Ruthann Baler

In yesterday’s Washington Post, columnist Robert J. Samuelson did an excellent job explaining the complexities of the economic crisis  (read column), breaking it down into three major components and shedding a glaring light on what exactly the country is facing. 

“We all want President Obama to succeed in reviving the economy, but that shouldn’t obscure the long odds he faces,” Samuelson writes. “We need to recognize that we’re grappling with three crises that, though interwoven, are also quite distinct. The solution to any one of them won’t automatically resuscitate the larger economy if the others remain untreated and unchanged.” 

The first crisis, he says, is the collapse of consumer spending.  “American consumers represent 70 percent of the economy. Traumatized by plunging home values and stock prices — which have shaved at least $7 trillion from personal wealth — they’ve curbed spending and increased saving. That’s led directly to layoffs. In December, vehicle sales were down 36 percent from levels a year earlier.”

Second is the financial crisis.  “Lower lending deprives the economy of the credit to finance businesses, homes and costly consumer purchases (cars, appliances). The deepest cuts involve “securitization” — the sale of bonds. Investors have gone on strike. In 2008, the issuance of bonds backing credit card loans fell 41 percent and those backing car loans 51 percent.”

And third, which has not received as much press, is a trade crisis. “Global spending and saving patterns are badly askew. High-saving Asian countries have relied on export-led growth that, in turn, has required American consumers to spend ever-larger shares of their incomes. Huge trade imbalances have resulted: U.S. deficits, Asian surpluses. As Americans cut spending, this pattern is no longer sustainable. Asia is tumbling into recession.”

The three together, he says, are “the economic equivalent of a combined Ironman triathlon and Tour de France.”

The crisis is far more extensive than we ever could have imagined – not just across the country but across the world. The best we can hope and work for is a stimulus package that both democrats and republicans can agree upon, a reverse domino effect that begins to take hold much sooner than later, and new legislation and initiatives that will prevent the economy from plummeting out of control again.