Today's Stories

July 3-5, 2009

Eamonn Fingleton
Detroit's Collapse: the Untold Story

July 2, 2009

Andrew Cockburn
The Wall Street White House

Nikolas Kozloff
Spinning the Honduran Coup

Wendell Potter
Obama's False Friends of Health Care Reform

Ellen Hodgson Brown
California's Empty Wallet

Christian Christensen Iran: Networked Dissent?

Patrick Irelan
Lost in Patagonia

Binoy Kampmark Returning Iraq

Nicola Nasser
Ethnic Cleansing as State Policy

Brian Tokar
Climate Bill: Cap(italize) and Trade(Off)

Dan Bacher
Panama Canal North?

Website of the Day
Scheuer on Immigration: "The only chance we have as a country right now is for Osama bin Laden to deploy and detonate a major weapon in the United States."

July 1, 2009

Vijay Prashad
Iran and Us

Alberto Vallente Thorensen
Why Zelaya's Actions Were Legal

Paul Craig Roberts
Pirates of the Mediterranean

Robert Weissman
150 Years

Manuel García, Jr.
The New Crisis in Aviation

Victor Figueroa-Clark / Pablo Navarrete
Honduras, a Coup With No Future

Norman Solomon
The NYT and Troop Deaths: Abstract Quality Journalism

Franklin Lamb
Remembering Amnon Kapeliouk

Martha Rosenberg
When Doctors Boo

Diane Rejman
Mothers and Military Lies

Website of the Day
The Color of the Race Problem is White

June 30, 2009

Michael Hudson
Debt Deflation Arrives

Esam Al-Amin
Iran and Washington's Hidden Hand

Benjamin Dangl
Showdown in Honduras

Jonathan Cook
Israeli Doctors Collude in Torture

Franklin Lamb
Hezbollah After the Elections

George Wuerthner
Beetle Hysteria ... Again: the Truth About Bugs, Fires and Ecosystems

Todd Gordon
Acceptable Versus Unacceptable Repression

Ron Jacobs
Mark Sanford, Sexual Liberation and LGBT Equality

Kenneth Libby
Conditions for Citizenship

Julian Vigo
Feeling Michael Jackson

Website of the Day
Inside the Mega-Churches

June 29, 2009

Ishmael Reed
The Persecution of Michael Jackson

Nikolas Kozloff
The Coup in Honduras: Obama's Real Message to Latin America?

Clifton Ross
Coups and Constitutions: From Bolivia to Honduras

Patrick Cockburn
Why Iraq is Now the Most Corrupt Country on the Planet

Uri Avnery
Between Tel Aviv and Tehran

Conn Hallinan
Dealing With North Korea: Why Threats and Sanctions Will Backfire

James G. Abourezk
Where the Money Isn't Going

Ralph Nader
The Holes in Obama's Financial Regulation Plan

Carol Miller
Why Fiscal Conservatives Should Love Medicare-for-All

Greg Moses
Jobs First

Website of the Day
Key Leaders of Honduran Coup Trained in the US

June 26-28, 2009

Alexander Cockburn
The Hate Crimes Bill: How Not to Remember Matthew Shepard

Jeffrey St. Clair
Meet the Retreads: Obama's Used Green Team

Doug Peacock
Elk River: History and the Yellowstone

Daniel Wolff
The Night Before: a Glimpse of the Lenape

Mike Whitney
What the Big Banks Have Won

John Ross
The New York Times and Stolen Elections

David Rosen
Cry, Hypocrite, Cry: the Tradition of Sex Scandals and American Politicians

Emily Ratner
Thoughts on Manhood From the Rafah Tunnel

Gareth Porter
Airstrike Report Belies "Blame Taliban" Line

Farid Marjai
Green, But Not Velvet

Nadia Hijab
The Rift in Iran: Memo to the "Do Something" Brigade

Paul Craig Roberts
Gun Control: What's the Agenda?

