It’s over. After a rocky year for the American economy, the recession has ended. That’s right, with the government’s announcement Thursday that the economy grew at an annualized rate of more than 3 percent, happy days are here again.
No more will we hear of people struggling to find jobs, and the holidays will be bountiful as people have more income to spend. Hooray!
Wait, not so fast. Despite the soothing reassurances we’ve heard from economists, politicians and the media, the economy’s problems haven’t been fixed. Unemployment continues to rise, and it appears that Americans will be celebrating Grinchmas this holiday season due to their falling incomes and maxed out credit cards.
This is the oddest economic “recovery” I’ve ever witnessed, both from personal experience or history books.
Upon further reflection, I’ve realized there is no economic recovery whatsoever. But, I can hear you telling me, the economy is growing, the stock market is going up and the media says the storm has passed.
The conventional wisdom is dead wrong. First off, Thursday’s economic report did not bear good tidings. While the government announced that the economy grew at an annual rate of 3 percent, this number is bogus. Once one strips out Cash For Clunkers, the $8,000 home-buying credit and other such artificial government stimuli, we find that the real economy continued to shrink steadily.
On Thursday, we also saw government statistics showing that personal incomes in the U.S. continue to decline. Couple this with rising unemployment, and average Americans, if they are still employed at all, are earning less than ever.
With people’s spendable incomes falling, how is the economy “growing?” Simple, the stimulus programs encouraged people to take on further debt. With Cash For Clunkers people were only spending a couple thousand dollars of cash up front to buy expensive new vehicles, yet the cost of those sales is entirely reflected in the immediate economic statistical release. Thus, $30,000 of a car purchase is added to GDP even though a consumer only paid $5,000 up front.
The other $25,000 is debt the consumer is now weighted down with. We got into this economic crisis why? The government, under the failed leadership of Bush and Fed Chairmen Alan Greenspan encouraged Americans to take on too much debt to recover from the twin blows of 9/11 and the Internet stock collapse.
The result was a false “jobless recovery” where the economy sputtered along, but put up reassuringly positive statistics —- while incomes for average Americans failed to rise, the economy appeared to grow as consumers took on more debt to fund purchases they couldn’t afford.
The bills came due in 2007 and 2008 and the economy started to viciously plunge as it became apparent that the entire financial system was a giant pyramid built on the feeble support of the tapped out American consumer.
As Americans started declaring bankruptcy rather than paying their bills, major banks started collapsing left and right, leading to the demise of Bear Stearns, Lehman, AIG, Fannie Mae and countless others.
Now the Bush and Obama administrations have come up with a genius solution to the problem of excessive debt crippling the economy. It is, you guessed it, more debt. That’s right, the way to fix a hangover is to down another shot.
The American government is borrowing almost $2 trillion — yes, that’s trillion with a “t” — a year to give the economy “a boost.” Such irresponsible borrowing is unheard of.
At the same time, the government is creating programs that entice people to take on more debt, such as Cash For Clunkers. The solution for too much debt is not more debt, which is why the economic “recovery” we see today rings so hollow.
While a few economists may be applauding, the real economy continues to suffer. Colorado’s tax revenues continue to plummet leading to almost-monthly additional cuts to our university’s budget, the job market for college graduates remains dismal and Americans’ incomes continue to drop while their debts owed to banks soar.
The result of all this debt will be another Great Depression, just as a Great Depression finally cleared away excessive debt in the 1930s. I don’t know whether the Obama administration and Fed Chairman Bernanke can avoid that day of reckoning for another few years or whether the economy collapses right here and now, but regardless, they should be putting away the champagne, as they’ve fixed nothing. The economic tidal wave is still rushing toward us at increasing speed.
Editorials Editor Ian Bezek is a senior economics major. His column appears Mondays in the Collegian. Letters and feedback can be sent to firstname.lastname@example.org.