Gas prices are up, a lot. Housing prices are down, a lot. Jobs are disappearing. The American auto industry is on its knees, and 2,400 Chrysler workers soon will lose their jobs in Fenton.
No wonder America is in a funk. The average American is feeling poorer, and for good reason. The typical paycheck buys 2 percent less than it did a year ago, according to U.S. government figures.
How long will this go on? A year ago, some economists — including former Federal Reserve Board Chairman Alan Greenspan — were predicting a “V-shaped” recession — a slump that does down sharply and but recovers fairly quickly. But 12 months into the slowdown, the slump looks more like a “U-recession,” a slowdown that starts slowly and lingers a while before beginning a slow recovery. The nightmare is the “L-shaped” slump, one that goes down fast and stays down, sometimes for years.
“One of the big factors now is fear,” says economist Pat Welch of St. Louis University. “People are getting blind-sided by mortgage, food and gas prices, and they’re worried about their jobs.”

America is suffering from inter-related meltdowns in the real estate, banking and credit industries, topped off by growing inflation. Banks and investment funds could lose more than $400 billion on their subprime mortgage investments. As a result, banks have cut back sharply on lending. Fewer buyers can get mortgages today, so housing prices keep falling. They’re down 18 percent over two years, according to the S&P/Case-Shiller index, and no one is sure where the bottom is.
In business, even credit-worthy corporations are finding it hard to borrow, further slowing the pace of the economy.
Meanwhile, high oil prices are causing a jolting transition in the auto industry and airlines. The result is rising unemployment. Jobs have declined for seven months in a row. The jobless rate, 5.7 percent, is up a full point over the past year.
No two recessions are alike. In some ways, the factors behind this one resemble those that brought on the slump of 1991. At that time, savings-and-loan institutions were collapsing by the hundreds. Commercial real estate was tanking. Junk bonds — the subprime mortgages of the corporate world — were cratering. This brought on a credit crunch, even as the Persian Gulf War sent oil prices soaring.
Officially, that recession lasted eight months, but it was followed by a recovery so slow that voters rejected incumbent President George H.W. Bush in 1992 and installed Bill Clinton in office.

The Federal Reserve has staved off panic by lending billions to the banking system. But the Fed’s standard anti-recession medicine — cutting short-term interest rates — hasn’t worked his time. The Fed has cut short-term interest rates from 5.25 percent to 2 percent. When money gets cheap, people are supposed to start borrowing and spending again.
But people can’t borrow if banks won’t lend. And the Fed dares not cut rates further for fear of fueling inflation. Consumer prices are up 5 percent over the past year, the highest rate in 17 years.
Government stimulus checks helped a little this spring, keeping consumer spending positive. The recently passed housing bill will save a few hundred thousand families faced with foreclosure, but many more will lose their homes.
Although some additional tactics may help ease the situation, the only real cure is time. It will take many months for the credit system to heal, raise new capital and resume lending. Clearly the credit industry doesn’t believe that housing prices have fallen far enough yet to match true value. The auto industry must retool to make smaller cars, and some firms may dip into bankruptcy along the way. The nation is for a long, dreary slog.

(Caption for picture above: A Dodge Ram pickup has it bumpers attached and wired as it makes it’s way down the line at the DaimlerChrysler North Assembly Center last year.)