As concerns about the economy persist, many are left wondering if we are on the brink of a recession. However, some experts assert that we may already be facing one.
This assertion comes from Lakshman Achuthan, Co-Founder and Chief Operating Officer of the Economic Cycle Research Institute (ECRI), who shared his insights during an interview on Bloomberg TV on Tuesday.
“Back in December, we projected that the recession would likely begin in the first quarter or, at the very latest, by mid-2012. I’m here to confirm that,” said Achuthan. “I believe we are currently in a recession. Typically, it’s rare to recognize a recession as it begins.”
The ECRI is well-known as a leading authority on business cycles. According to a 2005 article in The Economist Magazine, “ECRI may be the only organization to have provided advance warnings for each of the last three recessions; impressively, it has never issued a false alarm.” The organization continues to maintain a strong record of accurate predictions leading up to the Great Recession and beyond.
While some may question ECRI’s forecasting accuracy, Achuthan’s claim that “we are in a recession” seems to hold weight. For those still skeptical, further evidence points to troubling conditions in various sectors of the economy.
“The Big M” and Juan Pollo
Several cities in California are facing bankruptcy at an alarming rate, outpacing even certain European nations. Just two weeks ago, Stockton declared bankruptcy; last week, Mammoth Lakes followed suit. Most recently, San Bernardino filed for Chapter 9 bankruptcy, completing a trio of California city bankruptcies within three weeks.
San Bernardino, often likened to the Detroit of Southern California, is historically significant as the location where the McDonald’s brothers opened the first restaurant in 1940. Since then, McDonald’s has flourished, now serving approximately 68 million customers a day across 119 countries.
However, San Bernardino hasn’t fared as well as its culinary counterpart. The city has stagnated, much like the McDonald’s brothers who lost their business to Ray Kroc for $1 million each in 1961. At that time, the brothers could not foresee the implications of their decision.
They soon learned the hard way when Kroc established a new McDonald’s directly across from their renamed restaurant, “The Big M.” The original McDonald’s was eventually demolished, and its site was repurposed into a restaurant for the Juan Pollo chain.
Interestingly, a neglected McDonald’s museum now occupies the site of the original McDonald’s, maintained by Juan Pollo. This curious scenario symbolizes the city’s decline, reflecting a history where innovation has fled and only remnants linger.
The Wrath of Ray Kroc
By Tuesday evening, San Bernardino’s mounting debt became untenable. The City Council voted 4-2, with one abstention, to move forward with a bankruptcy filing. Before the vote, Councilwoman Wendy McCammack noted that cutting all city services, except for the police department, would still not balance the budget.
The city, along with its agencies, is burdened by $243 million in debt, which includes $48.6 million in taxable pension-o-bligation bonds. Many are left wondering if creditors and past beneficiaries will face total loss. It seems likely that other municipalities will soon follow San Bernardino into bankruptcy.
Some attribute the crisis to dwindling tax revenues resulting from decreased property tax receipts after the housing downturn, while others cite the city’s failure to implement adequate cost-cutting measures. While these factors are certainly valid, there may be a more insidious cause lurking beneath the surface.
It could be argued that Ray Kroc’s legacy is casting a long shadow over the city, compounding its issues. “As long as you’re green, you’re growing. As soon as you’re ripe, you start to rot,” Kroc once said.
Unfortunately, city officials have been unable to recover from the decay that set in long ago. Perhaps, following this financial upheaval, there will finally be an opportunity for new growth to take root.
However, for those traveling along Route 66 through the city today, the prospects for such revival seem bleak.
Sincerely,
MN Gordon
for Economic Prism