9/21/2011 1:49 PM ET|
The real recession never ended
We're well into a recovery, so why does it still feel so bleak? Here's why: The crunch we’re in is rooted in stagnant paychecks and payrolls, and it’s more than a decade old.
Economists tell us the economic recovery is more than two years old. Corporate profits have zoomed to record highs. Countries such as China and Brazil have roared back.
But by just about every other measure, it's as if the 2007 recession never ended. Industrial production, retail sales, employment, home prices, construction activity, inventories and retail sales are all below pre-recession levels. In inflation-adjusted terms, the economy is smaller than it was before the downturn. That's nearly four years of no growth.
The truth is, our problems are deeper and go back further. One example: Stocks are coming off their worst 10-year performance since the Great Depression, trading at levels first reached in 1998.
In fact, I'd argue that the real recession began a decade or more ago and hasn't ended. The key problem -- stagnant wages -- has only gotten worse. It hasn't mattered who was in the White House or in control of Congress. It's structural, and it's related to globalization and the rise of China.
Americans in general have felt this for years; the good news is that the folks in Washington have finally started to notice, too. But until they do something, we need to prepare our portfolios and pocketbooks for more no-growth years ahead.
I've got some ideas on how to do that. But first, let's look at how this mess began.
No growth here
Comparing our most recent run to the rebound from the last four recessions, Credit Suisse economist Neal Soss finds that the economy should be 10% larger, consumer spending 14% higher, housing investment 25% higher, business investment 10% higher and wages 30% higher than they are now.
So what's the problem?
Employers, scared by the 2008 financial crisis, cut jobs more deeply than experts expected. They've gotten used to smaller workforces and the big profit margins that go with them, thanks to outsourcing and automation.
Other factors include the fallout from the housing bubble and the financial crisis, and new worries over the creditworthiness of Western nations. Credit Suisse strategist Andrew Garthwaite estimates that the rich world is sitting on $8 trillion in excess debt -- mortgages, student loans, Treasury bonds. That's dead weight holding down the recovery.
This is all rooted in a deeper problem -- a wage recession that never ended.
Incomes have been stagnant since the Clinton administration. In the interim, a lot of us used higher stock prices and home values, fueled by cheap credit, to supplement our paychecks, It was merely a temporary reprieve that's left behind a pile of debt, battered 401k's, underwater mortgages and broken dreams.
The truth is, we never fully escaped the 2001 recession.
The root of the problem
Part of the reason wages stalled was technology. Mainly, though, it was the rise of globalization.
Of the 27 million jobs the U.S. economy created in the two decades before the latest recession began in 2007, the vast majority were in "nontradable" sectors of the economy like government, health care, construction, retail and hospitality, notes economist and Nobel laureate Michael Spence. These are positions that can't be shipped overseas.
VIDEO ON MSN MONEY
Some interesting facts about Australia:
1) The minimum wage is approximately $15.00 USD
2) They have national health care (Medicare)
3) Bank accounts pay over 6% interest
4) They have longer longevity rates than the U.S.
5) They have lower infant mortality rates than the U.S.
6) They have mandatory recycling
7) They have a tough immigration policy
8) They seem like a happy lot
If I wasn't retired I'd think about moving there. Why stay here and get boiled like a frog?
Most of the comments below all contain horrifying, incredulous and shocking statements. Worst part is, they're all true. I won't go into re-hashing what was already said but here comes another sad item.
Instead of bailing out all the banks and junk bond investment firms, the Feds could have given each family a check for $100,000. (DO THE MATH, IT WOULD HAVE BEEN CHEAPER, THAN WHAT WE DID.) What would they have done with the money?? Pay off credit cards, paid down mortgages or fixed up their homes, bought appliances, cars, you name it. STIMULUS??? That would have knocked it out of the park. Where would the money have gone? Well, to the banks and manufacturing sector, the ones' who needed it anyway.
But let's be realistic, it's all a dream, we would have never done it, but it probably would have worked, AND it would have been more satisfying to me than to line the pockets of the comglomeration of greed merchants that put us here with bonuses.
The housing market started to crumble in California (land of the tax-evading illegal immigrant welfare recipients) where foreigners have no problem walking away from loans obtained for house-flipping speculations using fake IDs. And here we are now, and the cost of educating, housing and feeding the offspring of millions of foreigners who have no respect for our laws is eating us alive. Would our country even be in crisis if not for the millions of foreigners here illegally, many paying $thousands to smugglers for the opportunity to exploit U.S. taxpayers?
