by Walter Brasch

    George W. Bush looked into the TV camera, Tuesday morning [July 15] and tried to assuage the fears of about 300 million Americans who believed they were in the middle of a Recession.

    "The economy is growing," said the President. "Productivity is high," he told us. "Trade's up. People are working," he said. In the Bush White House, the "R Word" is just a myth. Of course, the man who once wanted to be known as the Compassionate Conservative did say he knew "It's been a difficult time for many American families."

    "Difficult" doesn't even begin to describe what has happened to Americans the past seven years.

    Within hours of the President's speech, a less optimistic Ben Bernanke, chair of the Federal Reserve, told the Senate Banking Committee that inflation is high and "seems likely to move temporarily higher in the near term." In sworn testimony, he told the senators that "Many financial markets and institutions remain under considerable stress, in part because of the outlook for the economy and thus for credit quality, remains uncertain." Market Watch reports that over the past year, "inflation at the wholesale level gained 9.2%-- the largest year-over-year gain since June 1981."

    On the day that the President assuaged and the Federal Reserve chairman testified, General Motors announced it would freeze job hirings in several areas, lay off salaried workers, suspend shareholder dividends, and borrow up to $3 billion. Six weeks earlier, GM announced it was closing four plants; on the day the President spoke, GM announced four more plant closings. The nation's largest corporation, which saw a 16 percent sales decline in the first half of the year, announced that it was giving retired workers a slight pension increase but was cutting health care benefits.

    About 8.5 million Americans actively seeking work are unemployed, an increase of about 21.4 percent over one year ago, according to the Bureau of Labor Statistics (BLS). The unemployment rate of 5.5 percent is up from 4.6 percent a year ago. More important, about 1.5 million of the 8.5 million unemployed have been unemployed at least six months, a 37 percent increase over the past year, according to the BLS. Not included in the numbers are the "1.6 million people who are `marginally attached' to the workforce, who had looked for work in the previous 12 months, but not in the last month," according to Andre Damon of Global Research. Damon also reports that the BLS data does not include about 420,000 "`discouraged workers', who had given up looking for work because they think that there is no work available."

    Work is available in dozens of other countries, where American companies seeking to "maximize the bottom line" have been outsourcing jobs for years. About 14 million American jobs are going to be outsourced in the next four years, according to a report issued by the University of California at Berkeley. Short-sighted and greedy, these CEOs and their boards believe child labor and wages that can dip below $1 an hour is just another acceptable business practice. The "Made in America" label is now becoming as extinct as corporate morality.

    Americans who have been using credit cards to survive the Recession and have now reached their credit limit can raise their limit or sometimes reduce their payments or rate. All they have to do is call a credit card agency's toll-free number, which is answered by someone at a call center in India. Those same call centers are also telemarketing Americans to get into even more debt by getting credit cards.

    In a true "global economy," as many now euphemistically refer to outsourcing, persons having trouble with their computers assembled from parts made in Mexico and several Asian countries can now call technicians in India for assistance.

    Book and magazine publishers have been outsourcing art, design, editing, and printing overseas. Even newspapers have figured out how to cut even more costs while driving up profits. The Orange County (Calif.) Register, which laid off 90 persons in 2007, outsourced copyediting and page design to journalists in India. The Modesto (Calif.) Bee and Sacramento Bee have outsourced most of their advertising design departments to India.

    For Americans who have jobs, getting to them is more expensive. It makes no difference if the worker drives or takes public transportation, the rising cost of oil has pushed Americans into a crisis. Gas prices rose more than 25 percent in the past year, to more than $4 by July 1; diesel prices are up more than 30 percent to more than $5. The higher fuel costs affect almost every service and industry from home heating to food production and road repair.

    Flushed with an inflated housing boom, banks and mortgage companies had begun issuing mortgages, usually with excessive fees and high interest rates, to just about anyone with a pulse. The weaker the credit rating, the higher the fees and interest. Even if the economy was healthy, there would have been several hundred thousand defaults. By the end of 2007, about 2.5 million mortgages were in default, almost 40 percent higher than one year earlier. Attached to the problem is that many new homeowners bought houses at inflated prices, assured by lending companies that housing prices would continue to rise, are making monthly payments that put them at financial risk, and are now watching the value of their houses decline.

