The odds have grown that the economy will slip into a recession. At the beginning of last year, many economists put that chance at less than 1-in-3; now an increasing number says it has climbed to around 50-50. Goldman Sachs, the biggest investment bank on Wall Street even thinks a recession is inevitable this year.
Hopeful it can be avoided, President Bush and the Democrat-controlled Congress are exploring economic rescue measures, including possible tax rebates. Federal Reserve Chairman Ben Bernanke pledged to lower interest rates as needed.
The idea is to induce people to boost spending, especially on big-ticket items such as homes and cars, and revitalize economic activity.
With what money? What's the average tax rebate, $1000? What is that going to accomplish, when as we've discussed extensively in previous posts, to all appearances, credit has run out for a substantial number of people? Sure, you can go out and put $1000 down on a car, but without cash every month to back it up there's no point. We may see a spurt of spending at the beginning of the year, but it won't be substantial enough to turn the numbers around for the retailers that had such a bad showing during the holidays. I mean, that's even if I believed in that kind of trickle-down economics, which I don't. And even if it did work, it's not going to cause wages to rise any higher vs. inflation than they have been for the past couple of decades.
Look, incentive packages aimed at reviving the retail economy may help the retail economy. But that's not what's killing most Americans. Why could people not afford those variable rate mortgages in the first place? LACK OF REAL MONEY! People aren't making enough money any more to keep the kind of economy going that we consider the norm nowadays.
Anyway, here's my prediction: recession. And if it's not what the economists officially call a recession, that's only because they look at overall economic growth, which is mainly indicated by business profits. Looking at real wages, real people have been in a recession for over two decades. It's going to take more than tax rebates to fix that.