June is Economic Empowerment Month at United Black America. As we come to the collective realization that the American economy has changed forever, African-Americans find ourselves particularly vulnerable. This month, we will offer strategies and tactics on all things financial and economic. Stay up to date and subscribe to our email list here.
This morning, as I drove through the West End (the Black End) of my city, I shook my head at the destitution of the land scape.
The West End looked like West Africa.
But this isnt West Africa, its America. Right? The richest and most powerful nation in the history of human kind. Why the hell are Black hoods still full of burned out, abandoned, decrepit buildings, fallow land, pan handlers, starving children, and bullet-pocked brick walls?
So I posed the question on Twitter (@BlackAmericaU) : Are we in a Depression, Recession, or Recovery?
Some of my favorite Tweeples chimed in.
It’s more along the lines of bottoming out but it’s not TOO far gone yet. In a year or two: Depression. Detroit, Chicago, Milwaukee, etc. It’s war in the Midwest! Unity & knowledge & application of wisdom can change things.
My man @Sir_Geechie said:
I go by lifestyle. Have you researched the depression? No one period is living like they did then.not close. Technically I believe we are in a recovery and I pretty much agree with that assessment.it is a shaky recovery and could easily fall into a recession. even if mathematically we went into a depression I don’t think America could ever really go into depression. Gov too big now.
@simbatheposh said: globalization is still in tact, the troops are home, but unemployment is still an issue
@positiveimagep said: everything but a recovery!!
@Thirdeye365 said: Recession and depression but we’re still spending $ we don’t have. Lol :/
@yojoidaho said: I think we are in a recovery,But it’s fragile and politics are damaging it. Obama winning is crucial to not slipping into a depression!
@MansaMusaAli said: Midwest has actually transformed into the Old South-No jobs, Ex Slaves/Workers who cant read/write & arent fit 4 civilization. Most Midwest Blacks are children of migrants from the Old South, who gave up LAND 4 a JOB now they have NEITHER!The new Industry in the Midwest are prisons which replaced the job vacancies of Industrialism
And @Grouchy_Locs said: this is a second depression. But the first has a tendency to be more extreme.
All of these were great points, and have kernels of truth in them. But whats the answer, and why should it matter to us as Black men and women? Lets do the knowledge.
The Case for a Recovery
Recovery: A period of increasing business activity signaling the end of a recession. Much like a recession, an economic recovery is not always easy to recognize until at least several months after it has begun. Economists use a variety of indicators, including GDP, inflation, financial markets and unemployment to analyze the state of the economy and determine whether a recovery is in progress. – Investopedia
Many of us Black folk have faith that things are getting better. To be the most abused people on the planet, we sure are optimistic. But after closer inspection, there may be something to the case that the United States economy is in a recovery. Namely, the latest manufacturing numbers, an uptick in wholesales, and stabilizing unemployment rates.
Manufacturing is Stronger Than Ever
Manufacturing is set this year to reach its highest level for more than a decade as a percentage of total world output, indicating that in a difficult global economy the industrial sector is returning to its historic role as a growth driver. The change is outlined in data made available to the FT from IHS Global Insight, a US consultancy. It supports the idea that a new industrial revolution – after four similar growth spurts over the past 250 years – is now under way. Jeff Immelt, chief executive of General Electric, the US industrial conglomerate, said the world was experiencing “a new zeitgeist” in the shape of a “global manufacturing renaissance”. As a result, GE is likely to have “a lot” more plants globally in a decade’s time than now. “Twenty years ago I would not have said that, I would have said just the opposite,” he said.
(Read the full article here)
Demand is Returning
Wholesale businesses restocked faster in April, responding to a strong gain in sales. The increase could be a good sign for economic growth in the April-June quarter. The Commerce Department says stockpiles grew 0.6% at the wholesale level in April, double the March gain. Sales by wholesale businesses jumped 1.1% in April, nearly three times the March sales gain. Stockpiles at the wholesale level stood at $483.5 billion in April. That’s 25.6% above the post-recession low of $384.9 billion in September 2009. That’s considered a healthy time frame and suggests businesses will keep restocking to meet demand.
Read the full article here: USA Today
More wholesales means more stores are stocking their shelves. And that means consumers have money to spend – a positive economic sign.
Unemployment Rates Stable and Falling
According to the most recent Regional and State Employment and Unemployment Summary delivered by the Bureau of Labor Statistics, Washington D.C. and 37 other states all reported a decrease in unemployment. The other 13 states either had no change or had minor increases in unemployment. The national jobless rate in March was 8.1 percent- 0.9 percent lower than a year earlier.
