Waiting for the Lion's Roar

The American economic crisis has not even spared “The Lion King.” The Las Vegas version of the Disney mega-show, inspired by Rudyard Kipling’s “The Jungle Book,” will close its curtains forever at the end of the year after over a thousand performances. The end of the show, which includes the illustrious music of Elton John, will leave hundreds of people without work, aggravating the already difficult situation in one of the cities hardest hit by the collapse of the U.S. property market. The lion’s last roar is a sad metaphor for a country that, for years, has been the king of the economic jungle. Three years after a financial crisis that should have been an extraordinary event not to be repeated repeated during our lifetimes, America and the Western world again find themselves in the chasm of recession. Once more, as in 2008, the markets are in freefall, consumers are afraid to spend money and the banks do not want to lend money to companies or to individuals. American anxieties are accompanied by an even deeper unease in Europe, the most important market for U.S.-made goods and services. And this time the government, the deus ex machina that saved the global economy with billions of dollars in aid during the last crisis, is too deep in debt to open the purse strings. So now what? We suffer.

One of my banker friends, who is usually an inveterate optimist, made a perfect summary of the situation this week. “At this stage,” he told me, “I am wavering between pessimism and extreme pessimism.” In today’s America, pessimism seems to be a chronic condition afflicting investors, companies and ordinary people, exacerbating the economic deadlock at all levels.

Let’s start from the roots of the economic jungle: Ordinary people are incapable of buying houses. The latest news from the real estate front is discouraging: House sales have dropped by 3.5 percent from June to July, an unpleasant surprise for the market, and not only because summer is the time for buying. The new figures contradicted the statistics from previous months which had indicated a rise in the number of sales contracts. For experts, this means that potential buyers are reneging on contracts because they are afraid of another recession. The high rate of unemployment and the continued drop in salaries reinforce this hypothesis: Despite extremely low interest rates, many people do not want to take out a loan if they are not certain that they will have a job and an income to repay it.

The property market is one of the engines of the American economy, and, if it doesn’t turn, other products such as furniture, televisions and refrigerators as well as other sectors from construction to transport will suffer. At the good levels of the economy, morale is not much higher. It is true that American society, after having learnt its lesson from past crises, has little debt and lots of cash in banks, but it is also true that it does not have any intention of investing it in the U.S., especially if the domestic economy is in difficulty and exports to Europe slow down. My conversations with heads of industry, both American and European, start and finish with two words: “emerging markets.” The emerging markets of Brazil, China and India, with their enormous populations and tremendous rates of growth, are the Holy Grail of global capitalism.

It doesn’t matter that a large part of these economic miracles is based on the sale of primary materials and goods at low costs to an America and a Europe that have less and less money to buy them; shareholders and the market need hope. But an economy does not live only on hope, and the strategic moves of companies indicate a different reality. Delta Airlines, the largest American airline, has just announced that it will reduce its flights by 5 percent because it costs too much for half-full planes to take off. Large and small companies from Cisco (the Silicon Valley giant) to three-branch banks are cutting thousands, if not millions, of jobs in order to face an economic emergency that they didn’t expect.

Under normal circumstances, three years after a recession, the economy should be back in full swing with salaries on the rise and unemployment dropping. Instead, the debate in the economic pages of newspapers and on television talk shows is whether we are already in a new recession. It is a trick question given that the imperfections of economic science ensure that periods of economic contraction can be identified only when they are about to end and never at the beginning. But this doesn’t stop experts from making predictions. When the Wall Street Journal asked 60 economists recently, the average response was that there is a one in three chance that 2012 will be a recession year. 2012 is also the year of the presidential elections, and America’s economic sickness is infecting the Obama administration.

The polls do not bring good news. The latest one, published on Wednesday by Gallup, revealed that only a quarter of the population is satisfied with the economic politics of the White House, the lowest rating of Obama’s presidency. Obama’s allies claim that it is all the fault of Bush’s Republican government, which left a mountain of debt and a legacy of social tensions between the rich and the poor. If we look at the facts, they are not all wrong, but the average American would never say that they are right, either. Without economic improvement, Obama’s re-election is at risk even if Republicans persist in presenting weak and controversial candidates. A short while ago, one of Obama’s strategists told me that the current administration would need an unemployment rate of less than 8 percent to win the 2012 elections. Today, unemployment is over 9% and shows no signs of dropping. “It’s the economy, stupid!” This slogan, which helped an unknown governor from Arkansas named Bill Clinton beat the incumbent Bush senior in 1992, could become a fatal boomerang for the Democrats. The president and the rest of the population are in almost desperate need of a new roar from the American lion.