While technically the U.S. is not in a recession, the U.S. is experiencing the shock of several bubbles and will be effected adversely by a global
recession.
#1 Housing Crisis
With the repeal of the Glass-Steagall Act, banks were allowed to securitize loans. This created a moral hazard within the banking industry. Banks
started lending to anyone because they can just sell off the debts. This increased housing prices which increased investor demand for these debts,
which increased building activity, which increased the economy. Once the payments on homes became to high, the whole thing collapsed and shocked the
economy.
#2 Credit Crunch
Because of the housing crash, investors stopped buying loans, not just for mortgages but for almost everything else as well. Banks had to go with
their pre-repeal Glass-Steagall Act days by default. Loans are now hard to attain without investors buying debt and with the effects of
non-securitized loans going bad, banks are sitting on their good loans trying to gain capital while avoiding any lending activity that can expose them
even more than they already are. The lack of credit flowing through the economy will dry up capital that many businesses need to operate, hence there
are a lot of businesses failing.
# 2 1/2 Credit crunch
Due to the housing crash, an ENORMOUS amount of money was lost by foreign investors. Global economic woes are spreading because of this and will
probably affect the U.S. If Fannie Mae or Freddie Mac collapses without bailout, the Chinese economy will fail due to their huge investments into the
U.S. The Chinese bought these investments to keep their currency where it is, not because they were nice but because it increases their exports. This
is a wildcard and I have no clue what can possibly happen here.
#3 Oil prices.
Whether by terrorists, manufactured demand, or speculation, high oil prices increase inflation. This is nailing people directly with fuel prices and
indirectly with other commodities increasing. The money from the high prices is also flowing to foreign countries. With the housing crash, those
foreign countries are not investing as much in the U.S. so there is more vanishing capital.
#4 government spending.
The government is running up huge deficits which further decrease the value of the dollar. This increases the oil prices but does help with exports.
Exports are what drove the economy in the plus side along with the stimulus package.
I was looking for a reason to disagree with Jamie on something and I guess I partially found it.
In all, the economic climate is dangerous. While we are not technically in a recession, the confidence in the economy is teetering and all it takes is
one bad financial failure to set everything off. Confidence is everything, if that breaks, that's it. The current market losses around the world and
the panic going on within the banking system tells exactly where the confidence level is. However, if the economy can break out of the credit crunch,
then everything should be alright.
As for who is to blame, it goes to both parties. Bill Clinton signed the
Gramm-Leach-Bliley
Act which repealed the Glass-Steagall Act and got the whole subprime mess started. The republicans are the ones that wrote that law in the first
place.
Both parties are fond of increased spending, while the republicans are fond of borrowing to support the spending and the dems are fond of taxing the
hell out of everything.
The Dems have a weak energy policy based on undeveloped technology while at the same time hindering proven energy technology because they believe that
the Earth never had a climate cycle until man showed up.
TLDR version, the economy isn't rosy, the liberals aren't exactly lying but they are trying to cover their involvement.
