America enters a new Depression

While economists continue to debate whether America is tipping into a technical recession, the message from across the country is clear: the US economy stinks and is only getting worse.

We may not see families winding across the Dust Bowl, as they did in the Great Depression, but the situation for millions of ordinary workers is grimmer by the day. The stock market may be exhibiting epileptic symptoms, lurching from exuberance to despair and back, but the 'real economy' is desperately ill.

Food banks and charities across the country are reporting a surge in activity. Last Thursday, the governor of New Jersey visited one of the state's largest food banks to promise $1m in emergency aid after its stocks ran out. Thirty per cent more people are using the food banks, while donations have fallen 20 per cent.

The Samaritans in New York say calls are up 16 per cent from last year, with most of the calls prompted by financial problems. In Los Angeles last week, a money manager killed his wife, three sons and mother-in-law before killing himself after suffering a major financial reverse. In many parts of the country, police are bracing for a rise in crime linked to the ailing economy. In parts of Georgia, police say the crime rate has more than doubled in recent weeks. Convenience store robberies and computer and car thefts are surging.

The New York Daily News reported last week that in the Bronx, where one quarter of the population live below the federal poverty line, robberies and murders are suddenly rising again.

In America's former industrial heartlands, states like Michigan, Indiana and Ohio, the problems are especially acute. Many are being caught in the pincers of job cuts and falling home values. One town in Indiana has had to ban yard sales because so many people were trying to raise cash by selling off the contents of their homes. In these areas, unemployment is nine per cent versus the national average of six per cent.

In the suburbs of Cleveland, foreclosure rates are so high that some streets are now all but abandoned. Those residents who remain have found themselves cut off from city water and sewer services, and surrounded by squatters moving into the empty properties.

Even recent boom towns such as Seattle are feeling the pressure. Microsoft, one of the city's biggest employers, just announced it was re-evaluating its hiring policies in the light of the struggling economy. The collapse of Washington Mutual, one of the country's largest banks, will cause thousands of job losses in the city.

In Silicon Valley, California, the most important venture capital firms have been telling their portfolio companies to cut spending and hoard their cash for a long period of financial famine. Sequoia, which made its billions from firms like Google and Oracle, began a presentation to its companies last week with an image of a tombstone with the words: 'RIP Good Times'. The state of California has even had to beg the federal government for $7bn just to pay its employees, since its usual credit facilities have broken down.

Any stock-market optimist who chooses to read too much into the gyrations of the Dow Jones Index would do well to keep their eye on some more 'real economy' facts. American consumers collectively owe $2.5tr on their credit cards, car payments and similar loans. Their borrowing has outstripped the rate of inflation by four times over the past 15 years.
 
Five million adjustable rate mortgages are due to be reset over the coming year, which will add to the pain for the millions already struggling to meet their monthly payments. New home sales are at their lowest in 17 years. Many towns will be unable to pay their bills as property tax receipts plummet.

It is all deeply unpleasant stuff and will take far more than Bush's decision to purchase stakes in the banks, or a good day or two on the stock market, to change. ·