The credit card provisions that the Federal Reserve have identified as unfair, deceptive, and anticompetitive are not only sending American families further into debt, but standing in the way of economic recovery.  The economic downturn and financial crisis have accelerated the adverse impacts of these practices on consumers, small businesses and our economy as a whole.

Recent employment reports have underscored how seriously the U.S. economy has been affected by the now year-old recession. Since December of last year, the economy has shed 2.8 million private sector jobs and the national unemployment rate spiked to 7.2 percent. Many states have particularly distressed levels of unemployment: the unemployment rate is at or above 10.0 percent in Rhode Island and Michigan, and greater than or equal to 8.0 percent in South Carolina, California, Nevada, Oregon, North Carolina, Indiana, Georgia, Florida, Mississippi, and the District of Columbia. Since December 2007, the unemployment rate has risen in every state and the District of Columbia and by as much as 4.8 points, in the case of Rhode Island.

NEW JEC REPORT:  STEMMING THE CURRENT ECONOMIC DOWNTURN WILL REQUIRE MORE STIMULUS

Consumer-Led Recovery Unlikely Due to Rising Unemployment, High Prices, Dwindling Assets, Historically High Debt

Schumer, Maloney Urge Second Stimulus to Aid Main Street

Washington, D.C. – Senator Charles E. Schumer, Chairman of the Joint Economic Committee (JEC), and Rep. Carolyn B. Maloney, JEC Vice Chair, released a new JEC report entitled “Stemming the Current Economic Downturn Will Require More Stimulus.”  The current economic downturn follows the weakest recovery on record.  Families face rising unemployment, high prices, dwindling assets, historically high debt, and their real income remains lower than it was over eight years ago, all of which makes prospects for a consumer-led recovery highly unlikely.  The weakness of household finances means that absent aggressive government action, the current downturn could be particularly long-lasting and severe.

Sen.  Schumer said, “The American economy very much needs a second stimulus because we not only have to bolster Wall Street, but Main Street.  With unemployment up and jobs down it is very important to prime the pump of the economy.  This report outlines ten clear reasons why Congress must pass a second stimulus.”

Rep. Maloney said, “This report merely documents what American families already know.  During the last 8 years Americans have gone deeper in debt in a losing battle to try and keep their standard of living during the worst economic recovery in history.  For the first time since World War II, real family income has not returned to its pre-recession level, leaving Americans even less able to make ends meet as we enter the second recession of the Presidency of George Bush.  This is the final verdict on a failed economic policy.  The very least we in Washington can do is to provide American families with a real economic stimulus plan that helps main street.”

Families have not yet recovered from the previous recession and now the country faces a severe financial crisis whose effects are spreading throughout the broader economy.  The report details 10 economic indicators that demonstrate the weakness in the household sector:

1. Measured by wage gains and job growth, the 2000s economic recovery was the weakest in generations.
2. The 2000s economic recovery was the first since World War II where the typical family saw net income losses.
3. In the face of income losses, families sustained consumption through borrowing and the ratio of household debt to disposable income soared.
4. Families are now spending a historically high share of their income on debt payments.
5. As home prices fall, family net worth is plunging to its lowest levels in two decades.
6. Families have little or no savings “cushion” to maintain living standards in the face of unemployment or falling real income.
7. Families own a smaller share of their home than at any time since World War II, cutting off the opportunity to use home equity loans as a source of “income”.
8. Women’s earnings will not be able to cushion families as they have in prior recessions, because women’s unemployment is already at recessionary levels.
9. Falling real wages and limited savings have already combined to drag down consumer spending.
10. Investment in residential housing usually boosts consumption after a recession, but given the record-high backlog of homes for sale and the continued credit squeeze, this is not likely to happen soon.

The combination of pre-existing economic weakness and the current problems in the financial sector makes additional fiscal stimulus through government investment and support for families vital to keep the economy moving.  A well-designed fiscal stimulus package will shorten the duration of a downturn and reduce its magnitude, the report concludes.

You can find the report on the JEC website.

The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.
www.jec.senate.gov
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