WASHINGTON — "The economy nearly stalled in the first quarter with growth slowing to a pace of just 0.6 percent. That was the worst three-month showing in over four years.
"The new reading on the gross domestic product, released by the Commerce Department Thursday, showed that economic growth in the January-through-March quarter was much weaker. Government statisticians slashed by more than half their first estimate of a 1.3 percent growth rate for the quarter." (Source: the real world.)
The economy has not sputtered like this since 2002, when the United States was emerging from a recession caused by the hallucination, and inevitable collapse, of the status quo ante, namely, the Internet IPO craze. Americans, who long ago gave up the idea we could build wealth by manufacturing durable goods or high technology and selling such stuff to the rest of the world in order to raise cash, replaced one racket with another. We began cannibalizing our capital wealth, more or less in the style of an English baron, now gone to seed, who is forced to open up the family castle to tourists, add a gift shop and install a carousel just to make ends meet. For a while, until he's ultimately faced with the necessity of subdividing his heritage, selling the place and moving to a condo in the West End, where he'll still be Sir Somethingorother, but no more liveried footmen answering the front door.
One stat I don't see referenced too much in the mainstream media is an astonishing fact revealed in the pages of Kevin Phillips's book American Theocracy. To wit, between 2000 and 2005 Americans derived over half of their "income" through refinancing of their principal residences. It's not income at all, of course; even an amateur economist like myself knows that. It adds to cash flow, but on a balance sheet it dumps a debit to match the influx of created cash. When Ben Bernanke or Alan Greenspan talks about the economy, I never hear them refer to this ominous development. Add to this disturbing datum the widely-acknowledged reality that the U.S. gross domestic product relies, to the extent of 70%, on consumer spending and you have the macrocosmic picture in focus. Get it? The good years of the Bush Administration, insofar as the economy was concerned, depended to a phenomenal degree on the availability of cheap, not to say promiscuous, credit. All of this was pimped by the Fed, who made cheap money (furnished by China, Japan and other net exporters selling in the U.S. market with fistfuls of dollars at their disposal) available to banks and other lenders, who then used various artful tricks and strategems, such as negative amortization, to "qualify" just about anyone who could fog a mirror. Thus, money from China and Japan flowed through the Fed to the lenders to the consumers to Best Buy, Wal-Mart and Target.
Until everyone hit the upper limit on available "equity," which was itself based on inflated housing prices (in turn based upon easy credit, in a kind of upward death spiral). With re-fi money drying up, the consumers became nervous and edgy and stopped buying so many Chinese electric nose clippers at Wal-Mart, which reported its biggest sales drop in 28 years (which gives you an idea of my sheltered life: I had no idea Wal-Mart had been around that long). When consumer spending dies, a percentage of the U.S. economy equal to the volume of water in the human body begins to expire. Which means recession.
If Bush thought he had problems before, he ain't seen nothin' yet. 72% of Americans thought we were on the "wrong track" when the economy was "booming." I suspect that everyone was a little uneasy about how all of this was being accomplished. Intuitively, it simply made no sense. No one was really doing anything to create wealth in a traditional sense, yet all this money was flowing through the system. It is reassuring, if somewhat terrifying in its prospects, to see common sense vindicated. We were in the process of mortgaging our patrimony, the one built up by generations who actually did a lot of hard work. I think I've got room in my back yard, however, for a Bumper Car Ride.