Fred Gardner
FDR's Real Defining Moment: Ending Prohibition

Carl Ginsburg
Obama's Father's Day

Paul Watson
Fear and Loathing in Madeira

David Ker Thomson
Nothing

Farzana Versey
The Man in the Mirror: Michael Jackson as Tramp

Geoff Berne
Obama and Charter Schools: The Showdown at Schottenstein

Todd Alan Price
Ohio: Birthplace of Charter Education ... and Opposition to It

Ramzy Baroud
People for Sale in a Hungry World

Jeff Sher
Health Care Showdown

Dr. Carol Paris Despite My Arrest by Max Baucus, I Will Continue to Advocate for Quality Health Care for All

Walter Brasch Adultery as Family Value?

Glen Johnson
The Village and the Wall

Charlotte Laws
Hold the MSG!

Charles R. Larson
Dickens in Morocco, Sort Of

Kim Nicolini
The Erasure of Art

David Yearsley
Yankee Prof Takes on Dallas

Lorenzo Wolff
When the Songs Remain the Same

Poets' Basement
Larson, Davies, McLellan and Gardner

Website of the Weekend
Kayakers vs. Shell Oil

June 25, 2009

Kathy Kelly
Now We See You, Now We Don't

Jack Bratich
You Provide the Tweets, We'll Provide the Info War: the Media and the Iranian Protests

Wendell Potter
The Health Insurance Industry v. Health Care Reform: a Former Insurance Industry Insider Tells All

Charles R. Larson
Don't Cry for Him, Argentina! GOP Sex Scandal of the Week

Alan Farago
The Tears of Mark Sanford

Jonathan Cook
Israeli Firms Accused of Profiting Off Holocaust

Gareth Porter
Khobar Bombings: Telltale Signs of Saudi Fraud

Bitta Mostofi /
Bill Quigley
"You Will Not Get Past Us"

David Macaray
Six Ways to Reinvigorate Labor

Mark Schuller
Haiti's Elections: "Beat the Dog Too Hard"

Website of the Day
Worst Slide Story

June 24, 2009

Andrew Cockburn
How the U.S. Has Secretly Backed Pakistan's Nuclear Program From Day One

Dean Baker
Making Financial Regulation Work

Andy Worthington
The Story of Abdul Rahim al-Ginco

James Bovard
Obama and the Torturers

Diana Gibson /
Ray McGovern
Torture Eats the Soul

P. Sainath
The Age of the Everyday Billionaire

Gareth Porter
Investigating the Khobar Tower Bombing: Why Was Al Qaeda Excluded From the Suspects List?

Robert Alvarez
The Department of Energy's Nuclear Albatross

Dave Lindorff
Medicare for All

Steven Colatrella Remembering Giovanni Arrighi

Website of the Day
Protest as Terrorism

June 23, 2009

David Price
Obama's Classroom Spies

Patrick Cockburn
Iraq Reels Toward a New Era

James Ridgeway /
Jean Casella
Bi-Partisan Bull on Health Care: Three Ex-Senators Get It Up for the Health Care Industry

Dave Lindorff
Using the Economic Crisis to Attack Workers

Carmelo Ruiz-Marrero
Puerto Rico: Biotech Island

Gary Leupp
Dennis Ross Moves to the White House

Brian M. Downing
The Erosion of the Mullahs' Monolith

Robert Bryce
Are Theocracies Doomed?

Nicholas Dearden
The G8 is Dead

Yousef Munayyer
Seeing Through Israeli Delay Tactics

Website of the Day
The Great White Father of America

June 22, 2009

Michael Hudson
Obama's (Latest) Surrender to Wall Street

Esam Al-Amin
What Actually Happened in the Iranian Presidential Election? A Hard Look at the Numbers

Chris Floyd
Dexter's Legions in Afghanistan

Jack Z. Bratich
The Fog Machine: Iran, Social Networks and Genetically Modified Grassroots Organizations

Atash Yaghmaian
We Children of the Revolution

Laura Carlsen
Victory in the Amazon

Paul Craig Roberts
The U.S. Regime-Change Recipe for Iran

Vijay Prashad
Gun v. Butter: Now You are Only Poor

Fred Gardner
Charles Lynch Gets a Year and a Day (No Thanks to Eric Holder)

Andy Thayer
The Blank Check: How We Got the Obama-DOMA Debacle

David Macaray
Unions and the Newspaper Crisis

Website of the Day
The Most Spied Upon Town in America?

