AMERICAN ECONOMY IN CRISIS

HOME

AMERICAN ECONOMY IN CRISIS

The Honeymoon is Over

Craig Harrington

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.

There are many reasons to be worried about the state of the United States economy, most prominent among them being the housing crisis which has reached pandemic proportions. Therefore, we should expect to see a further weakening of the dollar versus other stable and better managed currencies.

However, gas prices have continued to decline, and we should not expect a massive increase in the price of oil futures. The dollars relative strength does have an effect on the price of oil as stated previously, but the major factor in any price equilibrium is the economics of supply and demand. Thankfully, the United States has seen a significant drop in its demand for oil in recent months. While an early surge in Thursday bidding has put oil above $121 the prospect of oil pushing well beyond $120, or reaching the meteoric peak of $147.25 from July 11, is unlikely. “I think you would have to have something a bit out of the ordinary to get there,” said Neal Dingmann, director of equity research at Dahlman Rose.

Another Sign of a Recession

Dustin Ensinger

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 poor showing is the fault of a major housing crisis, large number of jobs cuts and harder-to-get credit. Because of this consumer spending is almost sure to drop off which will only worsen the situation.

This is yet another sign that the nations failing economic policies are not sustainable. America must resurrect its manufacturing base to provide good jobs for its citizens, control budget deficits, stop selling our best companies to foreign investors and start practicing “fair trade” instead of “free trade” that strips America of its sovereignty and decimates the American middle class. We must pressure our government to effectively deal with these challenges before it is too late.

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

Alexia Cameron

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.

Banks are finally starting to bear the brunt end of the stick as they can no longer offload as much debt as they have in the past. Credit card debt, like mortgage debt, gets bundled, securitized, and sold off by banks. Citigroup, one of America’s largest lenders, just reported that it lost $176 million in the second quarter through securitizing debt. When buyers of those securities notice an increase in delinquency rates and rising interest rates, they decide that the debt is worth less than Citigroup thought.

While home prices probably won’t be rising anytime soon, there isn’t much else to borrow against. The standard-of-living bubble may have to deflate. Americans may soon have to learn to save their money and spend what they have. Our standard of living has to be earned and can no longer be a delusional thought. We need to develop more valuable work that cannot be outsourced to re-up America’s economy and give us a solid foundation on which to increase our standard-of-living. Maybe then, we can finally evacuate imagination land.