US Still Faces A Grim Future
Standard & Poor’s (S&P’s) has cut Spain’s sovereign credit rating to AA from AA+ as now it is evident that the country is going to experience prolonged slowing of economic growth and deeper budget shortfalls. S&P’s had previously lowered Portugal’s credit quality by two levels from A+ to A- and assigned junk status to Greek sovereign debt.
With that news the Dow Industrials had dropped, the Euro started falling. Technorati followers will remember couple months ago we had talked of disaster in the cradle of civilization and its ripple effects in Europe. Now it is happening. Nevertheless, the larger question is how this is going to impact the US economy.
The Obama administration consistently refused calls for greater public spending with the assertion that the $787 billion stimulus passed in February is going to bring the magic back. Indeed, the administration claims that the economic recovery has began and we are in the right path to prosperity again.
The U.S. Bureau of Economic Analysis reported that the U.S. gross domestic product had gone up for a third straight quarter, from 2.2% in the third quarter of last year to 5.6% in the fourth quarter, and 3.2% in the first quarter of this year. Sounds great, doesn’t it? Why then are so many people not feeling the same euphoria?
One Federal Reserve official said the real US unemployment rate is 16 percent. Atlanta Fed chief Dennis Lockhart said, “If one considers the people who would like a job but have stopped looking — so-called discouraged workers — and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent.”
Lockhert said that construction and manufacturing together accounted for nearly 15 percent of employment, and during the recession 40 percent of all US job losses accounted to this sector. “In my view, it is unlikely that we will see a return of jobs lost in certain sectors, such as manufacturing,” he added.
It is his last comment that we need to ponder. The country is on a dangerous path when the emphasis on basic industries has been replaced with building of financial sectors. The bean counters have taken over from the builders and producers.
We have seen from the senate hearing of Goldman Sachs what happens when the bean counters become too powerful. No country has ever survived to maintain its "superpower" status once its basic industries are destroyed.