June 19 - 21, 2009

Alexander Cockburn
I Become an American

Jeffrey St. Clair
Firebrand: Rod Coronado's Flame War

Patrick Cockburn
Who Will Control Iraq's Oil?

Al Giordano
What the Left Should be Learning From Iran

Henry A. Giroux
The Iranian Uprisings and the Challenge of the New Media

Anthony DiMaggio
The Electoral Façade

Paul Craig Roberts
Are the Iranian Protests Another US Orchestrated "Color Revolution?"

John Ross
46 Dead Mexican Toddlers: Sacrificed on the Altar of Neoliberalism

Gareth Porter
Spinning Civilian Deaths in Afghanistan

Carl Ginsburg
Obama's Bix Fix: Placating the Bankers, Again

Tommi Avicolli Mecca
40 Years After Stonewall: From Smash the Church to Going to the Chapel

Joe Bageant
Workers' Rights: No Balls, No Gains

Serge Halimi
Protectionism: We've Been Here Before

P. Sainath
Price of Rice, Price of Power in India

Jim Goodman
The Claim Deniers: Why the Health Insurance Industry Doesn't Deserve Our Trust

Dave Lindorff
Obama's Health Care Waterloo

Rannie Amiri
Bush Jumps Over Maine, Carter Lands in Gaza

Robert Fantina
Iran, Obama and McCain

Harvey Wasserman
Big Nuke's Radioactive Hoax in Impoverished Ohio

Walter Brasch
They Got Away With Murder: 12 Angry White People

David Ker Thomson
This Moment's Bill of Rights

Charles R. Larson
No Voice: Telling Her Mother's Story

David Yearsley
Escape From the Torture Chamber

Kim Nicolini
When the Closet is the Culprit

Ben Sonnenberg
Rossellini and the Art of Ambiguity

Poets' Basement
Beatty and Kowitt

Website of the Weekend
Grown in Yellowstone, Slaughtered in Montana

June 18, 2009

Uri Avnery
The Case of Netanyahu and the Curious Incident

Robert Sandels /
Nelson P. Valdes
U.S. Cuba Policy: a Case of Post-Diplomatic Strees Disorder

Anthony DiMaggio
The Iranian Elections and the Faith-Based Media

Robert Weissman
Obama's Financial Sector Reform Plan: the Good, the Bad and the Ugly

Joshua Frank
These Are Obama's Wars Now

Jonathan Cook
Canadian Ambassador Honored in Illegal Park Built on Razed Palestinian Homes

Reza Fiyouzat
Iranians in the Streets

Norman Solomon
Obama and the Antiwar Democrats

Ali Jawad
Reformists are Islamists, Too

James Ridgeway
Am I on Crack When It Comes to Flight 447?

Website of the Day
The Death of the Ghost Prisoner

June 17, 2009

Carl Boggs
Torture: an American Legacy

Dr. Bryant Welch
Torture, Psychology and Sen. Daniel Inouye: the True Story Behind Psychology's Role in Torture?

Winslow T. Wheeler
How Obama Will Outspend Reagan on Defense

Liaquat Ali Khan
Obama's Gift to Pakistan: a Civil War

Jonathan Cook
Beating and Torturing Children

Binoy Kampmark
Gordon Brown's War Inquiry

Karim Makdisi
The Lebanese Elections: a Box Office Success?

Dave Lindorff
Criminalizing Dissent: Obama Pot Calls Iranian Kettle Black

David Swanson
In Congress: 32 Heroes, 21 Frauds

Gene Marx
How Fox News is Helping to Nationalize the GI Sanctuary Movement

Website of the Day
The Diamond Mine That Ate Mirny

June 16, 2009

Patrick Cockburn
Iraq's Looming Peril: a Plague of Snakes

John Ross
Undermining Mexico

Afshin Rattansi
Guarding the Revolution

Marc Levy
How I Nearly Won the War

Paul Craig Roberts
Are You Ready for War with a Demonized Iran?

