[Excelsior, Mexico]

NRC Handelsblad, The Netherlands

Doomsday Thinking in the United States

"In good measure, the current crisis has its roots in the tricks that were applied to deal with the previous recession six years ago: A growing deficit under the Bush Administration and a far too loose monetary policy with ultra-low interest rates. … For the rest of the year, the Americans will need all of their optimism."

Translated By Meta Mertens

EDITORIAL

March 29, 2008

The Netherlands - NRC Handelsblad - Original Article (Dutch)

Optimism is a proverbial American characteristic. Now that the economy of the United States is visibly deteriorating, this is being put to a serious test. Yesterday it became clear that the mood of American consumers, tracked by the University of Michigan, has dropped to its lowest level since the early nineties. On Thursday, another confidence indicator by the Conference Board , showed that Americans consider the labor market to be the worst in forty years. Other indicators of confidence show that the economic downturn is expected to be at least comparable to the recession of the early nineties.

Of course expectations aren't always a good measure, but the facts speak for themselves. American industrial production is falling, the job market has shrunk for the past two months in a row - and of particular importance: the housing market is experiencing an unprecedented drop in prices. There are investment banks that already assume America is in recession.

Meanwhile, the authorities are taking measure after measure to prevent the economic situation from becoming a crisis. A stimulus package for consumer spending should boost the economy in the third quarter of this year. Two weeks ago, the American central bank [the FED] engineered the takeover of the troubled Bear Stearns [by JP Morgan]. The two huge, government-guaranteed mortgage institutions [Freddie Mac, Fannie Mae] may now loan more money, and the FED itself is preparing to put hundreds of billions dollars in faulty mortgages on its balance sheet in order to relieve the banks.

Posted by WORLDMEETS.US

But the United States will not be able to escape what it has for so long denied. The country has lived beyond its means and its citizens have hardly saved a thing. Instead the country has borrowed the money from abroad and caused a ballooning of the deficit. Welfare is - and this is also the case in Europe - no longer defended as right to be fought for on a daily basis, but has been elevated to an entitlement of all citizens. In good measure, the current crisis has its roots in the tricks that were applied to deal with the previous recession six years ago: A growing deficit under the Bush Administration and a far too loose monetary policy with ultra-low interest rates. The result of all this cheap money was unprecedented speculation in the banking world, a bloated housing market that seems to make everyone rich and an out-of-control deficit with other nations.

Posted by WORLDMEETS.US

In any event, these imbalances must be addressed. The inflated housing prices have to come down to sustainable levels. Only when the resulting losses on mortgages and related loans have been revealed will a conclusion be found to the crisis in the financial system. The credit crisis, which has also ravaged Europe, may seem like a purely financial phenomenon, disengaged from everyday reality, but the wild speculation is very-much rooted in the real economy. And the real economy is not doing well. For the rest of the year, the Americans will need all of their optimism.

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[Posted by WORLDMEETS.US April 1, 8:36am]