As New York Times columnist Paul Krugman points out, most Americans are living in an economic depression. That’s why the news from around the world last week is particularly concerning. It suggests that the still-smoldering global crisis could re-ignite and propel the U.S. back into the dreadful state of affairs felt four years ago, when the financial system effectively collapsed and 750,000 jobs were being lost every month.
For millions of people, the idea that things could get any worse is unfathomable. With youth unemployment at levels not seen since the time of their great-grandparents, up to 50 percent of college graduates facing unemployment, joblessness among people of color at all time highs, and poverty off-the-charts, there seems to be little else that could catch fire and burn.
If only this were true.
While unemployment is currently 8.2 percent, that number is lower than the 11 percent high reached in 2010. And although too many Americans have experienced historic hardships in the last three years, unemployment is still well below the 25 percent reached during the Great Depression, which is the closest comparable era to our own.
The bottom line is that there is still plenty of ground left un-singed. In fact, enough of it to fuel a new emergency.
To be clear, a return to the worst of our economic past is not expected. But it is far more likely than at any point in years. So much so, that Americans who’ve tuned out the bad economic news—because they live it daily—would do well to tune back in right now. It is probably time for individuals and families to layout a road map for how we would each cope personally with a newly-invigorated, full-scale economic and financial crisis.
The good news is that the gathering firestorm is happening in the midst of an election. The 2012 campaign gives us the opportunity to demand a real plan from Washington to right things here at home and insulate us from the growing danger abroad.
So what do we all need to do? First, it’ll help to understand why things are so shaky right now. So what follows is a whirlwind tour of the global economic situation.Though seemingly distant, understanding what’s happening in pivotal countries around the world is a necessary step in figuring out our tricky environment—and what to do about it.
Where We Are
The domestic situation is precarious, but it has stabilized in the last two years. That’s in large part due to the fact that we’ve been able to sell more of our goods and services to the rest of the world. U.S. exports account for more economic activity than at any point since the 1920s. Sales abroad are about the only economic bright spot. But this glimmer of hope is under threat.
Data released in key economies around the world last week shows why.
Asia, the source of growth in recent years, is slowing. Manufacturing is down, and China and India—responsible for 40 percent of the increase in global activity—are throttling back. Based on numbers released by these two governments, both are set to expand at their slowest rate in almost a decade.
Closer to our shores, figures from Latin America reflect the growing strain. Brazil, the region’s largest economy and an emerging global powerhouse, grew just 0.2 percent. The announcement undermined confidence in the world’s sixth biggest economy.
But the largest shudder came from the Europe. The European Union is the world’s largest economic block and, just days ago, announced that unemployment there had shot up to 11 percent—matching the worst of the U.S. crisis. Economic weakness in the E.U. is likely the driving factor for the slowdown around the world.
So What’s Wrong in Europe?
At the heart of Europe’s problem is its single currency the “Euro,” centered on two countries that use it: Greece and Spain.
Created in 1999, when 17 E.U. members did away with their individual national currencies, the Euro instantly rose to be a titanic currency second only to the dollar.
Like any Big Money Club, there were rules for joining. Each country had to submit a financial statement to show that they had the resources for membership. Greece, Spain, and other weak nations did not have them. But with help from Wall Street, they cooked their national books, hid their debts, and came up with gimmicks to appear financially stronger than they ever were.
Strong E.U. countries, like Germany, were aware of the dodgy financial reporting. But their desire to see a large Eurozone exceeded their judgement, and fragile nations were allowed to enter. As the 2009 financial crisis arrived, it quickly became clear that many Eurozone countries did not have the cash to stay in. They either had to be bailed out or leave.
Unfortunately, Europe did not use the past several years to effectively address this original sin, which spawned the current situation. Instead, it’s most powerful members have imposed an austerity formula of deep spending cuts and massive tax hikes, which has driven the shaky economies deeper into a hole and exacerbated the wider problem.
Time is now running out and the whole world is in trouble. In fact, George Soros believes that the Euro only has months to sort itself before imperiling us all.
What This Means for Everybody Else
The most dangerous scenario is a global financial panic set off by an exit of one of the enfeebled Euro members.
In a matter of days, Greece—now in severe depression and in open rebellion against austerity—will hold elections.
There is a 50 percent chance that Greeks will elect a majority party opposed to Europe’s extreme measures. Should this happen, it could cause the Euro to implode. The same is true for Spain. That country needs the Eurozone to immediately inject money directly into Spanish banks in order to save them, or all bets are off.
Collapse of the Euro would drag down U.S. banks. Global lending would freeze and we’d be in a free-fall similar to four years ago.
What to Look For
June is a crucial month to see what the future may hold.
For the Euro, in addition to the Greek election on June 15, there is a meeting of Europe’s leaders on the crisis from June 28-29. Spain has only days, perhaps a little longer, to get its banking crisis together. Therefore, it’s probably a good idea to follow any headlines for a while with the words, “Greece,” “Spain,” or “Euro” in them.
Here in the U.S., the Federal Reserve has a meeting from June 19-20. If they decide to inject money directly into the U.S. economy through something called, “quantitative easing,” then breathe a little easier about the economy here.
More broadly, check in on U.S. jobs growth—the most relevant economic number for most Americans—-every three months or so.
What We Must Do
The first thing we should do is end our collective resistance to the idea that things could get worse. They surely can.
The second thing we should all do is to develop our own individual plans. For many Americans, this means doubling down on a strategy developed in 2008: conserve cash, focus on essentials, and reconsider big ticket purchases. In black and Latino communities, with years’ worth of double-digit unemployment, that may seem impossible. But absent political will in the U.S. to create an economy that works for everyone, it’s the reality.
Lastly, we need to put real pressure both on President Obama and presumptive GOP presidential candidate Mitt Romney to articulate a “big idea” blueprint to end the economic devastation here at home. The fact that we have so many unresolved issues in the areas of jobs, housing, banking, education and immigration expose us to greater risk from the global economic challenges. Addressing them effectively would act as a firebreak against what’s happening internationally.
The summer is normally a time when we put our troubles on the back burner. But, as these events show, it could be the time when they actually heat up.
Imara Jones writes about economic justice for Colorlines.com.