Billions of U.S. tax dollars is given to foreigners every year when they use our emergency rooms as free health clinics, get free educations for their kids and welfare checks for their anchor babies, while they send billions of U.S. dollars obtained here illegally to their own country every year.
Nevada has the highest unemployment rate and the highest percentage of illegal workers in the country.
Illegal immigrants are more likely to commit crimes than U.S. natives, such as identity theft, tax evasion as they work for cash and steal jobs, and hit and runs as a result of driving without insurance. Half of the FBI's most wanted for homicide in America are Mexican citizens.
Illegal immigrants benefit themselves and unscrupulous employers who lobby corrupt politicians on the U.S. taxpayer's dime and shortchange our own children's chances.
This is probably the most truthful and easiest to understand article I've read yet on the economy. Mirhaydari "gets" it.
I want to know why companies that outsource don't have to pay some sort of outsourcing tax to compensate for the taxes not going into our coffers?? Yeah, I know, it would cut into their record profits. But it might help lower our DEFICIT.
OMG! Do those IDIOTS think we believed them when they said the recession was over?? Try convincing me of this PLEASE!!! I was out of work for 2 and a half years, Unemployment ran out, Yes you will say I should be grateful because I just started a job. If you want to call it that, I am getting paid what I made in 1985!! Do you really think I can live on that? What I want to know is how do those powers that be calculate me and many many others,
1. Unemployment ran out so they cannot monitor me.
2. Or are getting paid so drastically lower then what we were making just for the sake of getting a little income, and my emphasis is LITTLE INCOME!
How do they expect us to buy things when they have reduced us back almost to where we were 30 years ago in pay, prices sure as HELL WERE NOT TURNED BACK..
Get a grip Corporate America, give us our jobs back with our pay so you can make your profits again.
Meanwhile our products continue to be tariffed going in while they have easy and open access to our markets.
This is just plain wrong.
The situation demands that we immediately erect protectionist tariffs for China and other countries who did not keep their promises.
WE are a fault if we let this situation continue.
I have spent 20 years in business in China. I know how they not-so-secretly consider us dumb for continuing our seemingly blind actions.
I can agree its not all Obamas fault' the Bush era is just as guilty as he is' however I cant help but to think that politicians in todays world dont seem to have common sense or a sense of loyality to the country. It seems everything they want to do leans toward their special interest or just plain GREED to help their business connections.
Many of our politicians in Washington today are millionaires and their not into politics for that paycheck they get,they are there because they want to help their business connections for they certainly dont need the money. They dont have the same motivations as the old politicians we had years ago that seem to continully show patriotism and worked to better the country as a whole and not just to fill their pockets. I am starting to think that millionaires should not be allowed to run for senator or represenative and mabey we would have more people in Washington that put country first.
I can not believe it took msn money this long to figure what we already knew.
Absolutely not, The Recession did not end.
...and really, it has been an ongoing slide since the numbers turned in the month leading up to 9/11. Yes, there was some major economic positives by 2005, but few in the Middle Class saw it. Secondly, this 2008 thing is also a misnomer, the US Economy began to show major signs of weakness in 2007, NOT 2008. Outside the the Big Media, no one will say the US Economy recovered. The only ones that have won are the Banks, Senior Execs, and Wall Street and if 3 months of positive numbers in the Stock Markets means a recovery happened, then we are some really stupid people.
I make now, what I made in the mid-90's... about $20 an hour which, equates to about 42K a year. In the Mid-90's I was fresh out of High School without a College Degree, working in the Sheet Metal Fabrication Industry aka a "Tinknocker", making parts for industrial machinery.... today that company is long gone and so are the companies that we made stuff for... all undercut by foreign competitors... and NO, it wasn't even a Unionized Shopthat I worked for.
It is simply amazing that it is somehow too expensive to make items for sale in the US itself, yet we can have people halfway around the world make these things, ship them across quasi-industrialized countries, put them on huge ships, then transport this stuff halfway around the world to a US port, then out to a Distribution Plant, repackage the stuff, then transport it to Retailers, (who must do the same), who then put it up for sale in their stores, for prices usually far cheaper than most American-Made Products... Something is definately wrong and it sure isn't because "American Workers are Overpaid"... especially in light of all the corporate executives and their companies who routinely post insane, record profits.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The major averages ended the midweek session on a flat note after spending the day inside narrow ranges. The S&P 500 hovered near the 2,000 mark for the majority of the trading day, but slumped to new lows during the last hour of action. The index then returned to its flat line, where it settled for the day. For the third day in a row, participation left a lot to be desired with just 487 million shares changing hands at the NYSE.
Equity indices opened with slim gains, ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'