    Foreclosures and the Recession have driven down housing prices throughout the country. In 20 major American cities, house prices declined about 15 percent, according to the Case-Shiller index of housing prices. Prices declined by 25 percent in Las Vegas, Miami, and Phoenix, according to Case-Shiller. In California, the median price of houses declined by 35 percent over last year, according to the California Association of Realtors.

    Monday morning, the day before the President's speech, hundreds of Americans stood in line at the 33 Southern California branches of IndyMac Bank, now renamed Indymac Federal Bank, to withdraw what they hoped was all of their money. Over 11 days, customers had withdrawn about $1.3 billion, amid rumors that the bank was failing. The previous Friday, federal regulators seized the bank, once one of the nation's largest mortgage lenders. Last year, the bank lost $615 million; the books bled red another $184 million the first three months of this year. The Federal Deposit Insurance Corp.(FDIC) guarantees each individual account to $100,000, joint accounts to $200,000, and retirement accounts to $250,000. Those with less knew they would get all of their money. For those with more, some were just hoping to recover 50 cents on the dollar. The cost to the FDIC is expected to be $4-8 billion. IndyMac was the fifth bank to fail in the previous six months.

    Also failing were the Federal National Mortgage Association (better known as Fannie Mae) and the Federal Home Loan Mortgage Corp. (better known as Freddie Mac). The quasi-governmental agencies either own the loans or guarantee loans for almost half of the nation's $11 trillion in mortgages. But, with more homeowners buying houses they couldn't afford and now being subjected to rising costs in almost every area, combined with higher unemployment, both Fannie Mae and Freddie Mac faced collapse, their stock value freefalling about 90 percent in the past year. To keep the two agencies from failing, which would undoubtedly throw the nation into a deeper Recession that could dive into a Depression, the Federal Reserve announced it would issue low-cost loans of up to $15 billion.

    While 15 billion taxpayer dollars may seem significant, it is only about 9 percent of the $168 billion Congress appropriated for the war this year. President Bush, Vice-President Cheney, and their advisors were vigorous in demanding the U.S. go to war in Iraq and vigorous in demanding massive funding for that war, which may now cost more than $1 trillion.

    President Bush did acknowledge that the economy wasn't "as good as we'd like, and to the extent that we'll find weaknesses, we'll move." As domestic problems piled up the past few years, much caused by a diversion of the budget and assets to Iraq, it seemed that the Bush-Cheney Administration moved on domestic policies at the speed of a glacier.

    Not receiving much help are the 47 million Americans who don't have medical insurance, mostly because they can't afford the premiums, and the 3.5 million homeless, most of whom once had homes and jobs but are now living in their cars or makeshift shelters. About one-fourth of the homeless are veterans; slightly more than one-third of the homeless are children.

    In 1992, Bill Clinton and Al Gore campaigned against President George H.W. Bush on the slogan, "It's the economy, Stupid." The politics of that election came down to asking Americans if they were better off under that President Bush after four years than they were when his presidency began. Four presidential terms later, after eight years of a rising economy under President Clinton, it's the economy--not the war, the attack upon civil liberties, the destruction of the environment, or any of a few dozen other destructive policies--that may be what finally scuttles this Bush's legacy.

    [Dr. Brasch, an award-winning syndicated columnist, is professor of journalism at Bloomsburg University and president of the Pennsylvania Press Club. His latest book is Sinking the Ship of State: The Presidency of George W. Bush (November 2007), available through amazon.com and other bookstores. You may contact Brasch at brasch@bloomu.edu or through his website at: www.walterbrasch.com.]

The NY Times ran a story last week on the unique circumstances of the current recession, particularly in unemployment:

Joblessness has accelerated, and employers have slashed working hours even for those on their payrolls, shrinking the size of paychecks just as workers need them the most.

That's not the unique part, but still a stark reminder of how much trouble the everyday citizen is in. What's got economists scratching their heads is the timeline:

"It's a slow-motion recession," said Ethan Harris, chief United States economist for Lehman Brothers. “In a normal recession, things kind of collapse and get so weak that you have nowhere to go but up. But we’re not getting the classic two or three negative quarters. Instead, we’re expecting two years of sub-par growth. Growth that’s not enough to generate jobs. It’s kind of a chronic rather than an acute pain.”

