgage Bankers Association of America released a report Wednesday the puts mortgage applications at six year lows.

Faking It: America's Standard-of-Living Bubble Burst Looming

Wed, 20 Aug 2008 00:00:00 -0400

In America, it seems perception is everything. Amid our economic turmoil, it may seem egregious to say that our standard-of-living has continued to rise, but that is exactly what has been happening. Through pretending and borrowing, we have continued to live in a land of make-believe where we can always afford to live a little better, despite any real basis for this assumption. Due to our reprehensible spending patterns, Americans are encroaching the bursting of the most worrisome bubble of all: the standard-of-living bubble, according to CNNMoney.com.

For the past several years, the average inflation-adjusted total pay of American workers hasn’t been increasing, so there hasn’t been any foundation on which to build our living standard. However, we have continued to save less, borrow more and spend, spend, spend. Credit card debt is growing at exponential rates. With the bursting of the real estate bubble, borrowing from home equity was relinquished and people resorted to borrowing from their credit cards.

Americans began relying on their credit cards as a source of income and living under the false assumption that this extra money could increase their standard of living. However, credit card debt has continued to grow faster than the economy- more than 8 percent in last year’s third and fourth quarters.

Bad Policies, Bad Politics: The United States and China

Wed, 20 Aug 2008 00:00:00 -0400

Treasury Secretary Henry Paulson believes that the United States should not only tie its own prosperity and well-being to the whims of the world market, but also that it should tie itself to the Chinese, according to VOA News.

The Chinese economy is one of the most rapidly growing economies in the world today, and it has the potential to become a juggernaut of historic proportions in the coming decades. They have a stable currency, high growth rates – typically near 10 percent annually – and massive balance of trade surpluses.

The situation in the United States seems to be just the opposite, and for this reason, many Americans are concerned by the level to which China has ascended. Flying in the face of popular sentiment – which is after all, the basis of democracy – Secretary Paulson argues that we have nothing to fear from the Chinese. Citing the many interests we share – oil, energy security, etc. – Secretary Paulson believes that a strategic partnership is the best long-term solution.

Sun Setting on American Century

Wed, 20 Aug 2008 00:00:00 -0400

Editor's Note: The following work is the fourth and final part in a series contributed by attorney, economist and author Perry L. Weed. Weed's article raises distinct observations about America's troubled economy.

Since the early 1990s, the growth of the financial services industries – securities, banking, insurance, mortgages, and related professional services – has been staggering. It is now a dominant economic sector accounting for nearly 20 percent of the U.S. economy. Its rise has been inseparably linked to record levels of excessive debt in the U.S., its ascendancy dependent on easy credit, leveraged borrowing and the ballooning of public and private debt. Washington has been an active enabling ally in this expansion with its deregulation and federal preemption policies. The debt of the financial sector is the largest in the economy, bigger than the debt each of the other three debt sectors – all governments, all households and all non-financial businesses.

Abysmal Slump Continues for Fannie and Freddie

Wed, 20 Aug 2008 00:00:00 -0400

The well-publicized fall of mortgage giants Fannie Mae and Freddie Mac accelerated again Wednesday, according to Bloomberg.

While the Treasury Department takeover looms on the horizon, we must question the efficacy of using billions of taxpayer dollars – some have placed the figure well about $15 billion – to bailout poorly managed finance houses. Fannie Mae and Freddie Mac are victims of their own malfeasance, and they are threatening to take the rest of the economy down with them.