The Economy Will Get Worse

by Steve Soto

The Washington Post's Steven Pearlstein tells us this morning that the economic downturn will be worse than the Kool Aid drinkers suspect. We have only seen the start of a nasty downturn fueled by climbing and inflationary oil prices that will spread havoc throughout the economy, which is clearly registering on Wall Street.

This thing's going down, fast and hard. Corporate bankruptcies, bond defaults, bank failures, hedge fund meltdowns and 6 percent unemployment. We're caught in one of those vicious, downward spirals that, once it gets going, is very hard to pull out of.

Only this will be a different kind of recession -- a recession with an overlay of inflation.

He tells us what we already know.

The real problem is that the underlying fundamentals had gotten badly out of whack, making the economy susceptible to a shock. The only way to make things better is to get those fundamentals back in balance. In this case, that means bringing what we consume in line with what we produce, letting the dollar fall to its natural level, wringing the excess capacity out of industries that overexpanded during the credit bubble and allowing real estate prices to fall in line with incomes.

Whoever wins this November will be saddled for the first half of their term with being blamed for Bush's mess.

Cue Muckdog to tell us the economy is OK, and that even after 8 years a president can't be blamed for where we've gone off the rails.