Great, so the US economy has arthritis, not a minor sprain or pull. Even worse is what this will mean in the future:

Goldman Sachs forecasts that the unemployment rate will peak at 6.4 percent late in 2009 before the picture improves, meaning that the painful process of shedding jobs may be only half-way complete.

Yet the President threw a temper tantrum when the idea of extending unemployment insurance was brought up. While that ended up getting passed and approved by the President, it seems as though Congress is lagging a bit in addressing the larger issues associated with the recession.

According to Congressional Daily (subscription only), Congressional leaders love the idea of a second stimulus package, they just don't have the same sense of urgency that many other folks have.

The Senate agreed to the deal on the war package after House and Senate Democratic leaders said publicly that a second supplemental was needed to take care of items that were not included in the war spending bill.

Reid reiterated those sentiments in his comments Tuesday and mentioned increasing food stamp benefits, as well as funding to improve the nation’s crumbling infrastructure as two worthy areas of investment.

“There are all kinds of problems dealing with infrastructure, food stamps, just many, many different things,” Reid said. “We have a lot of suffering going on in America today.”

Senator Reid's got it right, there is a lot of suffering going on in America today. So if we're going to take our time with a second stimulus package, let's make sure we do it right.

A great place to begin would be to listen to the National Governors Association when they meet later this week for their centennial meeting. Among other things, they will be discussing the effects of the recession on state economies.

29 of these Governors will be dealing with a combined $48 billion budget shortfall. The ones who chose to raid their rainy day funds may face even worse problems in FY 2010, and according to the previous New York Times piece, unemployment will almost certainly be a staple of the new fiscal year as well. They need help in the form of federal aid to states. Something that Senator Schumer cited as a must for the next stimulus package back in June:

"I'm speaking for myself, but I think I mirror the leadership here, to just do rebate checks again, without some more serious structural issues, to do it without, say, unemployment insurance, without infrastructure, without some help for the states, would not have the kind of punch it needs," Schumer said.

If its not included the following story will becoming all to familiar to families across the country.

With job losses growing and working hours shrinking, many paychecks are eroding, prompting millions of families to cut their spending. Soaring prices for food and gasoline are overwhelming modest wage gains for most workers, leaving households with even less money to spend. All of which deprives struggling businesses of sales, prompting them to shed more workers, sending the cycle down another turn.

The clock keeps ticking Senator Reid, we need to make sure we get this one right.

EVERYTHING YOU KNOW IS WRONG. PART I.
As the volume becomes amplified on our quickly-worsening economic realities, it should come as little surprise to many reading this blog that most of what we read, see and hear about the economy, labor/unemployment, the cost of living,  inflation, the national debt, etc., etc., is just plain false.

Please read this previous sentence again.

(More about this in a few moments.)

Today's the day. July 1st is the day when 46 states begin Fiscal Year 2009 and 29 states and the District of Columbia will be facing a combined budget shortfall of $48 billion according to the Center on Budget and Policy Priorities. And because the federal government still hasn't gotten around to assembling a fiscal package to help the states, many economic dominoes are about to fall.

So what are some of the casualties of the FY 2009 budget balancing?

Tapping out the reserve fund. I wrote about it a month ago and it remains true today; states are being forced to raid their reserve funds. Business Week doesn't think this is a great idea:

But in many cases they're tapping out the reserve funds for the coming budgets and might need to make tougher choices when they put together their 2010 spending plans, especially if the economy worsens.

Massive health care costs Many states have been forced to consider slashing health care budgets. The Sacramento Bee paints the picture for California residents if the Governator and the state Senate's "compromise" on health care is passed:

To save $92 million in the budget, Schwarzenegger wants to reinstate a rule that families on Medi-Cal submit paperwork every three months to prove their eligibility, instead of every 12 months.

About 150,000 children are expected to lose coverage this year - and 470,000 eventually - because their families either fail to file the required forms or they can't meet the program's eligibility rules.

