by Scott Pape - May 16th 2009
After 6000km, I’ve finally dropped off the Chrysler convertible – which provided me with a working example of why the company is now basically bankrupt – and have made my way to New York for a well-earned rest in the city that never sleeps.
Throughout my journey I found the best way to get to know a town is to read its local paper, listen to its local radio station, and drink at its local bar – and, in the search for a deeper economic understanding, I did all three.
The local newspapers I read were generally depressing, filled mostly with doom and gloom about local businesses shutting down, together with legal notices that read like a rolling scorecard for a game that middle America is losing.
Radio, however, was an entirely different game. Most local stations have either syndicated, non-stop country music that makes your ears bleed, or talkback shock jocks who produce similar results.
Spinning the facts
If one word could sum up my journey across the US, it’s spin.
The Right-wing shock jocks pull a combined daily audience of tens of millions, giving them the power to shape the political agenda – which can be summarised as follows: government borrowing is bad, big government is bad, and the Obama administration is bad.
However, their spin is only trumped by what is coming out of Washington.
Consider President Obama’s recent rhetoric that he is starting to see signs of green shoots coming through for the US economy. It does sound completely plausible.
The headline unemployment figures don’t look so good, but are tentatively promising, and the US government stress tests of the major banks showed that, while they still need to raise a heap of dough, none of them are going under because of the toxic mortgages on their books.
The US share market has certainly seen something green and has rallied about 30 per cent from its low point.
Whether the uptick in the market is motivated by investors moving their money out of cash and into equities (fearing a rise in inflation), a good old-fashioned dead cat bounce, or – to quote Michael Jackson – the start of something special remains to be seen.
US unemployment
In the meantime, let’s check to see if some of those green shoots are just weeds. The official unemployment rate has always been a contentious issue for politicians, which is why throughout history both sides have doctored the definition of what unemployed means when calculating the all-important headline figure.
That’s why smart forecasters focus instead on the Bureau of Labor Statistics’ U6, which includes in its calculation so-called marginally attached workers who take part-time and causal positions because they weren’t able to get a full-time gig. The U6 rose to a new high of 15.8 per cent this month – rather than the 8.9 per cent that dominates the headlines.
Bank stress test
The Wall Street Journal recently ran a front page story that blew the lid on the bank stress tests, claiming that senior bank officials from Bank America were unhappy when they received the government’s preliminary findings.
Various news sources have since suggested that bankers from the country’s 19 biggest banks jockeyed vigorously with the government to determine, and reset, the parameters of the stress test – to make sure they came out smelling like roses, or at the very least pine-tree car deodoriser.
Effective spin?
How effective this spin is, however, is a different story.
It’s been my experience that most of the Americans I’ve come across in my travels are as clueless about what’s actually going on as, well, most Australians I meet. You can’t really blame them though – most are just playing the cards they’re dealt.
I learnt this first hand while sitting in a hokey little bar in hokey little Fort Morgan, Colorado, talking to the locals over a beer. I soon saw why our low superannuation balances aren’t likely to budge for the next few years – and that’s a best-case scenario.
Why?
Consumption boom
Let’s put aside the toxic debts on the bank balance sheets that are restricting their lending. While we’re at it, let’s also put aside the real rate of unemployment – the millions of people who have lost jobs since the start of the recession.
The consumption boom that made us all feel rich was driven, largely, by Americans using their homes like ATMs. They took the inflated equity values from their homes and used the proceeds to buy stuff from China.
That’s all over now.
The American struggle
Last week real estate website Zillow.com revealed that one in five American home owners owe more than their homes are worth. In April about 324,000 households received a foreclosure notice, according to housing outfit RealtyTrac Inc.
Middle Americans are struggling with historically low savings rates and historically high credit card balances, and no magic property price pudding to make it all go away.
A large factor in turning around any economy is rallying the troops to head to Walmart. With consumer spending being the backbone of the American economy, making up about 70 per cent of economic activity, an upswing any time soon was hard to see from the bar in Colorado that evening.
They just don’t have the cash or the credit – regardless of what the spin doctors say.
Yet for all the troubles that face Americans, which the media reminds them of continuously, most of the people I’ve met are still optimistic. After all, as they would tell me over and again, “we live in the greatest country in the world”.
This is a place where anyone can get rich, so long as they work hard. It’s the American dream.
Tread your own path!
Everyday American
Hamin is one of the millions of people who migrated to the US in search of a better life.
Originally from Egypt, he moved to the US after working as a deck hand on cargo ships, which enabled him to see the world (he is one of only a handful of people I’ve met here who have been to Australia).
He works as a hotdog vendor on Times Square and sells about 300 (surprisingly tasty) $2 hotdogs each evening, although that number has significantly come off with the downturn, he says.
1. Who is your favourite Aussie?
Adelaide.
As in the city?
Yes.
2.What does the acronym GFC stand for?
I have no idea what you are talking about.
3. Who is to blame for this financial crisis?
George Bush.
4. When I say Australia, you say?
Big tall women. I did quite well with the ladies when my ship docked in Australia. True.
5. Economically speaking, is this the end of the US and the rise of China?
(Smiling) No, my friend. You are mistaken.
Photo:www.flickr.com/photos/acmace/4649238206/
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