Changes

Likewise in the U.S. the economy has stabilized but showed little signs of recovery during President Obama's first term, apart from the stock market going up. Serious weaknesses continued in housing, commercial real estate, banking, automobiles, and retail trade. [[Unemployment]] remained above 8% til October of 2012 with conditions especially poor in California, Michigan and South Carolina.

Global trade declined sharply--by sharply—by 13% from August 20008 to August 2009, hurting exporters such as Germany and Japan. [[China]] has avoided most of the troubles; it continued to grow at a phenomenal rate (8.9% annual rate in 2008-9). However its exports did shrink because of falling world demand, and its ability to fund global stimulus programs are being dampened by lower growth forecasts and shifting priorities to retain capital earnings for domestic development.

Global governments spent an astonishing $17 trillion to support the world economy in the form of bailouts, guarantees, and equity market purchases. That $17 trillion represents one quarter of global GDP, but only a fraction of that sum will actually be paid out.<ref>One analyst in 2011 put the figure at $29 trillion. [http://www.levyinstitute.org/pubs/wp_698.pdf $29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient], James Felkerson, University of Missouri–Kansas City, December 2011.</ref> Global investment declined by 15% , and global GDP by shrank by nearly $4 trillion, or an amazing 6%. Global industrial production in the advanced economies dropped a 15%, causing unemployment to soar around the world, nearly doubling in the United States alone.<ref>David Smick, "Now What Do We Do?" November 10, 2009 [http://www.lexingtoninstitute.org/library/resources/documents/Defense/DavidSmickSpeechattheColonyClub11.10.09.pdf online] </ref>

In the U.S. GDP fell in the fourth quarter of 2008 (October-NovemberOctober–November-December), by 6.2% annual rate, with declines heaviest in business investment, exports, finance, autos, housing, construction, and retail sales.<ref>Three of the four engines of economic growth -- consumer spending, business investment and exports -- declined sharply. Consumer spending fell at an annualized rate of 4.3%; business investment in equipment and software sank at an astonishing annual rate of 29%; exports of goods and services plunged 24%. ''Washington Post'' Feb. 28, 2009 </ref> The steep decline continued; GDP in the first quarter of 2009 (January-FebruaryJanuary–February-March) fell at the annualized rate of 6.1%, much worse than expected. American business slashed capital investment at an annual rate of -38%. Investment in software and computer equipment declined by an annualized 33.8%, and investment in new buildings was down 44.2%. By Spring 2009, financial markets that spiralled out of control in late 2008 stabilized, and declines in retail sales and orders by manufacturers no longer posted record declines.<ref>An "annualized rate" is four times the actual quarterly rate. Jack Healy, "U.S. Economy in 2nd Straight Quarter of Steep Decline," [http://www.nytimes.com/2009/04/30/business/economy/30econ.html?_r=1&hp ''New York Times'' April 29, 2009]</ref>

The stock market fell by 50% in 2008, wiping out trillions of dollars in assets. More trillions were lost as housing prices fell by 20%. Adding together the declines in housing and the stock market, the net worth of American households declined from $63.7 trillion in January 2008 to $51.5 trillion in January 2009, a decline of $11.2 trillion or 18%. That is, Americans owned $11 trillion less wealth, and adjusted by buying less and investing less. Meanwhile mortgages and credit-card debt together reached $13 trillion, or 123% of after-tax income, a huge jump since 1995, when it was 83% of income.<ref> see [http://online.wsj.com/article/SB123687371369308675.html?mod=djemalertNEWS S. Mitra Kalita, "Americans See 18% of Wealth Vanish," ''Wall Street Journal'' Mar. 13, 2009]</ref>

A series of emergency measures enacted by the Federal Reserve (on its own authority) and Congress after heavy prodding by presidents Bush and Obama resulted in trillions of dollars in loans, banking bailouts and guarantees, a half-trillion [[Direct spending|new stimulus spending]]<ref>These supposed "temporary", "emergency" spending measures by 2013 became permanent features of the federal budget, as the $1 trillion deficit to cover its continuing costs and an accumulating [[national debt]]. [http://online.wsj.com/article/SB10001424052748704820904575055413176800990.html The Eternal Stimulus,] ''Wall Street Journal'', February 11, 2010. </ref><ref>[http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CFAQFjAC&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304840904577422452374106994.html&ei=FhpNUYiGOeioigKEyIDoCQ&usg=AFQjCNEzdyI4QJ3sxiXA8-9ufhj1ekr2Aw&sig2=x_mb1GLPfNq-cRX4mvqN7A&bvm=bv.44158598,d.cGE Obama's Permanent Emergency:'Temporary' spending becomes permanent,] ''Wall Street Journal'', May 23, 2012. </ref> and a third of a trillion in tax cuts, but by mid-March 2009 the outlook remained bleak as the economy continued downward. Therefore the Federal Reserve announced yet another trillion dollar plan on March 18, this one to buy $300 billion in Treasury bonds, and $750 billion in mortgage-backed securities. The idea was to keep mortgage rates low in the hope people will start buying houses again, but the problem was that the prices were falling, so that if a person bought a $500,000 house in 2009 it would be worth $400,000 a year later, despite the Fed's intervention.

