Some scary figures on the US economy from The Market Oracle website;
“The continuing claims data leaped over 500,000 to (again, not a typo!) 5,832,746. The length of time people are staying unemployed is also rising rapidly. We are up almost 1.5 million new continuing claims in just the last five weeks. That is a stunning rise of over 30% in unemployment claims in just over a month. The data is truly ugly, but it is what it is.
The US likely just experienced a 4th quarter with GDP down over 4%. Some estimates suggest 5%. For all of 2009 we are likely going to be down at least 1-2%, which will make this the longest recession since the Great Depression. Unemployment is headed to at least 9%. Consumer spending will be off by at least 3% this year and again in 2010, as consumers start to find virtue in savings, which should rise in the US to 6% within a few years. Housing prices are going to drop another 10-15%, taking homes back to a level where they may be more affordable.”
Let’s add it up. In the US, we have seen massive wealth destruction on personal balance sheets. At the end of the third quarter the losses totalled $5.6 trillion, between housing and stocks. They could be over $10 trillion at the end of the fourth quarter. (Source: Hoisington) The losses will almost certainly top $12 trillion by the middle of the year as housing continues to deteriorate…”
Some incredibly disturbing figures which show just how dire the current economic situation is in the US, and in turn, the rest of the ‘developed’ world. I’m not sure the Obama administration have any real idea of what they’re going to do long term or the outcome of their current policy (throwing gov money into the economy in a hope to increase demand). The $1 tn promised to the IMF at the G20 summit earlier this month certainly highlighted that developed nations realise several of their number will very likely end up asking for IMF loans within the next 18 months or so (highly likely in the case of the United Kingdom).
In both the UK and US there seems a strategy of buying up toxic bank assets and quantitative easing, which for now pretty much translates into throwing money down a black hole (the banks need many trillions more to clear their balance sheets). What would boost consumer demand and limit unemployment (and the civil unrest that will ultimately come with it once figures get higher) would be real large scale public works. The UK government is currently borrowing to maintain levels of public service spending, but not creating jobs or wealth.
If the government wish to go down the Keynesian route, they shouldn’t be half hearted about it. National infrastructure projects, the taking over of failing industries to maintain jobs and innovate production (re-tooling car manufacturers to make them greener and more competitive) as well as nationalising the largest banks/financial groups and allowing the most toxic branches (the financial product arm of AIG for example) to go to the wall, while saving the rest of the company could all help. This may limit the government’s liability and get rid of the dead wood.
Either way you look at it, the UK and US govs are overseeing economies in cardiac arrest, and which may well be DOA by the this time next year. This will almost certainly shift the global economic balance of power, and will perhaps lead to a slight limit on the worst aspects of neoliberal economics we’ve seen in these two countries for the past few decades.