To distract us from this:
Last week, Federal Reserve Chairman Ben Bernanke testified to Congress that the economy would "slow noticeably" this year and likely get worse before getting better. Yesterday on ABC News's This Week, Sen. Chris Dodd (D-CT), chairman of the Senate Banking Committee, said of a possible recession: "[I]t's certainly pointing in that direction. We hope that's not the case, but there are many people who watch this minute to minute and would have drawn that conclusion." America's economic fundamentals have been weak for some time now. Since 2000, investment growth has been anemic, productivity growth has declined, and income growth has stagnated. Weak income and job growth and the decline of health care and retirement benefits have already squeezed the middle class and made Americans more vulnerable to economic downturns. When these trends are combined with the subprime mortgage crisis and the ensuing slowing of the housing market, the collapsing dollar, and the enormous cost of the Iraq war adding to the country's ever-growing debt, the economic slowdown is likely to hit Americans quite hard. Sen. Charles Schumer (D-NY) found Bernanke's testimony disquieting. "I'm very concerned that there may be a bigger storm on the horizon," he said. Approximately 48 percent of Americans feel that the economy is already in recession, including 69 percent of black Americans. Another poll found that two-thirds of Americans worry that economic conditions are getting worse, "by far the highest number since 1992," and four in ten say recession is likely next year.
Last spring, Bernanke downplayed the broader effects of the subprime mortgage crisis, suggesting that the effects seemed "likely to be contained" to the housing sphere. Last week, Bernanke admitted that "[a]lthough the problems with subprime mortgages initiated the financial turmoil, credit concerns quickly spilled over into a number of other areas." He added, "A sharp increase in foreclosed properties for sale could also weaken the already struggling housing market and thus, potentially, the broader economy." An October real estate report showed that U.S. home prices fell nationwide in August for the eighth consecutive month, in the ten largest cities falling five percent from a year ago, the biggest monthly drop since June 1991. Remarking on the falling housing sales, Dodd noted that it was "the first time since the Great Depression we've had two successive years of predictions of housing sales declines." Housing had been the one sector through which many middle class families could get ahead through investment. A report released late last month by the congressional Joint Economic Committee, however, stated that "families, neighborhood property values, and state and local government will lose billions of dollars as two million subprime mortgage homes are foreclosed." The housing crunch, dragging the whole economy down with it, demands the government's full attention. The most President Bush will admit thus far is that "housing is soft."
A new report by the Joint Economic Committee estimates that the wars in Afghanistan and Iraq have cost the average American family of four more than $20,000. The government is spending $2 billion per week to wage war in Iraq, and a Congressional Budget Office report estimated that the total cost of the war in Iraq could equal $2.4 trillion. Though the White House has asserted that it is "not worried" about the cost of war, it should be. The war is draining finite resources away from needed programs at home and abroad. Approximately $2.4 trillion is enough to "provide every college freshman in the country with a free, four year education at a private college or university; provide health care coverage to every American for one year; [or] pay off 26% of our current national debt."
The dollar fell to a new low against the euro on Friday, propelled by Bernanke's glum economic forecast and by signals from the Chinese government that it would "readjust" some of its U.S. Treasuries holdings from dollars to other currencies. A weak dollar is likely to affect average Americans at the gas pump, since "crude oil is priced in dollars, and oil producers, especially members of the Organization of Petroleum Exporting Countries, want to be compensated for the dollar's decline." As oil approaches the unprecedented price of $100 a barrel, the average cost of gasoline continues to rise, surpassing $3 per gallon last week, a rise of over 81 cents from last year. Gas prices are expected to rise another 20 cents over the next two to three weeks, making holiday travel more expensive. Sen. Sam Brownback (R-KS) said, "When those gas prices get up to $3 a gallon, it seems to hit some sort of psychological point in consumer's mind that 'I have less to spend,' and that's a reality for them." Before the holiday recess, Congress should pass a final energy bill that will establish a 35 mpg standard and require utilities to draw 15 percent of their electricty from renewable sources by 2020.