States have also reported that their revenues are also recovering to levels not seen since 2007, helping states narrow budget gaps.
The Case for a Recession
Recession: A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. – Investopedia
According to economists, the Great American Recession of 2007 officially ended 3 years ago.
I beg to differ.
An unstable Euro Zone, a broke-ass middle class, and the same slap-stupid economic behavior that got us in this mess still exists. I dont know that we have moved into a period of recovery, but the nail isnt on the coffin of the Great Recession just yet.
Europe Cant Get Right
The United States might have been responsible for dragging the world into the Great Global Recession that started on December 2007 , but the Eurozone is responsible for keeping it there. Instability in Europe keeps investors guessing, and that means a very volatile stock market – not good news for short and mid-term individual investors.
U.S. stocks fell, following the biggest weekly rally in the Standard & Poor’s 500 Index this year, as optimism over Spain’s bailout plan gave way to skepticism it will succeed in halting the debt crisis.
“The Spanish deal is another Band-Aid,” said Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati. He spoke in a telephone interview. “Many investors are viewing this with skepticism. The problem is not going to be fixed by this amount. It’s not a solution, and people know the difference. Expect more volatility not less.
As bad as the Euro-z0ne crisis is, it has the potential to get much, much worse if Spain’s bank bailout fails.
It is now common knowledge that there is a potential domino effect of European sovereign debt contagion in roughly the following order:
Greece → Ireland → Portugal → Spain → Italy → UK → LOOOOOOONG GLOBAL RECESSION.
The Middle Class is Living On Food Stamps
There was a time when food stamps were reserved for the single and struggling parent, the laid off, and the working poor. Now, there are currently 45.8 million people on food stamps. Thats one out of every seven Americans.
Blogger Lorraine Ladish talks about what has become a new trend here in America: a broke-ass middle class.
“I was at the supermarket checkout line when the cashier asked me if I wanted to make a donation for the needy. I would have liked to, but instead, I flashed my food stamps card and shook my head, saying: “I can’t. This time, I’m the needy.” The poor guy blushed and mumbled an apology. I suppose he must have felt bad for me. ‘It’s okay,’ I said. ‘I’m glad to have the help.’”
Read the full article here: From Middle Class to Food Stamps: A Latina Mom’s Tale
Reactive versus Proactive Economic Behavior
The American economy has taken a passive, reactionary stance over the past 5 years. Rather than taking control of our economy with sound financial policies and new industries (solar, wind, geothermal, space), politicians and policy makers have .
From 1945 to 1960, the automobile industry cranked out cars, new industries such as aviation and electronics grew by leaps and bounds, we became the first country to launch a man into space, and the largest public works project in American history – The Federal-Aid Highway Act of 1956 – employed thousands, and led to a suburban boom and a Golden Age of interstate commerce that positively affected every region of the United States.
Today, it seems as though every politician is either trying to attack the other side, avoid a crisis, or creating one. With behavior like that, its no surprise that we are even having this discussion, and there is little hope of improvement in the future.
The Case for a Depression
According to Investopedia, the definition of a depression is a severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price levels.
The Dollar is Collapsing
The CNBC article of the same name (found here) says the dollar is headed for depression.
The greenback is approaching pre-financial crisis lows and threatening to smash through its all-time low when measured against the world’s predominant national currencies.
A combination of factors accounts for the weakness, with the Federal Reserve’s easy-money policies, huge national debts and deficits and the consequential possibility of a debt downgrade because of the financial mess in Washington leading the way.
In short, as trader Dennis Gartman noted Thursday, “the rout of the US dollar” is in full effect.
“Panic dollar selling is setting in,” Gartman, a hedge fund manager and author of “The Gartman Letter,” wrote in his daily commentary. “This may carry farther than any of us dream of or, worse, have nightmares of.”
- Jeff Cox , CNBC.com Senior Writer
A weak dollar, as you may have gathered, is one that, “…can be exchanged for only a small or decreasing amount of foreign currency.” A weak dollar is usually seen as a bad thing because it does not stretch as far internationally as it once did. Indeed, the opposite is true: foreign currencies buy more of our goods and services than we can buy of theirs. But while imports are usually purchased using the importing nation’s currency, exports are paid for in the currencies of the exporting country. Therefore, a weak dollar has the ability to change the entire flow of trade that occurs when the dollar is strong. – Source
Only days ago, we learned from the Financial Times that the 19 largest US banks are $50 billion short of meeting new capital requirements, with smaller lending banks needing an additional $10 billion. Fed officials have said “that most banks should be able to reach the new levels by retaining earnings during the next few years rather than by raising capital in the market”.
