The Anvil of War and the Ailing American Economy

[Louis Proyect <lnp3@xxxxxxxxx>]

CounterPunch

October 4, 2002

The Anvil of War and the Ailing American Economy
by AHMAD FARUQUI

As the Bush administration gears up to fight Iraq, it overlooks
deep-rooted economic and social problems on the home front that
represent "a clear and present danger to America's national security".
The person on the street is more concerned about whether he or she will
be employed tomorrow, and whether he would be able to earn enough to get
out of debt prior to retirement, then with whether or not Iraq poses a
military threat to the US.

In a statement issued prior to the meetings of the International
Monetary Fund and the World Bank, US Treasury Secretary Paul O'Neill
said, "I remain convinced that we are on a path to 3-3.5 percent real
annual growth by the end of the year." The reality is quite different.
According to Professor David Levine of the University of California,
Berkeley, a tech downturn coincided with a recession for the first time
last year during President's Bush tenure. In the spring of 2001, the
dot-com bubble burst, dashing with it the prospects of many twenty
something's who had hoped to become instant millionaires. Then came the
terrorist attacks of September 11, and the accompanying hike in spending
on homeland security. The $10 trillion US economy went into a recession
that many said would be a V-shaped recession, but is proving to be more
like a W-shaped recession. The economy grew at the anemic rate of 1.3%
in the second quarter of this year.

Scared by incessant talk about fighting a multi-year war over several
continents with an invisible enemy, and facing joblessness, consumer
confidence has began to erode. The University of Michigan's index of
consumer confidence has declined four months in a row and is at 86.1%,
its lowest level since November 2001.

The stock market remains the best predictor of future economic growth.
It is indeed in bad shape. The Dow Jones index is at a four-year low, in
the high 7,000s. The technology heavy NASDAQ composite index is at a
six-year low, in the low 1,000s. The broad based Standard & Poor's 500
index is in the low 800s. If these trends persist, within the next two
years, one can envision the Dow hitting 5,000; the NASDAQ dropping to
1,000; and the Standard & Poor's dropping to 500.

The fall in stocks can be traced to a loss of investor confidence in
corporate leadership and lower expectations of future earnings growth.
Inflated balance sheets drove the market to record levels, and as news
broke about one corporate scandal after another, involving giants such
as Enron, WorldCom, Global Crossing, the market has beaten a retreat to
more realistic valuations. Just when the analysts on Wall Street say the
market has bottomed out, and this is a great time to buy, another
scandal erupts, making us realize that we had not bottomed out.

The unemployment rate stands at 5.7%. It is much higher in the
technology and telecoms sectors. One and a half million Americans have
been unemployed for more than six months stands, the highest level since
1994. This number is up 80% compared to a year ago. Unemployment is
taking a psychological toll on the unemployed, in addition to taking an
economic toll. According to people who were interviewed by USA Today
recently, it has led to frustration, alienation, personal and
professional self-doubt among many middle-aged professionals. In some
cases, it has become a cause of illness as well.

full: http://www.counterpunch.org/faruqui1004.html

--

Louis Proyect
www.marxmail.org



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