RECESSION AND REPRESSION
Beautiful words do not help. President Bush and Federal Reserve president Bernanke try to curb recession fears. The numbers speak another language.
By Rainer Rupp
[This article published in: Junge Welt, 3/7/2008 is translated from the German on the World Wide Web, http://wwwjungewelt.de/2008/03-07/020,php?print=1.]
The mortgage- and banking crisis and the fear of a recession have largely repressed the Iraq war in the primary contests of the presidential candidates. For republicans, this is inconvenient since as we know from experience the party of the governing president is always made responsible and punished for the problems of the economy. Therefore the White House's strategy is to deny the danger of a recession, delay the full eruption of the crisis until the time after the election in the fall of 2008. The joint appearance of the head of the US Federal Reserve Ben Bernanke and US president George W. Bush in late February 2008 served this goal. However this could hardly repress the fact that parts of big capital have no confidence in economic development any more.
7.4 PERCENT INFLATION
A letter that the well-known US investment advisor Martin D. Weiss to his clients is typical for the poisoned atmosphere of the Bush administration and the financial economy. He described Bernanke and Bush as "masters of denial of reality." The two proved this in their TV presentations. With dead seriousness, they told the public the greatest conceivable nonsense in the midst of the whirlpool of bad news," namely "I do not believe we are headed for a recession." (Bush) and "I do not expect any stagflation" (Bernanke).Everything is in the best order.
A reality check seems urgent. The official published statistics on the "core" inflation cited by the Bush administration are extremely low and amounted to 2.4 percent in January 2008. This lower inflation rate includes lower prices for computers and flat picture screens, not the higher prices for energy and food. At the end of February 2008, the US Labor department reported wholesale prices rose one percent in January alone in the monthly comparison. The increase was three times as great as the economic research institutes predicted. The real inflation rate including energy and food reached 7.4 percent in January from an annual estimate.
The price for a barrel of oil has now climbed to over $100. Other raw materials are also more expensive. The Reuters CRB index reflecting the price development of the 17 most important raw materials rose an incredible 18 percent in the month of January alone. Food has even increased more intensely. At the same time, the dollar has fallen to a new low over against all other important currencies on account of the persistent interest reductions of the US Federal Reserve. This means imports in the US will rise in price. These are all important indications for future inflation development. Nevertheless the Federal Reserve governor Frederick Mishkin calmed the public in March 2008: the latest inflation tendencies from higher manufacturing prices are "only a temporary phenomenon."
CITI-GROUP IN DECLINE
The signs for an imminent recession are becoming clearer. At the end of February 2008, the US Department of Trade reported private consumption - adjusted for inflation - did not grow in January. Consumer confidence as measured by the consumer confidence index fell 18 percent in February near a 15-year low. The prices for single-family homes never fell more quickly since there were statistics. The number of purchased homes has also reached an historic low. On the other hand, the compulsory auctions or forced sales instituted by banks have nearly doubled at over 90 percent compared to the preceding twelve months. This development will continue in 2008.
At the same time the financial crisis has not subsided as shown in the latest problems of Citi-group, one of the world's largest banking conglomerates. After a new nosedive at the beginning of March 2008 on the New York Stock Exchange, the company had lost 56 percent of its share value since the highest level in the summer of 2007. The reason for the decline was the mortgage loss of over $30 billion in 2007 alone. Further losses of $15 billion are now expected for the first quarter of 2008. In the whole financial system, gigantic losses are registered in the books. Still no one knows which banks are stricken and how intensely. On this background, the economist Gary Shilling known as a "Wall Street veteran," predicted in an interview at the end of February 2008 that the US is heading for its worst recession since the end of the Second World War.