The Economy Sucks. But Is It ’92 Redux?
In California, slowing economic activity is already producing one of the most unwelcome byproducts of an economic slump: declining government receipts. California Gov. Arnold Schwarzenegger last week called for steep budget cuts to close a gaping $14 billion deficit.
When the economy slows, debt of all kinds begin to go bad. Subprime loans are yesterday's news. Today's news? The souring credit of middle-class consumers. Credit-card giant Capital One Financial had to set aside $1.9 billion for bad loans in the fourth quarter, thanks to higher write-offs of auto and credit-card loans.
From Wall Street to California, eyes are turning to Washington for help. Government responses to recessions come in two forms: fiscal policy (stimulus packages) and monetary policy (lowering interest rates). As the primaries roll into economically depressed Michigan, the need for the government to stimulate the economy—through tax breaks or increased spending—has become a hot political issue. On Friday Hillary Clinton unveiled a $70 billion stimulus package, including aid for struggling homeowners and extended unemployment benefits. President George W. Bush, speaking in Chicago before he departed for the Middle East, shifted subtly from his position that the fundamentals are sound. "Recent economic indicators have become increasingly mixed," he said. Bush's upcoming State of the Union address will likely include a grab bag of tax proposals intended to jolt the economy back to life.
The Federal Reserve has already taken action by slashing rates three times since September. Chairman Ben Bernanke last Thursday said the central bank is prepared to take more dramatic action (read: more cuts) given that "the baseline outlook for real activity in 2008 has worsened." But the assumptions that a proactive Federal Reserve can bail out the economy may not pan out this time. Banks recovering from poor lending decisions are less willing to make mortgage loans today, regardless of the Fed's interest rates.
Another assumption that underlay sunny economic forecasts in the past may be crumbling, as well. Economists argued that as long as the rich are getting richer, and spending—they account for a disproportionate share of consumer purchases, after all—the economy could skate by a recession. But signs are mounting that even the holders of the American Express Gold Card are struggling. American Express last week took a $440 million charge for bad debt, reporting that more of its well-off customers were behind in card payments. Cadwalader, Wickersham & Taft, the white-shoe law firm where associate pay starts at $160,000, just laid off 35 attorneys. And big layoffs are coming at Citigroup and Merrill Lynch, two of Wall Street's biggest—and most generous—employers.
Tiffany, which notched huge sales gains throughout 2007, even as many retailers suffered, on Friday reported that same-store sales during the Christmas season unexpectedly fell 2 percent. The reason: lower sales on products that cost more than $50,000. Even for the rich, breakfast at Tiffany's these days is limited to the $1.99 special.
With Ashley Harris in New York and Andrew Murr in Los Angeles
© 2008
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Member Comments
Posted By: Davemathes @ 01/20/2008 3:17:20 PM
Comment: It is once again the"Economy Stupid" and both parties better get that soon. In light of the Republican stupid responses (Cut taxes again for the rich and make the Bush taxes permanant) they clearly show they don't get it. The Democrats numbers are just as bad. We need alot more than ashort time $800 per person break to take care of the economic problems that will bring us down in the next year. Both the Obama solution and the Clinton solution are not enough to shake the problem when forclosures continue, mortgages become impossible to get and insurance companies that back debt can't pay off. This is the BUSH recession!
Posted By: ObamaMama @ 01/17/2008 5:53:55 PM
Comment: Thanks for contributing this knowledge! Kudos to writer Andrew Romano/ Stumper/ "The Race War" and his unbiased presentation of remarks during the course of several days. Closes with something like, "You decide....'" The campaign tactics attack dogs unleashed by the Clinton camp on Senator Obama give every indication of HER STATUS QUO:dirty politics as usual, including reaching to the most experienced in that vein. EXACTLY OPPOSITE of how Senator Obama hopes to mend the great American divide. Mrs. Clinton's initial announcement: "I'm in it to win it.'", supported by suing over caucuses in Nevada is a bellwether of their tactics. Remember, No matter where you go, there you are!!! Senator Obama, showing true leadership qualities, was first to announce a "truce" of sorts to the remarks. FIRST. And he has Americans in mind FIRST, not a private agenda. Mrs Clinton has copied "change" and "American" from him. But there's one thing that won't change: her, her motives, her vendetta. She's very feeble about LBJ. The efforts of a nation and its movement led by Dr. Martin Luther King and other passionate supporters, and wholly supported by the Kennedy administration left LBJ little more than to sign off on it, something he himself acknowledged. And if she can't take the heat in the kitchen, she needs to get out!!! The Clinton camp is the one with "'Open mouth, insert....' " (You decide.) HER camp is having to backtrack, put spin on badmouth comments. Senator Obama embodies very positive leadership qualities and abilities. He is particularly EXPERIENCED in thinking before speaking, and his clearcut concern is to run a very ethical campaign. Intelligent voters don't choose a candidate based on ONE factor: (like I'm a woman). Both Senator Obama and Mrs. Clinton have provided the public insight into how they personally deal with events, remarks, issues! WATCH!!!!
Posted By: stanjz @ 01/16/2008 7:23:37 PM
Comment: History has been overtly generous to the Clintons in what it perceives they have done for the poor.
Federal Minimum Wage Bush one-April 1991 $4.25
Clinton-October 1996 $4.75 Clinton-September 1997 $5.15 You don't close the gap between the rich and poor with a .90 /hr raise over 8 years!
???The income gap actually grew more during the Democratic Clinton administration than it has during the Bush administration. According to U.S. Census data, the share of income for the wealthiest 5 percent rose from 18.6 percent in 1992 to 22.1 percent in 2000. That???s a jump of almost 19 percent.???
Furthermore, capital gains tax was only 20 percent during the Clinton Presidency. That means the super rich only paid 20 percent on their income from the stock market. Actual wage earners would pay up to 38 percent. Most CEO???s get paid through stock so they only pay 15% tax now and 20 % back then. The Clinton???s never indexed the minimum wage to inflation like Barack Obama wants to, so the poor immediately saw inflation eat away at their small gains.