Quantcast
Connect with us

Watch your wallets — the next crash is coming

Published

on

- Commentary

September 15 will mark the tenth anniversary of the collapse of Lehman Brothers and near meltdown of Wall Street, followed by the Great Recession.

Since hitting bottom in 2009, the economy has grown steadily, the stock market has soared, and corporate profits have ballooned.

But most Americans are still living in the shadow of the Great Recession. More have jobs, to be sure. But they haven’t seen any rise in their wages, adjusted for inflation.

ADVERTISEMENT

Many are worse off due to the escalating costs of housing, healthcare, and education. And the value of whatever assets they own is less than in 2007.

Last year, about 40 percent of American families struggled to meet at least one basic need – food, health care, housing or utilities, according to an Urban Institute survey. 

All of which suggests we’re careening toward the same sort of crash we had in 2008, and possibly as bad as 1929.

Clear away the financial rubble from those two former crashes and you’d see they both followed upon widening imbalances between the capacity of most people to buy, and what they as workers could produce. Each of these imbalances finally tipped the economy over.

The same imbalance has been growing again. The richest 1 percent of Americans now takes home about 20 percent of total income, and owns over 40 percent of the nation’s wealth.

ADVERTISEMENT

These are close to the peaks of 1928 and 2007.

The U.S. economy crashes when it becomes too top heavy because the economy depends on consumer spending to keep it going, yet the rich don’t spend nearly as much of their income as the middle class and the poor.

For a time, the middle class and poor can keep the economy going nonetheless by borrowing. But, as in 1929 and 2008, debt bubbles eventually burst.

ADVERTISEMENT

We’re getting dangerously close. By the first quarter of this year, household debt was at an all-time high of $13.2 trillion.

Almost 80 percent of Americans are now living paycheck to paycheck. In a recent Federal Reserve survey, 40 percent of Americans said they wouldn’t be able to pay their bills if faced with a $400 emergency.

ADVERTISEMENT

They’ve managed their debts because interest rates have remained low. But the days of low rates are coming to an end.

The underlying problem isn’t that Americans have been living beyond their means. It’s that their means haven’t been keeping up with the growing economy. Most gains have gone to the top.

It was similar in the years leading up to the crash of 2008. Between 1983 and 2007, household debt soared while most economic gains went to the top. Had the majority of households taken home a larger share, they wouldn’t have needed to go so deeply into debt.

ADVERTISEMENT

Similarly, between 1913 and 1928, the ratio of personal debt to the total national economy nearly doubled. As Mariner Eccles, chairman of the Federal Reserve Board from 1934 to 1948, explained: “As in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing.”

Eventually there were “no more poker chips to be loaned on credit,” Eccles said, and “when … credit ran out, the game stopped.”

After the 1929 crash, the government invented new ways to boost wages – Social Security, unemployment insurance, overtime pay, a minimum wage, the requirement that employers bargain with labor unions, and, finally, a full-employment program called World War II.

After the 2008 crash, the government bailed out the banks and pumped enough money into the economy to contain the slide. But apart from the Affordable Care Act, nothing was done to address the underlying problem of stagnant wages.

ADVERTISEMENT

Trump and his Republican enablers are now reversing regulations put in place to stop Wall Street’s excessively risky lending.

But Trump’s real contributions to the next crash are his sabotage of the Affordable Care Act, rollback of overtime pay, burdens on labor organizing, tax reductions for corporations and the wealthy but not for most workers, cuts in programs for the poor, and proposed cuts in Medicare and Medicaid – all of which put more stress on the paychecks of most Americans.

Ten years after Lehman Brothers collapsed, it’s important to understand that the real root of the Great Recession wasn’t a banking crisis. It was the growing imbalance between consumer spending and total output – brought on by stagnant wages and widening inequality.

That imbalance is back. Watch your wallets.

ADVERTISEMENT


Report typos and corrections to: [email protected].
READ COMMENTS - JOIN THE DISCUSSION
Continue Reading

Breaking Banner

Florida sheriff ordered his officers to not wear face masks — and then banned the safety gear

Published

on

A Florida sheriff ordered his officers to not wear face masks -- and banned the safety gear from his office -- even as the southern US state has hit record daily coronavirus death tolls.

Sheriff Billy Woods, of central Florida's Marion County, emailed deputies Tuesday to tell them of the new mask prohibition, according to local paper the Ocala Star Banner, citing the message.

"My order will stand as is when you are on-duty/working as my employee and representing my Office – masks will not be worn," the email read.

The sheriff allowed for certain exceptions, including for officers who work in prisons, schools, hospitals or with people suspected of being infected with the virus.

Continue Reading

Breaking Banner

Fast-moving brush fire north of Los Angeles has prompted mandatory evacuation orders for some 500 homes

Published

on

A fast-moving brush fire north of Los Angeles prompted mandatory evacuation orders for some 500 homes on Wednesday as firefighters battled the flames that had burned 10,000 acres by early evening, authorities said.

The Lake Fire erupted at around 3:30 pm (2230 GMT) near Lake Hughes, about a 90-minute drive from Los Angeles.

Rapidly-spreading flames had scorched some 10,000 acres (4,050 hectares) within a little more than three hours, according to the Los Angeles County Fire Department.

"Multiple agencies are battling a brush fire near the Lake Hughes area in the Angeles National Forest," the department said in a tweet.

Continue Reading
 

Breaking Banner

‘Trump should know how to be in public with a woman who publicly humiliated him’: Trevor Noah jokes

Published

on

"The Daily Show's" Trevor Noah couldn't help but notice President Donald Trump's confusion during the Q&A of his daily coronavirus press briefing. Trump was asked about Vice President Joe Biden's pick as Sen. Kamala Harris (D-CA) as his running mate. In his attacks on Harris, Trump seemed to be spending more time defending Biden than he did attacking him.

Trump claimed the reason he was surprised Biden picked Harris is that she was "very very nasty to Joe Biden," he said she was "probably nastier even than Pocahontas," his nickname for Sen. Elizabeth Warren (D-MA). "She was very disrespectful to Joe Biden."

Continue Reading
 
 
You need honest news coverage. Help us deliver it. Join Raw Story Investigates for $1. Go ad-free.
close-image