Behzad Yaghmaian
Iranian Youth Make History

Brian M. Downing
Democracy in Iran

Merle Lefkoff
Israel's Angels in America

David Macaray
Charles Manson and Me

Robert Jensen
Finding a Stubborn Hope to Live in a Dead Culture

David Swanson
An Exit Strategy That Keeps Wars Going

Website of the Day
Rachel Corrie Soccer Tournament Fundraiser

June 15, 2009

Michael Hudson
The Ending of America's Financial-Military Empire

Reza Fiyouzat
The Iranian Elections: Sure They Stole It...Up Front and Honestly

Patrick Cockburn
A Whole New Ballgame in Iraq

James Ridgeway
Did Composite Parts Bring Down Air France Flight 447?

Marjorie Cohn
Agent Orange Continues to Poison Vietnam

Rannie Amiri
Iran and the End of the "Obama Effect" Myth

Dave Lindorff
How Obama is Blowing the Chance for Real Health Care Reform

Ron Jacobs
The Iranian Elections and the Hysterical Media

Leonard Schwartz
The Angel of History and the Ghetto of Gaza

Martha Rosenberg
Start Your Engines, Drug Reps!

Website of the Day
Single-Payer v. Public Option

June 12-14, 2009

Alexander Cockburn
Who Needs Yesterday's Papers?

Gareth Porter
The CIA's Drone Wars

Mike Whitney
Bernanke's Next Parlor Trick

Mark Ames
Elmer Fudd Nation

Esam Al-Amin
What Really Happened in the Lebanese Elections?

Franklin Lamb
Carter in Lebanon

Patrick Cockburn
Prisoner Swap in Iraq

Andy Worthington
The Long Ordeal of Mohammed El-Gharani

Heather Gray
A New Perspective on the Confederacy: Southern Greed During the Civil War

Felice Pace
Why NPR Refuses to Report on the Single Payer Movement

Ron Jacobs
Flashback to the End of a War That Really Did End

George Wuerthner
Burning Questions: Why the National Fire Plan is a Trojan Horse for Logging

Jeffrey Buchanan /
Trinh Le
Biloxi Trailer Blues

David Ker Thomson
Americana

Renaud Lambert
Brazil: More Dependent Than Ever

Kevin Zeese
Congress and the Health Business Lobby

David Macaray
SAG Vote: A Lesson in Solidarity ... Not

Evelyn Pringle
FDA Throws Lifeline to Antipsychotic Pushers

Chris Genovali
Blood Sport Auction: Why eBay Should Stop Selling Guided Hunts for Bears, Wolves and Cougar

David Michael Green
The Rhetorical President

Brian J. Foley
Our Solar System is Not a Suicide Pact!

Charles R. Larson
No Safe Return

Kim Nicolini
Foreclosure is Hell: Sam Raimi's Frightfest

David Yearsley
Bach on Torture: Mr. Cheney, They're Playing Your Song

Lorenzo Wolff
Intent to Discord

Poets' Basement
Chris Jordan

Website of the Weekend
The Red Room

June 11, 2009

Kathy Kelly /
Dan Pearson
Down and Out in Shah Mansoor: With the Swat Refugees

James Bovard
The Latest Torture Cover-Up Scam

Tristan de Bourbon
The Toy Makers of Chenghai: the Financial Crisis Seen From China

Dave Lindorff
The Wheels are Coming Off the Recovery Program

Kevin Zeese
The Case for Disbarment of the Torture Lawyers

Ralph Nader
The Craft of Sam Maloof: a Visionary Woodworker

Harvey Wasserman
The GOP's Trillion Dollar Reactor Plan Goes Radioactive

Nicole Colson
The Anti-Abortion Movement's Climate of Violence

Mark Weisbrot
Showdown Over the IMF

Dan Bacher
Big Water's Big Lie Unravels

Website of the Day
Top 10 Most Absurd TIME Covers

June 10, 2009

Ismael Hossein-Zadeh
Obama's Doublespeak on Iran

Jennifer Van Bergen / Douglas Valentine
The Dangerous World of Indefinite Detentions: From Vietnam to Abu Ghraib

Kathy Kelly
Visitors and Hosts in Pakistan

Paul Craig Roberts
Fear Rules

Rev. William E. Alberts
First the Torture of Truth ...