That means they raise fees, shut down small banks, or fail.
THIS IS A DANGEROUS TREND! Small banks invest in small businesses. Big banks (as a rule), do not.
According to the SBA, small businesses have generated 65 percent of net new jobs over the past 17 years. No small banks means no small businesses. No small businesses could mean no short or mid term economic growth. Small business drives the United States economy and provide more jobs for the hood than any major corporation or government office.
Whole Cities Going Bankrupt
Once again, Detroit is on the brink of bankruptcy. This is not news; Detroit has suffered from decades of bad politicians, fleeing manufacturing jobs, a stuck-on-stupid public school system, and the flight of the most affluent citizens from the city. Now, according to CNN, Detroit is projected to run out of money by next month, unless the State bails them out with an $80 million dollar loan.
Unemployment in the city of Detroit is estimated at about 20 percent (unemployment levels during the Great Depression reached as high as 25%), In 2009, it was at 24%, and two thirds of Detroit’s children currently live in poverty.
Detroit joins a long list of American cities that teeter on the brink of bankruptcy. These cities include San Diego, Norfolk, San Jose, Baltimore and Vegas. (Source: Business Insider)
As a sidenote, I think Detroit is getting what it deserves. Even while Detroit Mayor Dave Bing complains of money woes, he is busy signing a $330,000 contract with a team of Washington lobbyists! Whats sad here is the hundreds and thousands of men, women, and children who are suffering in Depression level poverty.
Its also noteworthy that Detroit has had a long line of Black mayors. So before you jump on Obama’s economic jock and pardon his many bad financial policies, just think: America could end up like Detroit. Speaking of…
The Obama Factor
If President Obama successfully defends his seat in the Oval Office, we can only assume that he will continue to govern the way he has during his first term. Hell, he could even turn his back completely on the economy, paying it lip service while focusing on his two real priorities:
“The President has said that the most important policy he could address in his second term is climate change, one of the few issues that he thinks could fundamentally improve the world decades from now. He also is concerned with containing nuclear proliferation.” (Read more: The Second Term: What would Obama do if reëlected? )
There are 3 specific decisions that President Obama has made during his Presidency that can give us clues as to how he will leave the economy when all is said and done.
1 – American Recovery and Reinvestment Act of 2009 and 2 – the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010: Some argue that President Obama helped avoid another Great Depression by signing The American Recovery and Reinvestment Act of 2009 that created 2.8 million jobs through investments in education, infrastructure, and clean energy.
3 – Bailouts for Everyone, Except We the People: Bailout may give investors and markets some calming effect, but will not resolve the fundamental debt, deficit and economic problems that this country faces structurally. In the past, Obama has bailed out companies, executives, and shareholders that made unwise decisions, only encouraging these people to continue doing business as usual (which they have).
Note: The definition of insanity is doing the same thing repeatedly and expecting a different results.
In addition to actually rewarding bad behavior, bailouts will encourage more risk and bad behavior in the future. Even worse, the government’s involvement in the future of financial affairs will only make matters worse and cause more economic dislocation – as it did with Freddie Mae, Fannie Mac, and Solyndra.
Letting companies that dont work fail is a good thing. It makes way for new companies with new ideas and new business models to rise to the top, raising the economy along with it. Bailouts, however, short-circuit this process and reduce economic efficiency.
Just look at Japan: “Japan faced a similar situation at the end of the 1980s, with real estate prices rising to absurd levels. The bubble then burst, but rather than let market forces operate, Japanese politicians sought to prop up both insolvent institution and asset prices. This interfered with the orderly reallocation of labor and capital, created considerable uncertainty, and contributed to a “lost decade” of economic stagnation.” (Source)
Why All of This Matters
When the American economy catches a cold, the African-American economy catches the flu. This is in part due to our collective failure to devise strategies during economic ups and downs. No matter where the economy currently is, it is eventually going somewhere. By anticipating economic moves ahead of time, you can create strategies now that will help you, and the rest of us, prosper.
We as a people have a habit of dealing with crises “in the moment”, rather than anticipating and preparing for them. This behavior has cost us our health, wealth, sanity, and even our lives.