European Recession?

Having been marinated in all-Sarah-all-the-time for a solid week, and going through blog-detox yesterday by attending the company pic-nic (BBQ, Beer, & Horseshoes Festival), I thought I'd get back to my favorite pass-time; watching the US economy go down the toilet.

This week brought news of another bank failure and rumors of a Fannie Mae and Freddie Mac take-over as well. The bank failures are mostly a side show. For a little perspective, in 1989, at the height of the S&L crisis, there were 534 failures among all financial institutions. Between 1983 and 1992 there were over 2,000 failures. Counting the 10 so far this year, in the last ten years there have been 50 failures. As to the impending Freddie/Fannie take-over, I don't see what else they can do. These institutions have been cash cows for foreign governments for decades, and letting them go under would be a world wide disaster.

The economists at S&P report a slew of economic surveys coming in from Europe. They are predicting a "major slowdown" for the second half of the year. With the second quarter posting a -0.8% GDP, another negative quarter technically means a recession. The July survey of purchasing managers is at the lowest level since 2001. Consumer price inflation,at 4.1% is the highest since the Euro was adopted in 1999. Some European countries are faring better than others, but it is clear that the weak dollar is hurting everybody. As an example, the European Association of Car Manufacturers (ACEA) is down 7.9% overall with France +1.5%, Germany +1.0%, United Kingdom -6.1%, Italy -19.5%, and Spain -30.8%. The weak dollar/strong Euro combination is wreaking havoc through the import/export markets. With tightening credit and rising unemployment both here and abroad, good news is increasingly hard to find.