Print this post.January 24, 2010
In an economy where 72 percent of all financial activity involves consumers buying stuff, it is impossible to imagine where any growth or recovery could come from when the American people are being so battered financially.
By Dave Lindorff [print_link]
The Democratic Party’s embarrassing electoral disaster in Massachusetts, losing a seat held for 46 years by the late Sen. Ted Kennedy, provided a clear warning that the party, and President Obama’s presidency, are headed for an epic trouncing this November, when all members of the House and a third of the Senate face re-election.
But all the frantic strategizing within the sclerotic Democratic Party leadership ignores the bigger crisis yet to come for this party that once brought the nation Social Security, unemployment compensation, public jobs programs and Medicare. That crisis is the economy, which is now showing signs of falling off a second cliff instead of beginning to recover.
Thanks to the abject failure of President Obama to boldly order up a massive jobs program and a full-blown economic stimulus program of public investment at the beginning of his term last spring, and to his failure to attack the entrenched banking interests by smashing apart the meg-investment banks that had turned banking into a casino game, the economy has been left to stagnate for a year.
Unemployment has continued to rise, with the latest reports showing that layoffs have begun to re-accelerate. Unemployment rose in 43 states, including some of the biggest, in December and fell in only four. And we are only seeing the beginning of this new drive into the ditch. The most ominous, and totally predictable, trend is layoffs by the public sector–by towns, counties, states, and public bodies such as public universities, school districts, public hospitals and transit companies. These layoffs which could ultimately number in the millions and which will have a knock-on effect on all kinds of other jobs, were deferred because of aid provided last year by the federal government, but no more federal aid is likely to be forthcoming and the money already provided runs out this summer. Look for official unemployment this year to move past the 11 percent record set in 1982. Meanwhile, real unemployment, which includes people who have given up looking for work, and those who have managed to get part-time work, is approaching 20%, and could eventually top 25%–a rate reminiscent of the Great Depression.
At the same time, the foreclosure crisis, and the related decline in home values which has put one-fourth of all homes “underwater,” meaning they’re worth less than the mortgage balance, continues unabated.Time Magazine, in its first issue of the new year, predicts that at least as many homes will go into foreclosure in 2010 as in the record year just ended–over 3 million houses. Equally bad, the magazine says that many housing experts are predicting that property values, which have lost an average of 30% since 2006, will continue to declineuntil into 2013!Already, American homeowners have lost over $7 trillion in wealth because of property value declines, and they will continue to lose more.
In an economy where 72 percent of all financial activity involves consumers buying stuff, it is impossible to imagine where any growth or recovery could come from when the American people are being so battered financially.
For almost a year, the government has hidden this disaster behind a rising stock market, which rose in seeming contradiction to all the bad news, as companies slashed costs to eke out profits from drastically reduced revenues. Many analysts say that this bizarre behavior of the equities markets was the likely result of behind-the-scenes government intervention in markets. Consider this: for the whole period between March 9, 2009, when the market began its rebound, and the present, a period during which the equities markets recovered roughly 60% of the ground they’d lost in the last crash, corporations were net sellers of their stock, and retail investors were basically out of the market. Foreign investors entered the market, but not in any huge way. Hedge funds, too, normally big players, were experiencing outflows of investor cash during most of the period, making it unlikely that they were investing either. Even pension funds, which were badly burned in the crash, were cautious investors over the past year. So who’s left? Suspicion falls on the Federal Reserve and the Treasury Department. This might explain why stocks have continued to rise on very low trading volume, and also why most of the upside has come, especially since last September, in after-hours trading in S&P futures, not in direct buying of shares during regular trading hours. If true, what this means is that the federal government has been doing what it fines hedge funds and investment banks for doing: manipulating the markets.
While the Fed and Treasury can theoretically manipulate the stock market, they cannot do this forever, and this past week, we have seen indications that the bull run in the market, whatever caused it, may have run out of steam.
If the economy does take a second plunge similar to what happened in late 2008 and 2009, Obama and the Democrats will have to accept the full blame. They had the opportunity last year to strike hard at the root causes of economic decline and at the sinister, greedy and corrupt activities of Wall Streets banks and investment banks. Because they chose instead to try and paper over the problem and accomodate those banks–even helping them to become bigger and more powerful– they will deserve the electoral drubbing that is coming.
It would be a huge and historic mistake for Democrats to listen to the advice of people like White House Chief of Staff Rahm Emanuel, who are claiming that the loss of the Massachusetts Senate seat to a Republican means it is necessary for the party to hew even further to the right. Yes, Massachusetts voters were voting for a guy who said he would kill the health bill in Congress, but polls suggest that his winning margin came from 7% of self-described liberal Democrats who told exit pollsters that the health bill was terrible and they wanted it killed. That seven percent is a huge number, when you consider how hard it would be for most Democrats to vote for a hard-line conservative candidate–someone who openly advocates waterboarding of terrorist suspects, and who is adamantly anti-abortion rights.
What really turned the trick for the GOP candidate, Scott Brown, though, was the economy. The rank-and-file working person (Republican or Democrat), both in Massachusetts and in the US at large, has seen enough over the past year to conclude that the Democrats in Congress and the Man-o-Change in the White House do not have their interests at heart. They clearly see that this government’s actions in support of the banks, the insurance companies, and the other giant industries in the US, from autos to utilities, are not being taken in the cause of bringing benefits to the people, but are simply being done for the benefit of those industries and their leaders and key investors. It’s not even “trickle down” anymore. It’s just catering to the rich and powerful–the people who make all those fat campaign contributions.
This is why Obama’s sudden “pivot” (people who have real values don’t “pivot”) to a tacky “populist” rhetoric about “fat-cat bankers” is falling on deaf ears. It’s why Democratic leadership calls for Congress to just pass the wretched Senate version of the health bill are being viewed with disgust by the public.
Everyone realizes it’s all just image-mongering. Nobody in power in Washington, Democrat or Republican, is there to help the little folks.
It’s all about making the rich richer.
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DAVE LINDORFF is a Philadelphia-area journalist. His latest book is “The Case for Impeachment” (St. Martin’s Press, 2006). His work is available atwww.thiscantbehappening.net