Wednesday, February 01, 2006

NY Times Lists Challenges In Economy

Greenspan retired yesterday, Bernanke replaced him and the problems in the economy still remain:

WASHINGTON, Jan. 31 — Stepping down on Tuesday after 18 years as steward of the nation's economy, Alan Greenspan left his successor a wide berth to set his own policy but some major uncertainties about the future.

Acting with almost choreographic precision, Mr. Greenspan wrapped up his last big initiative as chairman of the Federal Reserve less than an hour before the Senate confirmed Ben S. Bernanke as his successor.

On his last day at the Fed, Mr. Greenspan pushed through one more small increase in short-term interest rates, to 4.50 percent, and signaled that the current series of rate rises was nearing an end.

That gave Mr. Bernanke, a highly respected monetary economist who is to be sworn in on Wednesday, considerable freedom to make his own mark on an economy that performed much better during most of the Greenspan era than many experts thought possible when he took over at the Fed in 1987.

But the handoff also meant that Mr. Bernanke would face murkier choices at a time of substantial risks that increase the chances for serious missteps.


The nation's housing market, which was propelled by low interest rates to something of a frenzy in recent years, is poised for a slowdown that many economists fear could chill the broader economy.

The United States current-account deficit — the gap between what Americans spend and what they produce in goods and services — soared well past $700 billion in 2005 and requires about $2 billion a day in new foreign financing. The federal budget deficit has also been on an upward path.

Energy prices, which declined during most of Mr. Greenspan's tenure, have climbed back to new records and seem likely to remain high. And the nation's dependence on imported oil is greater than ever, a problem that President Bush addressed Tuesday night in the State of the Union address.

Wages of low- and middle-income workers are barely keeping pace with inflation, and in some places are falling behind. Wage inequality appears to be widening between the top and bottom ranks of the work force, partly because of a relentless contraction in blue-collar factory jobs.

The cross-currents in the economy, and the lack of a well-defined policy road map from this point on, will make Mr. Bernanke's new job especially difficult. He has previously served as a Fed governor and as the White House's chief economist, but is little known to most Americans and is sure to face second-guessing by some in the financial markets and some political figures.

Last night on Kudlow and Company, host Larry Kudlow mocked E.J. Dionne when he mentioned some of the above problems along with the enormous amounts of personal debt Americans are carrying.

Kudlow thinks this is the best economy ever.

George Bush thinks it is too.

GOP pollsters can't figure out why Americans give the preznit such low marks for his handling of the economy (usually the high 30's in approval.)

But it's simple, really.

People are in debt up to their eyeballs and they're worried about where they are in this economy.

They're worried about job stability, they're worried about wage stagnation, they're worried about inflation (which has eaten away what little raises in wages they've gotten over the past few years), they're worried about energy costs, they're worried about health care costs, they're worried about college costs for their kids, they're worried about their pensions, they're worried about Social Security and retirement, they're worried about rising interest rates, they're worried about being overextended, and they're worried about having to declare bankruptcy (which won't help them anymore anyway because the new bankruptcies laws are so harsh.)

Now I know the Larry Kudlows of the world will mock these people. After all, Larry only meets ordinary Americans when they're cleaning his apartment or driving him to CNBC studios, so he doesn't come into contact with people living on the economic edge very often.

But these fears are real and practical.

Things aren't so good for most folks.

But instead of solving the problems in the economy, instead of creating economic conditions and a tax code that will help working class and middle class Americans, Larry Kudlow pushes policies that squeeze working and middle class people while helping out the wealthy.

And the preznit and the GOP are happy to oblige.

This is why the gap between the wealthiest Americans and the rest of us has gotten so much larger over the past five years and continues to grow.

And the preznit and the GOP have shown no inclination to change their economic policies. Last night in his SOTU address, Bush called for the creation of health savings accounts that really are targeted at people making $250,000 a year or more. People making under that figure won't really be helped much by targeted tax cuts for putting money into a health savings account if they don't have the money to put into the account in the first place.

But there is one good piece of news in all of this. The more people get hurt economically and the more people feel squeezed by the current ruling party, the less likely they are going to be susceptible to Rovian wedge issues in future elections.

After all, it's pretty silly to vote on a gay marriage issue when you're out of work or are making less money after inflation, are worried about paying for your health care insurance, kids' college costs and your retirement, and are concerned about having your house foreclosed.

Which is the situation for quite a few Americans today.

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