School budgets in a state of flux. Highly touted increases in education are in flux as states recognize the true weight of their budget shortfalls. State lawmakers in Illinois increased the minimum spending on each student by $225, but according to the Chicago Daily Herald the Governor may not be able to deliver on this promise:

The governor has already publicly threatened to slash $1.5 billion and order agencies to hold back another $500 million to balance spending unless lawmakers return to Springfield and come up with more money.

This would include a $110 million cut in education spending. Illinois is not alone. Nevada just passed a bill that cuts school textbook spending by $48 million.

More criminals on the street. Sky rocketing gas prices combined with a tightening of the budget belt has led to impossible decisions for law enforcement agencies. Not everyone can simply have officers walk their beats to save money. In places like sprawling El Paso County their only option is leaving more criminals on the streets:

(Sheriff) Maketa initially switched to two deputies per car. Then he forbade idling vehicles. Neither led to big enough savings. This month, he decided to end all patrols to save money, though he predicts his deputies will catch fewer drunken drivers and fewer suspects with outstanding warrants. The department will reassess the end of patrols if it finds there is a serious effect on public safety.

Today will not mark the date of some apocalyptic change in the American way of life. The average American citizen probably didn't wake up today with more criminals roaming the streets, no health care, and their kids attending a dilapidated run down school. Unless of course they are one of too many Americans who faced these conditions even before the economy began to sink.

Gradually though things will come into focus.I wrote last week that the deeper the economic hole, the more federal spending will be required to help us get out of it. Well today's the day we start stepping into that $48 billion hole.

As the economy worsens, more and more key players are getting on board with the idea of a second economic recovery package. But not everyone's where we need them to be to get something done in time to matter. For example Rep. David Obey (D-WI), powerful chairman of the Appropriations Committee free associated to Congress Daily (subscription only) and revealed that he doesn't quite get how urgent doing something to stave off this recession is:

"People use a kinds of terminology; I don't care if you call it a second supplemental or a second economic [stimulus] package -- to me there are all kinds of things that we need domestically -- but we need finish this job [war supplemental] before we can start thinking about the next one"

This pains me. Not only are House Democrats punting on telecom immunity, they're putting war spending ahead of domestic spending.

Bush's first economic stimulus package just didn't work. We didn't get the big sweeping surge of economic growth we were promised. Even what good news we've gotten was drowned out by a chorus of  story after story of bad economic news. The costs of living are growing rapidly as employment becomes harder to find. Food is getting more expensive as food bank lines grow longer. The longer Congress waits to act, the worse things will get.

And the states can't wait for the aid that Democratic leaders say must be included in a second stimulus package either. State spending is the last prop holding up the economy and is at a tipping point. More than half of the states are facing crippling budget shortfalls that total $48 billion for the upcoming fiscal year. In the absence of aid from the federal government, states have been forced to cut vital services for many of our most vulnerable citiznes. The Center on Budget and Policy Prioritiesgives outlines the chopping block:

At least 12 states have implemented or are considering cuts that will affect low-income children's or families' eligibility for health insurance or reduce their access to health care services.

At least 10 states are cutting or proposing to cut K-12 education; three of them are proposing cuts that would affect access to child care.

At least 11 states have proposed or implemented reductions their state workforce. Workforce reductions often result in reduced access to services residents need.

And when states are forced to do things like cut their state workforce, the economy suffers even more. According to CNN/Money:

With falling revenue from sales and income taxes, and property-tax declines looming, states, cities and towns have already laid off tens of thousands of government employees. Many expect more job cuts ahead as public officials struggle to balance their budgets.

Economists say that cutbacks in jobs and spending by local governments could be a major drag on the overall economy.

It's cool that Obey recognizes the need for a  second stimulus package. But he also needs to understand that each day he lets pass without doing something means the economic hole we're in is that much deeper and is going to require that much more federal spending to help us get out of.

On Thursday the Labor-Health and Human Services-Education Appropriations Subcommittee is considering a funding bill for key domestic programs and services under those federal departments.

Hopefully, the Subcommittee will approve a $781 million increase in the Employment Service -- basically the people who connect those needing work with those who need work done. This is exactly the kind of stuff that's critical in a recession.

Unsurprisingly, the Bush Administration is seeking to gut employment services. This bit of wanton stupidity is a nice bookend to the White House's unwillingness to extend unemployment benefits.

