Tuesday, November 18, 2008

Thanksgiving in downtown America

Downtown America is downturning

Fraom The Statesman
ND Batra

We are heading toward a long weekend of vacation when millions of Americans will travel by trains, planes and automobiles to share with family and friends the joys of a Thanksgiving meal of roasted turkey with stuffing and cranberry sauce, apple cider and wine, and much more.

The day after Thanksgiving, stores will open for early bird door-buster sales, the traditional beginning of the holiday shopping season that lasts through Christmas and beyond, and is a firm indicator of how the economy is doing. But this Thanksgiving Day, as Americans mumble their prayers before the big meal and dig into their grandma pies and exchange neighbourhood gossip, the most pressing concern on their minds will be their jobs, some lost, and others threatened. Some have already lost their homes to foreclosures.

You have heard the cliché that in a market economy like the US’s, the consumer is king with a credit card, but unfortunately during the last two years the ground has been collapsing underneath him. The king feels like a pauper now. In spite of the fact that stores are offering huge discounts, even up to 75 per cent on some goods, it is uncertain whether the consumer will bring his credit card out of his wallet ~ so much is the fear of tomorrow. When your neighbour loses his job, you don’t know what might happen to you.

In some respects, it is the worst of times since 11 September 2001, when the US was attacked by terrorists. The downturn is becoming a recession and it is hitting the entire country. Nest eggs are dwindling and disappearing.

Last week the US Labor Department reported that jobless claims have risen to 516,000, which means more than a half million families, including some with children, won’t be heading to the stores with a smile on their faces. The total unemployment rate of 6.5 per cent is the highest in 14 years, according to the Labor Department. You might say that since the rest of the 93.5 per cent of people do have jobs, why worry? But that’s not how you measure misery. Unemployment of course can never be zero per cent but when it is below 5 per cent it is deemed tolerable, albeit grudgingly.

You might regard national unemployment as a revolving door through which people come and go. While some people get jobs, others lose and file for jobless claims; nonetheless, according to some economists when jobless claims, which provide a few weeks’ financial relief, touch 500,000, the situation is considered a recession. Eventually we will bottom out of the recession, though it is difficult to say when that will happen. Will it get worse? Some fear the coming of a depression. During the 1929-1930 Great Depression, 20 per cent Americans were out of jobs. We are far from that.

So the question is how the massive stimulus package of $700 billion, which was originally meant to buy out bad assets of banks and financial institutions so that they regain health and confidence and start lending again, will help Joe Sixpack who might be on the verge of getting a pink slip. In an about turn from the original plan, Treasury Secretary Henry Paulson recently announced that he would now use a part of the stimulus package to encourage consumer spending via student loans, credit cards and automobile loans so that the wheels of the economy don’t grind to a halt. But the Big Three Detroit automakers ~ Ford, General Motors and Chrysler ~ say they need a cash infusion of $25 billion or more to stay afloat.

If Detroit shuts down, millions of jobs including the entire supply chain from automobile dealers to auto part manufactures will be lost, leading to a deeper recession. The Federal Deposit Insurance Corporation is asking the government to spend $24 billion to back up mortgages so that 1.5 million threatened homeowners can stay in their homes rather than losing them to foreclosures. Many states, towns and cities are clamouring for their share of the pie. University and college endowments have slumped.A few weeks ago, I wrote “recession is worse than terrorism”.

Terrorism is man-made and can be limited and controlled. It can even be eliminated as has been done in Indonesia. But global recession ~ though its genesis indubitably lies in criminally negligent US bank lending practices in the housing market that let Joe Sixpack buy a house when he could not afford to pay the mortgage ~ is out of control and dragging every country down. As Prime Minister Manmohan Singh was heard saying at the G-20 meeting, “Emerging market countries were not the cause of this crisis, but they are amongst its most affected victims.”

It might sound rather flippant, nonetheless, let me ask a question. If Pakistan goes bankrupt, who would you blame: Taliban or Joe Sixpack? Consider this. When terrorists’ attacks hit the US seven years ago, there was no gathering of the G-20 nations (developed and emerging economies that today account for 85per cent of the world economy) to save the world. The Saturday gathering of the G-20 in Washington DC aimed to erect a dynamic global financial system that would reflect the new emerging world order by restructuring the creaky post-war Breton Woods (the World Bank and International Monetary Fund) system.

But on close reading you find that it was primarily meant to unfreeze the global credit pipeline through various national stimulus packages so that Joe Sixpack can go on his buying spree again; and Joe Chan in Guangdong and Joe Slumdog in Bangalore can get back their jobs in the factory and the outsourcing cubicle.And thereby hangs the global tale of miners in Africa, shoe and toy manufacturers in China, chicken feeders in Australia, outsourcers across India, oil sheikhs in the Arab world and diamond merchants in Amsterdam, all in the same boat, the Titanic, with Joe Sixpack. Do you see the iceberg?

(ND Batra is professor of communicationsat Norwich University)

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