Monday, July 11, 2011

Secretary Geithner: "For a lot of's going to feel very hard, harder than anything they've experienced in their lifetime"

Where does it end?
The prospects for a lagging economy look bleak. Spending cuts are on the table in debt ceiling negotiations. State budgets are shrinking and public employees are losing jobs.

And there's another hit to the demand side just around the corner - one that also entails a lot of personal pain in an economic landscape that isn't producing jobs at a significant rate, according to an article in today's New York Times:
An extraordinary amount of personal income is coming directly from the government.
Close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics. In states hit hard by the downturn, like Arizona, Florida, Michigan and Ohio, residents derived even more of their income from the government.

By the end of this year, however, many of those dollars are going to disappear, with the expiration of extended benefits intended to help people cope with the lingering effects of the recession. Moody’s Analytics estimates $37 billion will be drained from the nation’s pocketbooks this year.
In terms of economic impact, that is slightly less than the spending cuts Congress enacted to keep the government financed through September, averting a shutdown.

Unless hiring picks up sharply to compensate, economists fear that the lost income will further crimp consumer spending and act as a drag on a recovery that is still quite fragile. Among the other supports that are slipping away are federal aid to the states, the Federal Reserve’s program to pump money into the economy and the payroll tax cut, scheduled to expire at the end of the year.