Top of the News: It would seem to be another day of Good Economic News. While retail sales continued to droop, the overall performance was the best in a year. The world economy will recover sooner than forecast, according to the OECD, although growth will be modest.
Oh, new claims for unemployment benefits were 570,000 last week. Can’t have everything.
And I bet you’re sitting there waiting for homey to write some downer post to take away the glow of Good Economic News. Nope. I’ll only note that the bottom we’ve hit has further splintered the economy’s winners from losers. Among the winners, of course, is the financial sector which was rescued by the aggressive government action last fall and winter. Perversely, this has allowed the banksters to get away with it — only Bernie Madoff is in the hoosegow, a piker compared to others who enabled and profited from the crisis.
The losers are the foreclosed, the unemployed, the uninsured and underinsured, the ones driven into bankruptcy by illness, many small-business owners…the ones without huge lobbying efforts in D.C. Not all are small fry: the massive house-building industry isn’t coming back as it was. Manufacturing remains troubled. All this will have interesting economic and political consequences if it continues long.
The Back Story: Digging our way out of the great recession will take more than bank bailouts, or even a recovery in the labor market. We’re going to have to pay down debt.
Total household debt as a percentage of disposable income peaked at above 130 percent in 2007 before being moderated by the crash. By the first quarter of 2009, it was “only” 127 percent of disposable income. Household debt as a percentage of GDP was also over 100 percent.
A little context. In the glory days of the American economy and middle class, the 1950s and 1960s, the debt-to-income ratio peaked around 65 percent and was as low as 35 percent. The GDP ratio was below 50 percent until the 1980s.
Unwinding the mess won’t be easy. Americans didn’t take to the credit cards and home-equity loans just because of greed or loose morals — wage gains have been paltry in many sectors for years and outright stagnated this decade; whole well-paying industries have collapsed. This left millions trying to keep up through debt. Now here we are.
Today’s Econ Haiku:
We say subsidy
Airbus calls it investment
Buses are smelly