United States: The Tank Is Empty
Published in Cyberpresse
(Canada) on 18 July 2011
by Richard Dupaul (link to original)
(Canada) on 18 July 2011
by Richard Dupaul (link to original)
Translated from
by Robert Shaza.
Edited by Andrew Schmidt.
The financial crisis has hurt the Americans who, according to two studies, have less and less money in their pocket to run the world’s largest economy. Less and less growth, more and more debt.
The U.S. economy is like an old car in bad shape that just consumes more and more oil every mile it crosses.
Our neighbors to the south have slowed significantly as of late, struggling to improve their economy (which has a current growth of 1.9 percent in the first quarter of 2011) despite the hundreds of billions of dollars that have been pumped into the tank by the government and the Federal Reserve over the past two years.
However, Uncle Sam’s big machine faces failure by the end of 2011 even if the heated debate over the debt ceiling does end with an agreement in Washington. The problem is that many Americans simply have less money to spend.
The Welfare State
In a report released last week, Moody's Analytics exposed a frequently overlooked weakness of the U.S. economy: the increasing reliance of consumers on state support.
The firm has calculated that for every ten-dollar bill that ended up in an American wallet last year, two dollars came from unemployment insurance benefits, food aid (“food stamps") or other forms of public support. In relative terms, that’s close to a record in United States history in this regard, Moody's notes.
In the most affected states by the recession, including Florida, Michigan and Ohio, the share of the public aid exceeds 20 percent.
The problem is that many people will lose this support by the end of 2011 due to the expiration of unemployment insurance and other types of aid.
Overall, Washington will deprive taxpayers of $37 billion this year, according to estimates by Moody's. This represents less than one percent of U.S. consumption in one year, but experts say it is enough to slow an economy that is already depressed. In addition, it doesn’t take into account budget cuts planned by the government or the social programs that will be affected by those cuts.
"If we don’t get more job growth and gains in wages and salaries, then consumers just aren’t going to have the firepower to spend, and the economy is going to weaken," said Mark Zandi, chief economist at Moody's.
The job market is also turning into a nightmare for Americans. There are currently about five unemployed people for each vacant job post in the United States, according to the New York Times last week.
$175 Less per Month
Other sources also show the deep marks that the financial crisis has left. The 18-month recession, although it officially ended in June 2009, cut $175 from Americans monthly spending according to a new study by the U.S. central bank (Fed).
This amount, expressed in constant 2005 dollars, is the difference between real household spending from December 2007 to May 2011. However on May 31, 2011 — 42 months after the start of the recession — American spending was still 1.6 percent below its peak before the crisis, the study notes.
Not to mention falling stock markets and the collapse of the housing market. Finally, household net wealth (the difference between their assets and debts) is 20 percent lower than it was before the recession, according to the Fed.
So it was no surprise that we learned on July 14 that consumption had stagnated in the United States, with only a slight increase of 0.1 percent in June 2011. In short, the American consumer is out of breath.
Strong Exports
To stimulate the economy, the U.S. will have to rely almost entirely on external markets. In this regard, the latest news is encouraging.
Even if export revenues, which broke records in April, declined by a slight .5 percent in May, they actually remain the second highest in history in terms of size ($175 billion each month).
President Barack Obama promised in January 2010 to double exports in five years, implying an increase of about 15 percent per year on average. After holding onto this pace in 2010 (at 16.7 percent), the first five months of 2011 have yet to exceed 16.3 percent.
That's reassuring. Provided that Europe sustains its recovery and that emerging countries maintain a high growth rate, the U.S. can count on at least one more economic engine. The question is whether it will be powerful enough to pull the first world power.
The U.S. economy is like an old car in bad shape that just consumes more and more oil every mile it crosses.
Our neighbors to the south have slowed significantly as of late, struggling to improve their economy (which has a current growth of 1.9 percent in the first quarter of 2011) despite the hundreds of billions of dollars that have been pumped into the tank by the government and the Federal Reserve over the past two years.
However, Uncle Sam’s big machine faces failure by the end of 2011 even if the heated debate over the debt ceiling does end with an agreement in Washington. The problem is that many Americans simply have less money to spend.
The Welfare State
In a report released last week, Moody's Analytics exposed a frequently overlooked weakness of the U.S. economy: the increasing reliance of consumers on state support.
The firm has calculated that for every ten-dollar bill that ended up in an American wallet last year, two dollars came from unemployment insurance benefits, food aid (“food stamps") or other forms of public support. In relative terms, that’s close to a record in United States history in this regard, Moody's notes.
In the most affected states by the recession, including Florida, Michigan and Ohio, the share of the public aid exceeds 20 percent.
The problem is that many people will lose this support by the end of 2011 due to the expiration of unemployment insurance and other types of aid.
Overall, Washington will deprive taxpayers of $37 billion this year, according to estimates by Moody's. This represents less than one percent of U.S. consumption in one year, but experts say it is enough to slow an economy that is already depressed. In addition, it doesn’t take into account budget cuts planned by the government or the social programs that will be affected by those cuts.
"If we don’t get more job growth and gains in wages and salaries, then consumers just aren’t going to have the firepower to spend, and the economy is going to weaken," said Mark Zandi, chief economist at Moody's.
The job market is also turning into a nightmare for Americans. There are currently about five unemployed people for each vacant job post in the United States, according to the New York Times last week.
$175 Less per Month
Other sources also show the deep marks that the financial crisis has left. The 18-month recession, although it officially ended in June 2009, cut $175 from Americans monthly spending according to a new study by the U.S. central bank (Fed).
This amount, expressed in constant 2005 dollars, is the difference between real household spending from December 2007 to May 2011. However on May 31, 2011 — 42 months after the start of the recession — American spending was still 1.6 percent below its peak before the crisis, the study notes.
Not to mention falling stock markets and the collapse of the housing market. Finally, household net wealth (the difference between their assets and debts) is 20 percent lower than it was before the recession, according to the Fed.
So it was no surprise that we learned on July 14 that consumption had stagnated in the United States, with only a slight increase of 0.1 percent in June 2011. In short, the American consumer is out of breath.
Strong Exports
To stimulate the economy, the U.S. will have to rely almost entirely on external markets. In this regard, the latest news is encouraging.
Even if export revenues, which broke records in April, declined by a slight .5 percent in May, they actually remain the second highest in history in terms of size ($175 billion each month).
President Barack Obama promised in January 2010 to double exports in five years, implying an increase of about 15 percent per year on average. After holding onto this pace in 2010 (at 16.7 percent), the first five months of 2011 have yet to exceed 16.3 percent.
That's reassuring. Provided that Europe sustains its recovery and that emerging countries maintain a high growth rate, the U.S. can count on at least one more economic engine. The question is whether it will be powerful enough to pull the first world power.
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