Peter Lee
Obama and North Korea: a Warm-Up in the Offing?

Carol Miller
Why We Need a Holistic, Cradle-to-the-Grave National Health Care System

Emily Ratner
Dreams of Flight in Gaza

Robert Weissman
The IMF's Accountability Moment

Dave Lindorff
The Sutra of the Crushed Volvo

Website of the Day
Starving in Gitmo

June 9, 2009

Winslow T. Wheeler
Back From the Dead: Pentagon Pork!

Mike Whitney
Is Hyper-Inflation Around the Corner?

Stan Cox
Biofuel's Drug Problem

Sibel Edmonds
The Battle Against the State Secrets Privilege

Jonathan Cook
Where the Victim is the Guilty Party

David Macaray
A Bad Time for Unions

Robert Jensen
In South Africa, Apartheid is Dead, But White Supremacy Lingers On

Nadia Hijab
The Obama Difference

Mark Weisbrot
Vulture Funds Descend on Argentina

Website of the Day
Waging Non-Violence

June 8, 2009

John Ross
Mexico: Politics as Drugs / Drugs as Politics

Paul Wright
Deconstructing Gus: How a Former Prisoner Took On and Took Down Corrections Corporation of America's Top Lawyer (and Cheney Pal)

Paul Craig Roberts
Long-Term Economic Memory Loss

Franklin C. Spinney
"Natural Growth:" Israel's Demographic Hogwash

Franklin Lamb
Lebanon's Elections: Return to the Status Quo

Uri Avnery
The Tone and the Music

Jonathan Cook
Israeli Loyalty Oaths

Eric Toussaint
/ Damien Millet
The Partisans of Capitalism Have Lost All Credibility

Jim Goodman
The Dairy Oligarchy

Norman Solomon
Words and War

Reza Fiyouzat
When Accusations Fly: the Spectacle of the Iranian Elections

Website of the Day
Latino Jobless Rate Soars

June 5 -7, 200

Alexander Cockburn
High Words, Low Truths

George Galloway
Our Convoy to Gaza

Paul Craig Roberts
Obama in Cairo

Jennifer Loewenstein
How Much Really Separates Obama and Netanyahu?

Franklin Lamb
Watching Obama's Speech in Lebanon

Mike Whitney
The Biggest Rip Off Ever?

Andy Worthington
Death at Guantánamo

Missy Comley Beattie
Peace Be Upon You?

Farzana Versey
Walk Like an Egyptian: the Oprahfication of Obama

Stanley Heller
Obama's Non-Starter

John V. Whitbeck
Nothing Comes From Nothing

Robert Weissman
GM: the Path Not Taken

Lee Sustar
The Fall of GM: Why Workers Will Pay the Price

Dave Lindorff
What a State-Run GM Could Do

William Blum
The Great, International, Truly Demonic Iran Threat

Ernest Callenbach /
Harvey Wasserman
A Green-Powered Trip Through Ecotopia

Greg Moses
By George! Austin Leads the National Recovery

Ron Jacobs
The Meaning of Yasser Arafat

David Yearsley
Art Set in Concrete:
the Desolate Urban Landscape of High Culture

Tim Stelloh
Pot Home Invasions: Bud and Blow Torches

Belén Fernández
The Joksters: Obama and Thomas Friedman

David Ker Thomson
The Academics

Karyn Strickler
Clean Coal: a Dirty Joke

Christopher Brauchli
Judicial Amnesia and the Federalist Society

Charles R. Larson
Leaving Tangier: Exile and Exploitation

Kim Nicolini
"Hunger:" Art With a Punch

Lorenzo Wolff
Good Head (Or Why the End of Hand-Crafted Music Isn't (Necessarily) the End of Music)

Poets' Basement
Jenkins, Orloski and Willson

Website of the Weekend
Tankman

Weekend Edition
July 3-5, 2009

Why the Economy Has Yet to Hit Bottom

Running on Empty

By MIKE WHITNEY

There's a big difference between an inventory-driven recession and a credit-driven recession. An inventory recession is caused by a mismatch between supply and demand. It's the result of overcapacity and under-utilization which can only work itself out over time as inventories are pared back and demand builds. Credit-driven recessions are a different story altogether. They typically last twice as long as and can precipitate financial crises.

