Another recession, and for many Americans the post-2001 recovery and expansion felt like one long tough slog. It would have felt worse had they been living within their means, but liar-loan mortgages, bottomless credit cards and cheap stuff from China allowed them to think they were rolling in the good times, just like the hedge-fund managers and CEOs.
Another recession, and it won't be like 2001, when a fraud-driven bubble burst, or 1991, when the savings-and-loan scandal sank the economy. It will have fraud, bursting bubbles and unsustainable finance, to be sure. But it may be far worse than anything we have experienced since 1982, maybe longer.
The Wall Street Journal reported today that the credit crisis is set to widen yet again. This time low-rated corporate loans -- you know the ones, often used to buy companies on leverage, loot their productive assets, fire employees en mass, and give millions to the top executives -- are blowing up. Investors are even backing away from securities backed by student loans and municipal bonds. Remember those quaint palmy days when the purveyors of the received economic wisdom were saying the housing downturn would be brief, that the subprime mess would be contained?
They must know better. President Bush, like Hoover before him, keeps insisting that the "fundamentals are sound" in the economy. But that's exactly where the problem lies, and one reason the news keeps getting worse. The fundamentals are unsound and unsustainable.
We are the world's largest debtor nation and now, unlike the 1980s, it really matters. The dollar is no longer the world's sole reserve currency, and America no longer the high-return safe haven in an unstable, bi-polar world. We're running an Americanized British Empire without the stomach for it, but carrying all the financial burdens that eventually sank Albion. Our big creditor China does not necessarily wish us well.
This fundamental reaches to record consumer debt, from an era of bread and circuses at Wal-Mart and the mall, when the American Dream was turned from political liberty and the pursuit of happiness to the house as a consumer product. The mania has millions drowning and more about to be swept away, just as another fundamental cracks...
The wealth-producing capacity of the American economy has migrated over 25 years from making real products to a huge financial Ponzi scheme. It's exemplified by all the "securities" that are being shown to have anything but security. Weapons of financial mass destruction, Warren Buffet called them. They have allowed big players to amass record wealth. But not only are they unsustainable, they were created by the destruction of productive companies and real jobs.
All over America are the shells of factories, ruined towns. The displaced employees didn't become software engineers. They went to work in call centers, retailers and the like, earning a fraction of their former wages, usually lacking benefits. Yet easy credit allowed many to continue spending as if they would have the same future as the workers of the great American middle class of the 1960s and 1970s. They and their children are fundamentally unprepared for the economy today, no matter how many community college courses they take.
The fundamentals of energy call for sustained price increases. Whatever minor downdrafts of lower demand, the future will mean more competition for less oil in dangerous places. No alternative comes without risk, pain and cost. The fundamentals of global warming are more profound still, with huge economic and social costs already happening.
A fundamentally sound economy would not have to exist from bubble to bubble, each one getting more extravagant, followed by an ever more drawn-out "recovery" leaving more behind. The "tax cuts" narcotic has badly damaged the ability of states and cities to educate its citizens, maintain its infrastructure and put in place the systems needed to meet a future of higher energy prices and the need to reduce emissions.
Our national psychology is unsound, unhinged from reality by celebrity mania, ever new distractions and lack of education, especially in history. Imagine if millions of Americans, including the NASCAR red-staters, couldn't live off the largess of their parents and grandparents, who accumulated wealth when America made things and employees had pensions, health care and a fair deal.
All this has been empowered by a business and political elite that has gamed the system, through deregulation, lack of anti-trust enforcement, sweetheart deals and cowardly regulators. The system of regulation, competition and market forces that saved America after the Great Depression was systematically dismantled.
It was empowered by profound media malpractice, especially by television, but also by corporate newspapers' embrace of the dumb and fluffy. Unfortunately, the world today calls for smart and hard.
These sober realities are largely lacking from presidential political discourse, especially on the Republican side. "Maverick straight talker" McCain quacks "tax cuts" like any right-wing AFLAC duck. But even Clinton and Obama don't seem to comprehend the mess. The elite have been strangely isolated, as elites always are. Do they really think a few hundred bucks from the IRS will help, except to deaden the Matrix-sucking consumers while more tax money is siphoned from paying teachers or rebuilding our passenger train system?
So the fundamentals are more unsound than at any time in my lifetime.
Looking at the two cities I most examine: Phoenix is already in recession. It could go no other way for a metro area so dependent on building houses. This will be masked by lazy media. And the north Scottsdale/PV elite will go on as before. Maybe enough cold oldies will keep moving there for the deniers to keep saying, "See, people keep coming here for a reason!" The anti-immigrant laws will play out to the thuggish delight of many Anglos, but to the detriment of the economy. More condo tower plans will die on the drawing board.
Seattle is in better shape, more diversified, more outwardly focused and tied to global trade, more a place for talent, innovation and decision-making to cluster. But all bets are off in a major credit meltdown, and all the propeller-heads in Redmond may not be able to find a way out.
Eventually the unsustainable will not be sustained. God help us if we have finally reached that point.