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So is the US Economy in a depression or on the way to a recovery?

By : Ziad K. Abdelnour| 28 April 2011
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The April 20-23 Gallup survey of 1,013 U.S. adults found that only 27 percent said the economy is growing, 29 percent said the economy is in a depression and 26 percent said it is in a recession, with another 16 percent saying it is “slowing down”.

That means that more Americans think the country is in a Depression, let alone recession, than growing.

How can so many Americans believe that we’re in a depression, when the stock market and commodity prices have been booming?

Well, it seems that instead of directly helping the American people, the government threw trillions of dollars at both the giant and foreign banks (including believe it or not the Bank of Libya). The big banks have – in turn – used a lot of that money to speculate in commodities, including food and other items which are now driving up the price of consumer necessities as well as stocks. Instead of using the money to hire Americans, they’re hiring abroad and getting tax refunds from the government.

But don’t rising stock prices help create wealth? Not really.

A rising stock market doesn’t help the average American as much as you might assume.

Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The “wealth effect” is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds.

So how bad is it out there?

Well, the housing slump is clearly worse than during the Great Depression unlike what advocates of the Obama Administration’s policies would want you to believe.

States and cities are in dire financial strait, and many are on the verge of default. California for example is issuing IOUs for only the second time since the Great Depression.

Things haven’t really been this bad for state and local governments since the 30s and top economists throughout the land have pointed out that while banks faced a liquidity crisis during the Great Depression, today they are wholly insolvent.

In fact, so many Americans have been jobless for so long that the government is now changing how it records long-term unemployment. Citing what it calls “an unprecedented rise” in long-term unemployment, the federal Bureau of Labor Statistics (BLS), has just recently raised from two years to five years the upper limit on how long someone can be listed as having been jobless. The two year limit has been in place by the way for 33 years.

1 out of every 7 Americans now rely on food stamps. While we don’t see soup kitchens, it may only be because so many Americans are receiving food stamps. Indeed, despite the dramatic photographs we’ve all seen of the 1930s, the 43 million Americans relying on food stamps to get by may actually be much greater than the number who relied on soup kitchens during the Great Depression. It is also a fact that millions of Americans are heading to foodbanks for the first time in their lives.

Given the above facts, it would seem that the government hasn’t been doing much. But the scary thing is that the government has done more than during the Great Depression, but the US economy is still stuck a pit.

The amount spent in emergency bailouts, loans and subsidies during this financial crisis clearly dwarfs the amount which the government spent during the New Deal. It is a fact that Paulson and Bernanke’s bailout program will so far cost taxpayers over $8.5 trillion….and going.

So why haven’t things gotten better for the “Little Guy”?

Well, the Obama Administration can always make happy talk about how things are improving, but happy talk cannot and will not fix the US economy.

I still believe two fundamental causes of the Great Depression, and of our current economic problems, are fraud and inequality:

• Fraud was one of the main causes of the Depression, but nothing has been done to rein in fraud today.
• Inequality was another major cause of downturns – including the Depression – but inequality is currently worse than during the Depression

There are, of course, other reasons the economy is still stuck in a ditch for most Americans, such as encouraging too much leverage, bailing out the big speculators, failing to break up the mammoth banks, and failing to spend wisely, where it will do some good. But fraud and inequality were core causes of the Depression, and our failure to address them will only prolong our misery.

Bottom Line: This is not a question of big government versus small government, or Republican versus Democrat. It is not even a question of Keynes versus Friedman or left versus right.

It is a question of focusing any government funding to the majority of people – instead of the titans of finance – so that the game can continue. If the hundreds of billions or trillions spent on bailouts had instead been given to ease the burden of consumers, we would have already recovered from the financial crisis.

In reality, the entire debate regarding more-versus-less stimulus misses the mark. As painful as it is to think about, the Fed’s policies – like those of the Treasury, White House and Congress – have been geared towards redistributing wealth upwards.

To the extent that both the Republican and Democratic parties lavishly follow these meta-policies – which supersede the stated “conservative” and “liberal” goals – they will ensure that we lose our AAA credit, and they will destroy our economy.

Your feedback as always is greatly appreciated.

Thanks much for your consideration.

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