The current recession is a severe credit bust of Depression-era magnitude. The financial system has effectively melted down. The wholesale credit system (securitization) is frozen, the banking system is dysfunctional and insolvent, and consumer spending has tanked. The Fed's multi-trillion dollar lending facilities and monetary stimulus have kept the financial system from grinding to a halt, but the problems have not been resolved. Fed chairman Ben Bernanke has chosen to avoid the hard decisions and keep the price of toxic assets artificially high with the help of $12.8 trillion liquidity backstop. That's why stocks have rallied for the last 4 months while conditions in the real economy have continued to deteriorate. Bernanke is using all the tools at the Fed's disposal to keep the market from clearing and to prevent the mountain of debt that has built up from decades of credit expansion to be purged from the system.
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The surging stock market has made it harder to see that the economy is resetting at a lower rate of economic activity. Deflation is setting in across all sectors. Housing prices are leading the retreat, falling 18.1 percent year-over-year according to the new Case-Schiller report. Vanishing home equity is forcing households to slash spending which is weakening demand and triggering more layoffs. It's a vicious circle which ends in slower growth.

Also, the banking system is still broken. The $700 billion TARP program was not used to purchase toxic assets, but to buy equity stakes in the banks and bailout insurance giant AIG. Bernanke knows that a hobbled banking system will be a constant drain on public resources, but he refuses to nationalize the banks or restructure their debt. Instead, he's expanded the Fed's balance sheet by $1.2 trillion and ignited a rally in the stock market. Bernanke's bear market rally has lifted the financials from the doldrums and generated the capital the banks need to survive the downgrading of their bad assets. Former Fed-chief Alan Greenspan (unintentionally) clarified this point in an editorial in the Financial Times :

"The rise in global stock prices from early March to mid-June is arguably the primary cause of the surprising positive turn in the economic environment. The $12,000bn of newly created corporate equity value has added significantly to the capital buffer that supports the debt issued by financial and non-financial companies.... Previously capital-strapped companies have been able to raise considerable debt and equity in recent months. Market fears of bank insolvency, particularly, have been assuaged.

“Global stock markets have rallied so far and so fast this year that it is difficult to imagine they can proceed further at anywhere near their recent pace. But what if, after a correction, they proceeded inexorably higher? That would bolster global balance sheets with large amounts of new equity value and supply banks with the new capital that would allow them to step up lending. (Alan Greenspan, "Inflation, The real threat to a sustained recovery", Financial Times)

Clearly, Bernanke was thinking along the same lines as Greenspan when he decided to push traders back into the market with his generous liquidity programs and quantitative easing (QE). He probably realized that political support for more bailouts had waned and that "large amounts of new equity" (in Greenspan's words) would be needed to keep the banks from defaulting. Whatever his motives may have been, Bernanke's stimulus has turbo-charged equities while the real economy continues to stagger.

Jordan Irving, who helps manage more than $110 billion at Delaware Investments in Philadelphia told Bloomberg News, “This has been a government-induced rally. We need to see some real positives coming from internal demand, as opposed to government-related demand, and it’s just not there.”

Still, the Fed's intervention in the markets hasn't removed the threat posed by toxic assets; a problem which only gets worse over time. That's why The Bank of International Settlements (BIS) issued a report last week warning of the "perils" of not tackling the issue head-on. Here's an excerpt from the report, as described in The Guardian:

"... Despite months of co-ordinated action around the globe to stabilize the banking system, hidden perils still lurk in the world's financial institutions according to the Basel-based Bank of International Settlements.

"’Overall, governments may not have acted quickly enough to remove problem assets from the balance sheets of key banks,’ the BIS says in its annual report. ‘At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses.’

“As one of the few bodies consistently sounding the alarm about the build-up of risky financial assets and under-capitalized banks in the run-up to the credit crisis, the BIS's assessment will carry weight with governments. It says: ‘The lack of progress threatens to prolong the crisis and delay the recovery because a dysfunctional financial system reduces the ability of monetary and fiscal actions to stimulate the economy.’”

