I wrote about this late last month – companies are going to make the recession deeper and longer. It’s not hard to figure out why. Two-thirds of the U.S. economy is made up of consumer spending. In order for people to spend money, they need access to money. Instead of increasing wages, Cons decided to make credit more available via credit cards since the 1980s and mortgages in the past decade. Households owe more than they make on a yearly basis: credit card debt is massive, which led to people borrowing against their equity in order to keep buying stuff. Now, housing values are less than what people owe on them. They only thing left is wages, which haven’t increased for a super-majority of Americans in 30-some years.
In order to continue making profit so shareholders and executives can be paid enormous sums of money, corporations are laying people off. That means … people won’t make money. That means they can’t pay their bills or buy stuff. Let’s see. If people aren’t employed, one of the things they can’t pay every month is … their mortgages. When people don’t pay their mortgages … they get foreclosed on. Sure enough, the trend is being picked up and is being reported. Job losses are now fueling more foreclosures.
In order to minimize the recession we’re already in, companies need to be hiring people. Americans making an income can pay their bills and buy things, keeping the economy afloat. Companies have initiated a negative-feedback system. As more people have less money, they’ll buy fewer things. Companies looking only at their quarterly numbers will fire more workers so they can continue to pay stockholders and executives. And so on. Companies will have to wait until their actions are countered by other economic forces. But how many Americans will lose their jobs in the interim?
President-elect Obama is inheriting an incredibly challenging economy. It will take visionary work, of the style he has, to lead the country to a better economic future.