Daily Blog: The Crisis Builds

I've been a skeptic for many months--actually, it might be years now--about the declarations about economic "recoveries." And I also have been regularly raising that a deep economic crisis is around the corner.

For many people, it's already here. The recently release data from the government tells us why people are anxious about the future--and why they are struggling around ever-mounting debt. As Jared Bernstein of the Economic Policy Institute points out this past week, "Data released today by the Bureau of Labor Statistics show that most workers’ hourly and weekly wages fell behind inflation in 2005. Real hourly wages were down 0.5% over the course of the year, while real weekly wages declined 0.4%."

For workers, the crisis is here.

Then, you move over to today's Financial Times which leads with a banner headline: "Poor Earnings Weigh in Wall Street." The Dow dropped 214 points yesterday. I think this is somewhat a symptom of some people starting to see the crushing debt faced by consumers, and what that could mean for the economy. It's also tied into higher energy prices, the continuing huge trade deficit and an unease about the political instability in the world.

And there is a much-read article in The Economist's January 14th issue: "Danger Time For America." It is timed to the retirement of Alan Greenspan--I'll have more to say about a companion article on Greenspan later. But, the lead article has this to say: "Without strong gains in incomes, the growth in consumer spending has to a large extent been based on increases in house prices and credit."

Indeed, yours truly has been pointing out that this ride has to come to a very abrupt end--housing prices will come down...and, then, so will the last place many people can turn to for cash to finances their continued spending (not to buy yachts but to pay for school for children, health insurance bills and real needs). When that happens, it will not be a pretty sight.