Berns: Nevada’s been plagued by the recession. A little mercy, please?
VEGAS INC coverage
He’s one of the most perceptive chroniclers of our troubled era, a journalist who’s equally comfortable when he’s writing about health care costs and credit default swaps. So when major Washington Post columnist Ezra Klein writes of “The Great Contraction,” you can be sure that he’s tapped into the macroeconomic challenge of our time.
As Democrats and Republicans debate whether to cut taxes or increase government spending to spur the troubled economy, Klein cites the work of a pair of economists, Ken Rogoff and Carmen Reinhart. They argue in their book, This Time Is Different: Eight Centuries of Financial Folly, that we’re not mired in a cyclical recession that can be cured by traditional Keynesian-style government spending or Friedman-esque monetary policy. Rather, they note, we’re in the midst of a financial crisis, an economic contraction that’s much rarer than a two- or three-quarter decline in gross domestic product, one that will take longer to exit as millions of Americans struggle to pay off debt and hold on to their homes.
Total U.S. consumer credit stood at $2.44 trillion in June, down from a record high of $2.56 trillion in 2008, according to the U.S. Federal Reserve. Household debt service payments as a percentage of disposable income rose to nearly 14 percent at the start of the recession and have fallen to late-1990s levels of 11.75 percent, according to the Federal Reserve Bank of St. Louis. Although those numbers have come down to levels akin to a decade ago, the housing crisis continues to stymie recovery efforts. One of every seven homes in Southern Nevada, or about 110,000 units, sits empty, the apparent result of the foreclosure crisis, according to newly released US Census data.
Nevada’s unemployment rate stood at 12.4 percent in June, among the highest in the country with 162,863 people listed as out of work and receiving unemployment insurance. Double that figure and you’ll have a sense of the number of Nevadans who are working part-time but would prefer to work 40 hours a week, according to the U.S. Bureau of Labor Statistics. Those numbers discount the more than 30,000 Nevadans whose unemployment insurance has expired after 99 weeks and the tens of thousands more who have simply left the state in search of work.
What were some of this region’s most popular locally owned businesses continue to close amid the shrinkage of disposable income. Untold hundreds of millions of dollars of personal wealth have been lost locally. The donut hole created by the spread of empty strip malls and vacant homes continues its spread throughout the valley.
Slot play, a healthy measure of consumer attitudes, remains stifled. Strip gamblers lost $2.8 billion a year ago on the machines, down from $3.5 billion in 2007, the height of the economic boom when tourists tapped credit cards and home equity loans. The spending could further tighten with Standard & Poor’s downgrade of U.S. debt, pushing up interest rates on U.S. bonds, a move that’s expected to spur similar rate increases on outstanding consumer debt, leaving locals and tourists with even less to spend.
“The whole mentality of thinking of this as a recession leads to bad forecasts and policy,” Rogoff told Klein. “It’s just not the right framework.” We’re not in the midst of a typical “business cycle” recession, they note. Rather, this is a debt crisis, one that could take at least seven years to work through and requires some creative thinking, one that could require some debt forgiveness, Klein says.
We were raised knowing that we have a responsibility to pay our debts. Yet, when you look at some of the biggest companies in this country, you find executives who have used federal bankruptcy laws to protect their corporate and personal interests. It’s legal. It’s key to their economic survival, and while untold billions of dollars have been lost to the use of corporate bankruptcy laws, companies live on to invest, employ, grow and thrive.
It’s time for lenders and government policymakers to adopt a similar approach to the tens of millions of Americans who are buried beneath back-breaking debt. Yes, it was by their own choosing, but those mistakes of individual choice have created a sickness that has infected our economic health and plagues our ability to emerge from our national crisis.
Mortgage lenders do have the ability to extend notes so borrowers can remain in their homes. Credit card companies, particularly those that benefitted from the federal bank bailout, can indeed lower interest rates so the taxpayers who helped rescue them can pay-off their own debts.
Reinhart, the economist and co-author, explains it quite simply to Klein, especially when talking about the mortgage crisis. “I ultimately think we have to wind up with some form of debt forgiveness,” she said.
And, remember folks, forgiveness is the greatest gift we have to give.