The toxic assets problem is further compounded by an estimated $2 trillion of additional losses from defaulting residential mortgages, commercial real-estate loans, credit card loans, and auto loans. It's is the double-whammy; a fetid portfolio of non-performing loans and garbage mortgage-backed derivatives.  At the same time, personal consumption has dropped off a cliff and the signs of economic contraction are visible everywhere, from bulging homeless shelters, to long lines at the unemployment offices,  empty state coffers, half-filled shopping carts at the grocery store. Unemployment is rising at 600,000 per month, consumer confidence is at record lows, retail sales have fallen sharply, and housing continues its plunge. The data are clear; there are no green shoots or silver linings.

The best snapshot of the economy appeared in the Fed's Beige Book, which was released two weeks ago, but was barely covered in the financial media. The report gives a candid assessment of an economy that is in deep distress. Here's an excerpt:

"Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May...Manufacturing activity declined or remained at a low level across most Districts.... Demand for nonfinancial services contracted across Districts reporting on this segment. Retail spending remained soft as consumers focused on purchasing less expensive necessities and shied away from buying luxury goods. New car purchases remained depressed, with several Districts indicating that tight credit conditions were hampering auto sales. Travel and tourism activity also declined....Vacancy rates for commercial properties were rising in many parts of the country... Credit conditions remained stringent or tightened further. Energy activity continued to weaken across most Districts, and demand for natural resources remained depressed.... Labor market conditions continued to be weak across the country, with wages generally remaining flat or falling....Districts reporting on nonfinancial services indicated that for the most part activity continued to decline.... Activity continued to weaken or remain soft for providers of professional services such as accounting, architecture, business consulting, and legal services....Consumer spending remained soft as households focused on purchasing less expensive necessities. ...Travel and tourism activity declined, and vacationers are tending to spend less....

“Commercial real estate markets continued to weaken across all Districts. ...With few exceptions, the District Banks reported that prices at all stages of production were generally flat or falling...Reports from a number of Districts indicated that pricing at retail remains very soft..." (Fed's Beige Book)

It's all bad. 

The financial meltdown has left homeowners with the worst debt-to-income ratio in history. Working people have been forced to cut discretionary spending and begin to save. The household savings rate zoomed to 6.9 percent in May, a 15-year high. The rate in April 2008 was zero."

The downside of the rising savings rate, is that it will deepen and prolong the recession. The negligible increase in retail spending can be attributed to fiscal stimulus. Without the government checkbook, the economy will continue to struggle.

There's been a sudden shift from debt-fueled consumption to thriftiness. The trauma of losing one's job, health care or home; or simply living one paycheck away from disaster will probably shape attitudes for years to come. Personal savings will continue to swell as households build a bigger nest egg to weather the slump and make up for lost equity, droopy retirement accounts, and the possibility of losing their job.  This fundamental change in consumer behavior points to less economic activity, more inventory reduction, additional layoffs, and smaller corporate profits. When consumers save, the economy contracts.

Consumer spending is 70 per cent of GDP, but consumers have suddenly stepped on the brakes. This is a real game-changer. Even if the credit markets are restored and the banks show a greater willingness to lend, there will be no return to the pre-crisis consumption-levels of the past; those days are over. The administration will have to provide more fiscal stimulus, jobs programs, state aid, and other forms of public relief to compensate for overcapacity and falling demand. Household balance sheets are so stretched that more disposable income will have to be devoted to paying down debt and increasing savings. Past consumption trends cannot be trusted to predict the future. It's a whole new ballgame.

Household wealth has slipped $14 trillion since the crisis began. This includes sizable losses in real estate, investments and retirement funds. Home equity has dropped to 41 per cent (a new low) and joblessness is on the rise. When credit was easy, borrowing increased, assets prices rose and the economy grew. Now the process has shifted into reverse. Credit has dried up, collateral values have plunged, GDP is negative, and consumers are buried under a mountain of debt. Personal bankruptcies, defaults and foreclosures are all up. It will take years, perhaps a decade or more, to rebuild household balance sheets and restore the flagging economy. The consumer is running on empty and the chances of a robust recovery are nil.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

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