Major countries began experimenting again with Keynesian stimulus packages, including the US ($787 billion), Europe (EU, $634 billion), China ($586 billion), and Japan ($486 billion), but no positive results were reported<ref>[http://online.wsj.com/article/SB10001424052748704476104575439172480870774.html?mod=googlenews_wsj Jobless Claims Jump in New Sign Recovery Is Sputtering,] ''Wall Street Journal, August 20, 2010. </ref><ref>[http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS11300000&years_option=specific_years&include_graphs=true&to_month=1&from_month=2 United States Department of Labor], Bureau of Labor Statistics. Data extracted on: July 19, 2010 (4:31:11 PM).</ref> Central banks (such as the Federal Reserve in the U.S.) cut interest rates to nearly zero for half a decade, but few businesses borrowed money to expand employment or meet current operating expenses.

{{QuoteBox|The lesson of such on-the-ground knowledge is that the stimulus was a lost opportunity. In practice it became a shotgun marriage between an economic theory justified by computer models and 40 years of [[liberal]] social priorities (clean energy, Medicaid expansions and the rest). This produced the 9.1% unemployment we now have.<ref>[http://online.wsj.com/article/SB10001424053111904716604576544500632493510.html Why the Stimulus Failed,] ''Wall Street Journal'', September 8, 2011. </ref> }}

Meanwhile, at the urging of the [[Obama Administration]], Congress passed a $789 billion stimulus package, combining [[Direct_spendingDirect spending#New_spendingNew spending|new spending]] and tax cuts, in the hopes of Keynesian revival by mid-2009. Republicans were nearly unanimous against the proposal, as their smaller package was voted down. Canada, although not as hard hit as the U.S., prepared its own stimulus package.

In terms of a monetary explanation, there is far more money around, due to the stimulus programs of the Federal Reserve, Treasury, and Congress. However the velocity (turnover rate) is down to the lowest rate since 1991. That is, people and business are saving and not spending. Banks are not lending. The nation’s banks in March 2009 had reserves of $679 billion, up from only $45 billion in August 2008. Individuals are keeping their cash in the banks, or paying off credit cards and debts, and not buying new merchandise. The goal of federal stimulus spending is to get consumer spending going, to create jobs and keep businesses from slowing down.<ref>[[Inflation]] can do this -- force people to deplete cash and savings with a "spend now" mentality and damn the consequences of impoverishing themselves and heirs later. Keynes said, "In the long run we're all dead". Keynes is dead, but those alive in 2008 have to live with the consequences of decades of these economic theories elevated to public policy. </ref> If people do start spending again all the extra money will cause inflation, but in that case the Federal Reserve plans to reduce the money supply and, hopefully, restore normalcy and prosperity.<ref> Mark Gongloff, “Best Check on Inflation: Broken Banks,” ’’Wall Street Journal,’’ Mar. 20, 2009</ref>

The construction of new housing and commercial buildings has fallen off; many commercial buildings and shopping centers have high vacancy rates and may be hard pressed to pay their debts. Housing prices continue low--falling low—falling from an average of $255,000 to $180,000, as millions of empty houses are a drag on the market. Indeed much of the housing activity in 2009 involved sales of foreclosed properties at distress prices.

Japan's exports to the U.S. and other areas are down sharply, causing massive layoffs at companies like Nissan, Toyota, Panasonic and Sony. Capital spending on tools and factories has fallen as companies halted production lines and cut investment. Consumer spending has stalled as Japanese households reduced spending amid the large-scale layoffs. The government has promised a huge bailout package on the order of 50 trillion yen ($545 billion), but has been unable to get it passed in parliament.<ref>Hiroku Tabuschi, "Japan’s Economy Plunges at Fastest Pace Since ’74," [http://www.nytimes.com/2009/02/16/business/worldbusiness/16yen.html?ref=business ''New York Times'' Feb. 15, 2009] </ref>

{{Template:Economic preparedness topics}}[[Category : Economic Preparedness]]