Progressive groups are also seeking an $874 million increase for Child Care and Development Block Grant, funding which the Bush administration wants to freeze for a 7th consecutive year. Of course, this will have consequences for real kids:

Years of flat funding have already resulted in 150,000 fewer children receiving assistance." At this rate, it is projected that 300,000 fewer children will receive child care assistance by 2010. The harsh reality is that parents "may have been forced to go into debt; return to welfare; choose lower-quality, less stable child care; or face untenable choices in their household budgets."

Finally the Subcommittee will hopefully approve a $350 million allocation for emergency preparedness in the event of a pandemic flu outbreak. If there's anything we know about a potential pandemic flu outbreak it's that we are not adequately prepared for it. As DemforCT has warned us at dKos.

Numerous groups are mobilizing supporters to encourage the Labor-Health and Human Services-Education Subcommittee to support the $781 million increase to the Employment Service, the $874 million increase in Child Care Development Block Grants, and the $350 million allocation for emergency preparedness.

AFSCME is collecting signatures for a petition in support of a $781 million increase to Employment Services, an $874 million increase in Child Care Development Block Grants, and a $350 million allocation for emergency preparedness.

Sign it. The country's in recession and the federal government needs to get the safety net unfurled before we all go splat.

CQ Politics is reporting on the Democratic leadership's desire for a second package to strengthen the economy that largely lines up with Barack Obama's plans. But are Congressional Dems omitting aid to state governments, one of the key planks of Obama's plan?

State government spending is a key prop holding up the economy during a recession. Dem leaders might want to check out the NYT, which pointed out earlier this week:

Greg Anrig at Talking Points Memo puts the smack down on Justin Fox's stupid critique of Obama's economic plans in TIME magazine. Fox:

These add up to what you could call the stock Democratic response to tough times. They're not necessarily bad ideas, but they're not what you could call new or transformative either. Obama throws in a few populist panders — he favors a windfall profits tax on oil companies (which could discourage investment in new energy resources), and says he would oppose raising the Social Security retirement age (which if phased in over a long enough period would be the fairest, most sensible way to ease some of the system's long-run funding challenges). Near the end of the speech, there was a hint of Obama's "yes, we can" vision: a plan to give $4,000 a year in tuition aid to college students who pledge themselves to community or national service after graduation.

Anrig schools Fox pretty thoroughly:

As for the windfall profits tax, what evidence would Fox cite beyond oil industry press releases that investment in new energy sources would decline?

Also, does Time's Justin Fox know that the retirement age for Social Security is already scheduled to increase to 67 by 2022? Most wonks are actually much more supportive of Obama's idea of raising the ceiling on Social Security payroll taxes than increasing the retirement age even further.

The "stock Democratic response to tough times" that Fox writes about is better labeled "how the federal government has effectively responded to recession in the past."

Check the short term fixes that Obama is pitching in his two week long economic push:

For now, he and his advisers are reciting the details of his three big short-term priorities: a new $50 billion stimulus program, much of it routed into extending unemployment insurance beyond the current 26-week limit and helping struggling state governments; a more aggressive foreclosure-prevention effort, with $10 billion in funding; and a tax cut for Americans making less than $150,000 a year — to be financed with tax increases on those making more than $150,000 a year.

New and innovative can be good but if it ain't broke, don't fix it.

As I wrote last week,a similar extension of unemployment insurance benefits worked well in 2002. The general consensus about the action was that it helped but wasn't enough. As The Drum Major Institute wrote back in the day:

$23.5 million in consumer cash would flow every week to the Pathmark in East Harlem, the bodega in Mott Haven, the laundry in Corona, and the hardware store in Sunset Park.

Applying the multiplier effect, the federal government found in its study of the extended benefits program of the early 1990's found that every $1 in unemployment benefits generated $2.15 in stimulus. Over the course of the first round of the extension (13 weeks), $306.6 million would flow into the hands of consumers in communities in New York City

Obama's plans aren't rocket science, but they do follow a proven blueprint -- much like Clinton's budgets of the 1990s. Fighting recessions are a lot like losing weight, the formula is well known: eat less and exercise.

With recessions, it's equally simple, put more money in the hands of people who need it and will spend it on essentials.

That's what needs to be done and what Obama's proposing to do.