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« Opinion
We’re thriving in this global economy
By MARK J. PERRY
MCCLATCHY-TRIBUNE
FLINT, Mich. — As the U.S. economy enters its seventh year of economic expansion, many are predicting that a recession is looming on the horizon in 2008.
Don’t believe it. The U.S. economy is strong, healthy and stable, and it will continue on its expansionary path well into the new year.
The National Bureau of Economic Research, the nation’s leading authority on business cycles, closely watches five economic variables to determine when the economy officially goes into a recession. You might be surprised, but the NBER doesn’t look at any of the economic variables that get all of the attention in the media, like the subprime crisis, the falling dollar, foreclosures, the stock market and rising oil prices.
The only five variables that really matter for determining when a recession starts are payroll employment, production measured by real Gross Domestic Product and industrial production, real personal income, and real sales activity.
Despite all of the economic gloom and doom you’ve heard on the news, not a single one of these variables has started to show any signs of economic weakness. It’s actually just the opposite — all five of these economic variables are showing continuing economic strength and vitality!
For example, payroll employment is at a record level, and has increased in each of the last 51 months, the longest continuous period of job growth in U.S. history. Industrial production has increased in each month since June 2003, and reached a nine-month high in November. Real GDP grew almost 5 percent in the third quarter of 2007, the strongest growth in four years, and we can expect growth of 2.5 percent during the fourth quarter.
Record retail sales and consumer spending through November suggest that American consumers remain upbeat and optimistic, and real compensation growth for U.S. workers in the third quarter of 2007 was the highest in seven years. In other words, all of the key economic recession indicators suggest a very healthy economy at year end, not an economy on the edge of falling into recession in 2008.
Challenges ahead
To be sure, there are some challenges ahead for the economy, but even the problems facing the U.S. economy will not be serious enough to cause a recession in 2008. The biggest threats are the subprime mortgage crisis and rising home foreclosures, but the resilient U.S. economy can easily absorb that kind of shock to the financial sector.
Remember the S&L crisis of the mid-1980s, which caused almost 1,500 banks to fail? Even that banking meltdown didn’t cause a recession, and the economy and banking system are both much stronger and more stable today. Never in U.S. history has the U.S. banking system been more stable. Only three banks have failed during the last three years out of a total of 8,500.
If the economy of the late 1980s could handle a major banking crisis without going into recession, the bigger, stronger Goldilocks economy of today can easily handle the subprime mortgage crisis and a weak real estate market.
The enormous size of the U.S. economy ($14 trillion), diversified across a large number of industries and an enormous geographical area, provides a high degree of economic stability, and will insulate the economy against recessionary pressures.
Even in the unlikely event of a 2008 recession, the U.S. economy will continue to survive and prosper. Make a new year’s resolution to give the U.S. economy a little more credit, appreciation and respect this year. Recession or not, it’s still the greatest wealth-generating, prosperity-producing, job-creating economy in the history of the world.
X Mark J. Perry is a professor of finance and economics at the Flint campus of the University of Michigan. Distributed by McClatchy-Tribune Information Services.
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Comments
Although Professor Perry's optimism is heartening, the variables he points to as those "that really matter" are suspect.
Economics have for too long continued to use Gross Domestic Product as a measurement of how well the economy is doing. What GDP is a measurement of is simply the dollars spent by all sectors of society. Thus, as government spending increases, GDP increases, regardless of what the spending is for. A better measurement would be the depreciated value of all capital goods, which reflects real investment in goods production.
Professor Perry also fails to comment on the impact of having to service a $10 trillion and growing national debt. At a 5% rate of interest, our federal government must raise via taxation $500 billion annually just to pay interest to holders of these bonds.
On the consumer side of the equation, there is the stress associated with record levels of household debt. For those who have acquired housing in the last 5-6 years, monthly housing debt is at record levels (particularly for first-time homebuyers). And, local property taxes are escalating as state and federal revenue sharing have fallen.
As reported earlier this year, household savings is lower than at any time since the Great Depression. Moreover, the ability to carry this debt is dependent upon the income of two adults working full-time.
A key leading indicator of where we are in the business cycle is what is happening in land markets. Strangely, neither government agencies nor many economists monitor land markets very closely. A british economist, Fred Harrison, has researched the history of land market cycles going back several hundred years. The data he has published indicates a very consistent 18-year cycle that has peaked and is heading downward. Externalities (e.g., the extent to which holders of U.S. dollars will convert them into hard assets in the U.S.) will impact the depth and duration of the downturn. Real estate markets in much of the U.S. are already depressed, inventories of unsold new homes are at record highs in many markets, which means that employment and incomes in the real estate and financial services sectors are declining.
Edward J. Dodson, Director
School of Cooperative Individualism
www.cooperativeindividualism.org
re: Mortgage Mess, FORECLOSURE FRAUD, DEBT COLLECTION ABUSE, COLLUSION
Representation about $$$ billion dollar losses due to people defaulting on mortgages should be weighed against the fact that Freddie Mac and Wells Fargo needlessly pay DEBT COLLECTION firms outrageous legal fees for corporate lawyers to outmaneuver -and even persecute people who file court proceedings in opposition to fraudulent foreclosures.
Most critical to the Foreclosure Crisis is FORECLOSURE FRAUD. In almost all instances of foreclosure fraud, MORTGAGE LENDERS become enabled to ILLEGALLY FLIP properties. In Louisiana, 2 particular mortgage companies which benefit from fraudulent foreclosures are Wells Fargo and FREDDIE MAC! It is HIGHLY COMMON for a DEBT COLLECTOR attorney to file a foreclosure naming a DEFUNCT mortgage company;(or naming a mortgage company which NO LONGER holds the security interest (the promissory note); or file a foreclosure and AFFIX a ‘ransom’ amount (the collector’s fee) far exceeding the promissory note “Acceleration Clause.”
Despite a property owner’s entitlement to Challenge CONTRARY-TO-LAW loss of his / her home, most property owners LACK legal knowledge; the Court System is REFRACTORY; and there are limited attorneys with Consumer Law acumen. Also, when borrowers sue for “Unfair Debt Collection Practices,” damages, the collector gets to make more $$ through prolonged litigation, as co-conspirators enjoy the foreclosure fraud pie.
Judicial Corruption is the underlying factor of New Orleans Apartheid conditions which became exposed due to Hurricane Katrina floods. CRONYISM and JUDICIAL CORRUPTION are the salient reasons why unlawful foreclosures are sanctioned in state such as Louisiana. Likewise, the court systems as well as the Louisiana division of the U.S. Justice Department FACILITATES real estate and mortgage FRAUD here!
Further, Securities Investors need to become more astute about how misdeeds of mortgage servicers like WELLS FARGO hurts borrowers as well as siphons incalculable amounts of money from what Investors should reap. (For more facts see "Limiting Abuse and Opportunism By Mortgage Servicers,"on the msfraud.org website.)
**See "Mortgage Mess" newsblaze.com/story/20071203130614tsop.nb/newsblaze/TOPSTORY/Top-Stories.
**Also see Irrefutable PROOF of this commentary -with court documents, pleadings, transcript excerpts, AND MORE posted on my www.lawgrace.org website.
**And see: Comment about Foreclosure on Judge Reginald Badeaux’s Home
www.lawgrace.org/2007/12/08/my-december-...
-Barbara Ann Jackson (Katrina displaced from New Orleans)
Law & Grace, Inc.,
www.lawgrace.org