Showing all posts tagged: great recession

Signs of the next downturn and the new depression:

Motoko Rich and Stephanie Crawford via NYTimes.com

Some signs suggest borrower distress. Credit card delinquencies increased for the first time in almost two years in the third quarter, according to credit bureau TransUnion, though the delinquency rates are still very low. And mortgage delinquencies were about 6 percent at the end of 2011, down a little from a year ago but higher than earlier last year, compared with the prerecession rate of 1.5 to 2 percent.

“That’s a long way to go to get us back to a steady state,” said Steve Chaouki, group vice president for financial services for TransUnion.

Another crucial factor holding back the American consumer is that many people who borrowed heavily during the boom to buy cars or appliances, or take vacations, are still repaying debt and cannot win approval for new loans, so they must find other ways to pay for things.

Though shopping has remained relatively strong, the level of consumer debt in October was at its highest in two years, meaning people are buying on credit rather than with income. And the savings rate in November was 3.5 percent, the lowest since 2007, which suggests shoppers are also buying with savings.

“We don’t think this is sustainable and expect slowing spending growth going forward,” Colin McGranahan, an analyst at Sanford C. Bernstein, wrote in a note to clients that reviewed numbers for November.

Another credit bubble fueling the small increase in buying is a leading indicator of a new round of foreclosures or more people walking away from mortgages in 2012.

In some areas, well over 50% of the homes are so underwater that their ‘owners’ will never see a return on the investment they are making. They should walk away, rationally, despite the hassles involved, and despite the fact that 81% of Americans feel it is immoral to not pay your mortgage when you can.

Europe’s debt crisis continues its apparently inexorable downward trend, with Italy’s situation worsening drastically. The emerging consensus — as indicated by bond yields — is that Italy is headed for a significant default on its debts:

Rachel Donadio and Elisabetta Povoledo via NYTimes.com

With a consensus developing that Italy is doomed to a devastating default in the absence of extraordinary new measures from its partners in the euro zone, investors drove Italian borrowing rates above 7 percent on 10-year bonds, a rate that is regarded as unsustainable. At that level, economists say, Italy would have to run a budget surplus of 5 percent of gross domestic product just to avoid going deeper into debt.

More troublingly, yields on French bonds were also rising this week, indicating that the debt crisis is overwhelming the halting efforts of European leaders to contain it. While Mr. Monti was being sworn in, France and Germany continued to clash over whether the European Central Bank should intervene more forcefully to bring down interest rates, particularly in Italy.

Europe is seen as facing a critical moment when it opts for either the deeper political integration that experts say is needed for the currency union to succeed, or breaking apart. On Wednesday, the president of the European Commission, José Manuel Barroso, spoke forcefully in favor of greater integration.

Warning of a “truly systemic crisis” in Europe, he said that states would need to accept “full discipline, full convergence, full integration.” He also warned that the crisis could not be solved without more sustained economic growth.

And the ‘contagion’ is spreading rapidly to include France, Europe’s second largest economy.

If Italy and France are weakened to default, will we see a Lehman sort of ripple effect across the world? This is certainly a dangerous moment, where the faltering recovery in the US — never strong — may quickly turn into the second dip of the Great Recession, or collapse into a New Depression.

Obama’s administration and the Federal Reserve aren’t doing enough to avoid a double-dip recession, and are ‘putting a smiley face’ on the situation by talking about a recovery that isn’t happening.

There Is No Silver Lining

Looks like the Econolypse has cut deep, deep, deep into the lives of the average American family, and Judith Warner debunks the new myth that somehow all this suffering is redemptive: that families are coming together, that we are finding new meaning in simplicity and macaroni-and-cheese for dinner.

Judith Warner, What the Great Recession Has Done to Family Life

A Pew Research poll published last month indicated that more than half of all adults in the U.S. labor force had experienced some “work-related hardship” — a period of unemployment, a pay cut, a reduction in work hours or an involuntary move to part-time employment — since the recession began in December 2007. A report in March from the Population Reference Bureau showed that more than 70 percent of Americans age 40 and over felt they had been affected by the economic crisis. Government data indicate that the net worth of the average American household has shrunk by about 20 percent — the greatest such decline since the end of World War II. Long-term unemployment — joblessness lasting six months or more — is also at its highest level since the mid-1940s. According to recent data from the Rockefeller Institute, 20 percent of Americans have seen their available household income decline by 25 percent or more.

And yet, despite this bleak reality, some talk persists of silver linings: less cash to spend means less materialism, a real change to “the definition of living well,” as Jim Taylor, a vice president of Harrison Group, a market research firm in Waterbury, Conn., told The Times as the big banks melted down in the fall of 2008. At that time, unemployed Wall Street dads were said to be discovering the unexpected joys of domesticity. Minivan moms in the summertime learned that days at the public beach were just as rewarding as playing tennis while the kids improved themselves at foreign-language camp. The glue of all this new happiness was meant to be togetherness — a belief that still sustains reports that people are volunteering more, pulling together and even replacing their propensity to compete with their neighbors with a new spirit of cooperation and solidarity. “There’s a new level of social coordination,” says Dan Ariely, a behavioral economist at Duke University, relating to me how parents of his acquaintance recently agreed to a multilateral halt in the escalation of kid-birthday-party madness in favor of back-to-basics cake and balloons. “In some areas of our life we’re resetting. Over time, we may get de-escalation.”

[…]

A craving for a simpler, slower, more centered life, one less consumed by the soul-emptying crush of getting and spending, runs deep within our culture right now. It was born of the boom, and not just because of the materialism of that era but also because of the work it took then to keep a family afloat, at a time of rising home prices and health care costs, frozen real wages and the pressures of an ever-widening income gap. As the recent Rockefeller report showed, for most families the miseries of the Great Recession don’t represent a break from the recent past, just a significant worsening of the stresses they’ve been under for years and years.

[…]

The poor are getting poorer, and the rich, despite stock-market setbacks, are still comparatively rich. The most devastating losses in household wealth over the past two years have been suffered by the middle class. And families are fraying at the seams. The Pew poll showed nearly half of people who had been unemployed for more than six months saying their family relationships had become strained, and a New York Times/CBS poll of unemployed adults last winter found about 40 percent saying they believed their joblessness was causing behavioral change in their children.

Parents who have jobs are working longer hours than ever. Mothers are taking shorter maternity leaves. The birth rate is on the decline. The divorce rate is declining, too — it’s too expensive for people to break up their households — but that’s not necessarily a family-friendly thing, as a report from the Council on Contemporary Families noted in April: “We know from the experience of the Great Depression of the 1930s that divorce rates can fall while family conflict and domestic violence rates rise.”

What came out of the combined experience of the Great Depression and World War II — broad measures of quality-of-life equalization like a sharply progressive tax policy with rates on the wealthy unimaginable today, the G.I. Bill, government-subsidized home mortgages for veterans — permitted the easier, less-frenzied middle class family life that older Americans remember from the 1950s and ’60s and that younger Americans dream of. In other words, it wasn’t individual families that reformed themselves after the crucible of the Depression. It was our society.

So this myth of the sliver lining is actually a holdover from the go-go days before the crash, and the hard, grim truth is that mostly, families are being stressed by financial downdrafts. There isn’t much sunshine and flowers involved.

And there seems to be no unifying thread to pull the nation together, no charismatic leader who could assail the evils of a rigged market economy in the hands of those best positioned to benefit from chaos, no cataclysm that makes us feel we are all in it together and we need to pull together to make a better world. Without that, we are just sinking.