Flat Broke — A Prognosis of America’s Economy

Warning: The words you are about to read may be frightening to young children, the elderly, real estate agents, recent college grads, politicians, and virtually anyone currently in denial about the ugly state of America’s economy.

How is our economy suffering? Let me count the ways. And I’ll even link to relevant data and articles demonstrating each point so you know I’m not just typing to hear the hypnotically percussive click-clack of the keyboard.

• The housing market is in a slump… slump might be too kind a word, really.

(Come on, do I really need to cite a source for this one? Okay: Report: Housing Slump Not Over Yet)

• According to chief economists, America is either in a recession, or damn close to being there.

IMF predicts US recession

The Market Story Stocks Shiver at More Recession Talk

• As more flights are grounded and planes pulled out of service for inspections, summer travel is looking ugly (and our travel industry makes up $733.9 billion dollars of our economy, according to the Travel Industry Association of America)

Travelers should prepare for a rough summer

• Oil prices are at record highs (even as big oil companies rake in record profits)

Oil prices, profit fears weigh on stocks

High oil prices help send Wall Street lower

• The price of grain and other raw food commodities is soaring

Containing rise in food grain price is very difficult: Manmohan Singh

Producer Price Index Surges 8 Percent, Highest Since 1998

Wheat prices going up

• Job loss is going up, and new job openings are shrinking

Pa. loses more than 200K manufacturing jobs

80,000 jobs lost; Democrats urge new aid package

US Jobs Shrink for Third Month in a Row

• Our auto manufacturers in Detroit are suffering

Detroit spun its wheels instead of thinking small

Wary shoppers’ confidence, car sales take a dive

Slowing US economy pushes auto sales off a cliff in the country

• Our trade deficit is getting worse and worse, and the value of our dollar in the global market is sinking (which affects other economies, as well)

US trade deficit jumps despite weak dollar

Survey: weak dollar set to drive 15,000 tech job cuts in Israel

• Our national debt is the worst it’s ever been, and as the ongoing costs of the Iraq war continue to tally in the $2 to $3 trillion area (nearly all borrowed money), it will certainly get larger

Democrats say Iraq war hits US pocketbooks

FACTBOX: The Iraq war’s costs in dollars

Even a modest understanding of the history of economics in America should send up a red flag. There’s a good possibility the outlook is much more dire than anyone wants to admit. Everyone’s talking about recession–the big “R” word–but far less people are talking about the big “D” word (think August, 1929).

What is the difference between a recession, which we’re probably in now, and a depression, which no one wants to admit is a real possibility?

The economics portion of About.com has a section that explains this. Basically, the difference is a matter of severity and length.

The standard “newspaper” definition of recession is a decline in the gross domestic product (GDP) for more than two consecutive quarters. Most economists do not like this definition, as it is a bit too vague and doesn’t figure in several variable elements. Hence, most economists use a different model of defining a recession, which takes into account things like employment, industrial production, income, and wholesale-retail sales, and they do not place as much weight on the two-consecutive-quarter-decline concept.

Before the Great Depression of the 1930s, the definition of depression was the standard definition of a recession today. Then the great stock market collapse happened, and to differentiate between earlier “depressions” and the new unimaginable turmoil, the definitions were updated. Now, a depression is defined loosely as “any economic downturn where real GDP declines by more than 10 percent.”

In the past, economic recovery has been driven primarily by industrial production. But we have lost 3.4 million factory jobs since 1998 — the single greatest fall in the labor force since the Great Depression (from an opinion piece at Howestreet.com). Granted, companies believe they are getting more productivity out of each employee than was once the case. Still, with manufacturing jobs disappearing and product prices rising, one must consider where this will lead us.

Remember how the Fed bailed out Bear Stearns just last week? This may not have meant a lot to people outside the complex world of economics. But according to an assessment on TheWeekDaily.com, this controversial bail out may have single-handedly saved us from slipping into depression. As the fifth-largest investment banker in the country, Bear Stearns pulls a lot of water. If a company that huge was that close to filing bankruptcy, so close the government had to move fast to bail them out, what does that say about the state of our economy?

This article from the Economist outlines the current economic conditions fairly well:

The American Economy, the Long Hangover

From article:“The [recession's] duration will depend on many things, from the strength of foreign economies to the degree to which American firms cut jobs and investment. But top of the list, given the recession’s origins in the property bust and the credit crunch, are the fate of the housing market and the resilience of consumer spending. On both counts, the odds are against catastrophe but on a lasting headache.”

I will not say whether we are in a recession or whether we are headed for depression; draw your own conclusions on these issues. But one fail-safe thing to do is to start saving money if you haven’t already. And if you’re concerned about a collapse of our nation’s financial institutions, don’t put your savings in banks. And if you have enough cash to put savings away and live lavishly, please shop, buy, and contribute to the economy with confidence; when it comes down to it, that’s all any of us can really do.