The Young Turks

From the article:

This Recession, It's Just Beginning, By Steven Pearlstein

"This thing's going down, fast and hard. Corporate bankruptcies, bond defaults, bank failures, hedge fund meltdowns and 6 percent unemployment. We're caught in one of those vicious, downward spirals that, once it gets going, is very hard to pull out of.
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It was only in November that the Dow had recovered from the panicked summer sell-off and hit a record, just above 14,000. By March, it had fallen below 12,000. By May, it climbed above 13,000. Now it's heading for a new floor at 11,000. Officially, that's bear market territory. We'll be lucky if that's the floor.
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The real problem is that the underlying fundamentals had gotten badly out of whack, making the economy susceptible to a shock. The only way to make things better is to get those fundamentals back in balance.
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The last hope for a second-half rebound began to fade earlier this month when Lehman Brothers reported that it wasn't as immune to the credit-market downturn as it had led everyone to believe. Lehman scrambled to restore confidence by firing two top executives and raising billions in additional capital, but even that wasn't enough to quiet speculation that it could be the next Bear Stearns.
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American Express and Discover warn that customers are falling further behind on their debts. ...According to the Case-Shiller index, home prices in the top 20 markets fell 15 percent in April from the year before, and Fannie Mae and Freddie Mac report that mortgage delinquency rates doubled over the same period -- and that's for conventional home loans, not subprime...Goldman Sachs, which has already had to withdraw its rosy forecast for stocks, now admits it was also too optimistic about junk bond defaults, and analysts warn that Citigroup and Merrill Lynch will also be forced to take additional big write-downs on their mortgage portfolios."

http://www.washingtonpost.c om/wp-dyn/content/article/2 008/06/26/AR2008062604030.h tml?hpid=topnews
 

What a shock, the United State's economy is rotten at its core! Well anyone with any sembelence of political economic background could have said that easily. The IMF was warning the US that its massive deficits were completely unsustainable and that there were two scenairos of a correction, first a slow re-adjustment to a more sustainable position, or a crash...well it looks like the latter is becoming more and more realistic.

Is this recession a good thing? Could be, firstly it seems to be sufficiently strong enough to induce a realignment in American politics back to the left. After 30 years of neoliberal/neoconservative hegemony in American politics and economics, their contradictions are really coming out strong. The main contradiction in the US economy is the disconnect between income and expenditures. People simply are not making enough money, yet continue to increase their spending, by incurring debt. Already debt is well above disposable income and this will only get worse as lay-offs and real wages decline. The US economy as a whole suffers from this, its current account deficit is truly massive, the entire US economy is dependent on credit.

The author's solution to this is to bring American's spending in line with income, this  is a solution that I believe would exacerbate the problem. What has to be done is to bring incomes up to the level where the current level of consumption can be maintained, meaning...progressive taxation (no more tax cuts for the rich or corporations), increase capital gains and inheritance taxes, increase in real wages, and redistribution of wealth from the rich to the middle class and poor. Trickle-down economics don't work, it was this logic that brought the Great Depression in 1929 and its this logic that is bringing this major recession. Rich people/corporations do not spend money, they invest that money in the markets and with SO much money they now have-as a percentage of GDP-it creates these massive financial bubbles which have gotten worse over time:

http://www.theyoungturks.co m/story/2008/6/22/201851/39 0/Diary/The-real-welfare-st ate-It-s-not-for-you-or-me-

If the US continues on this path, it will self-destruct.