In an effort to be more transparent, the Fed has released a new quarterly forecast, which predicts slower growth but not a recession. But Paul Farrell at financial site MarketWatch thinks a recession is just what the US needs. The Economist asked this question back in August: "... after such a long binge, might the economy not benefit from a cold shower?" Farrell refers to that article when giving 17 reasons why the US economy needs a mild recession now to prevent a much nastier recession later.
But will this bring the US and, indeed, the global economy back into balance, or will it just hurt the 'little guy' even more than the jobless recovery of the early decade and the inequalities created in what some have called a New Gilded Age? Read on.
Technorati Tags: economy, recession, subprime
Some of Farrell's 17 points seem obvious such as 'purging the excesses of the housing boom' and a 'wake-up call' for the dollar. But here are a few others:
8. Oil
Force the energy and auto industries to get serious about emission standards and reducing oil dependency.
10. Moral hazard
Slow the Fed from cutting interest rates to bail out speculators.
11. War costs
Force Washington to get honest about how it's going to pay for our wars, other than supplemental bills that are worse than Enron-style debt financing.
14. Entitlements
Force Congress to get serious about the coming Social Security/Medicare disaster. With boomers now retiring, this problem can only get worse: A recession now could avoid a depression later.
15. Consumers
Yes, we're all living way beyond our means, piling up excessive credit-card debt, encouraged by government leaders who tell us "deficits don't matter." Recessions will pressure individuals to reduce spending and increase savings.
And he ends it all by saying that Americans must learn to accept some level of sacrifice, especially to pay for the war and other costs, both societal and personal.
Pampering us with interest-rate cuts and tax cuts during the Iraq and Afghan wars may have stimulated the economy temporarily, but they delayed the real damage of the '90s stock bubble while setting the stage for this new subprime/credit crisis.
But as some of the comments on his article ask: Won't a recession hurt the average American more than the CEOs? Farrell points out that CEOs make hundreds of times more than the average employee. He says 500 times more, but a report earlier this year, showed that figure at 411 times.
Some argue that a large part of America have already been in an recession or at least faced stagnant growth in wages. The Center for Budget and Policy Priorities, which studies the impact of budget and tax policy on low-income Americans, says that most middle and low-income Americans saw their inflation-adjusted income drop or stagnate in the first half of decade. And lower-income Americans, minorities and women have been hit hard in the sub-prime crisis.
Maybe this will call into question what one Republican friend called the 'tax-cut and spend' policies of the Bush administration? The national credit card is just a reflection of the personal spending habits of Americans (well and Britons to be honest). The credit card bill is coming due. It's going to hurt, but it will only hurt more later.
Low-income workers always suffer more, but will a recession be a good corrective? Is it even avoidable? Or will a recession not impact haves while hitting the have-nots even harder?
