The lights are dimming . . .

Another wonderful column from Frank Rich.  The last 4 decades have resulted in a steady hollowing out of the middle class. And lest anyone think this trend has abated, all signs point to it getting much, much worse in the coming years.  Here's why:
1)  The only real solution to the recession is for more stimulus funding.  Yes, I know that the pundits shriek about the dangers of the deficit; but they are flat out wrong - at least for the short term.  As we should have learned from the Great Depression, a national budget is NOT like a household budget.  Shrinking the deficit in the short-term will simply cause the economy to contract - a real disaster.  The only thing that ended the Great Depression was the largest deficit spending stimulus program in U.S. history - namely World War 2.  There's no technical reason we couldn't do another stimulus that strengthens our infrastructure instead of going to war.  But, sadly, the new elected Congress plans to cut funding.

2) The current ARRA stimulus spending is winding down; and states are starting to lay off workers, teachers, police, etc.  This will increase unemployment and have a further dampening effect on the economy.

3) Last, the media has barely mentioned this . . . but we are on the verge of a new foreclosure tsunami.  There is about $1.5 TRILLION in toxic loans (so-called Option ARMS and Alt-A loans) that will reset in 2011 and 2012.  As people's monthly payment suddenly increase, more homes will foreclose.  And, as banks try to sell off these properties at the same time, housing prices will drop again.  This will feed a vicious cycle where more people go underwater and walk from their mortgages.

Even worse, a 3rd sucker punch will occur when toxic Commercial property loans come due in 2013 and 2014. This will further roil the real estate industry and the economy at large.

The above factors will further destabilize the economy, leading to a second dip in the recession.  Unemployment will increase and this time, there will be fewer safety net programs (thanks to the new Congress) than in 2008-2009.  For example, workers will not be able to receive extended unemployment benefits.

But there will be a few winners.  Hedge funds and the top .1% superrich will sweep in and buy property at bargain prices - primarily because they will be the only ones with available cash.  (With so many people underwater, getting a mortgage will be even more difficult than it is today.)  In other words, those who destroyed the economy in 2008 will be the beneficiaries of the next economic dip and, in the process, will transfer what remains of middle class wealth directly to their own pockets.

In addition to the toll in human suffering, this situation will challenge the survival of this country's democratic institutions.  A citizenry with no hope for help from a non-responsive government will turn to more authoritarian figures to "fix" their problems.

There is a slight, but ever-dimming, chance that President Obama and Congress would take action to avert this situation.  It would require 1) enabling homeowners to refinance their mortgages to lower fixed rate loans to stabilize housing; and 2) passing a new stimulus package focused on strengthening our infrastructure and educational systems.  In other words, real investments in our future.  We already have the example of China which successfully avoided the recession by taking this second step.

Not likely to happen . . . but consider the alternative.