A New Nightmare

The signs certainly existed: skyrocketing gas prices, overextended banks faltering on exotic loans, unemployment inching steadily upward.

Still, few would have predicted the spectacular collapse of such Wall Street heavies as A.I.G., Lehman Brothers and Merrill Lynch, or the ensuing $700 billion government bailout, which failed to stop the global economic freefall.

The turmoil leaves most of us asking, what does it all mean for me?

To try to answer that question, Freedom Newspapers in the Rio Grande Valley decided to ask our readers what you think it means, to listen to your own stories about economic hardships, to find out how your lives have changed because you work hard and sometimes still can't pay your bills and your money doesn't go nearly as far as it did even a year ago.

Some of you have stopped driving long distances; you've started buying cheaper products of lesser quality; most of us have cut back on entertainment and unnecessary spending.

"Quality of life," which used to mean enjoying life, now means survival, not luxury. Life seems unsure and unstable. We're afraid of the future.

"I'm not a Wall Street kind of guy, but I can tell you, fundamentally, we got way out of whack," said Richard Hope, a Brownsville developer and owner of Hope Properties.

MEASURING STICKS

The classic definition is a recession is that the economy shrinks for two consecutive quarters, and by that measure, despite the tumult, we have not entered into a recession. Whether or not an official announcement of recession looms, people in the Rio Grande Valley can tell you life has changed.

Prices have gone up. Wages have stagnated. Credit is frozen. The bottom has dropped out of the home market.

To place our economy in historical perspective, experts inevitably reach for historical parallels.

One such measure is the unemployment rate, which has risen to 7.8 percent in the McAllen-Edinburg-Mission metropolitan statistical area, up from 6. 5 percent a year ago.

Likewise, the Brownsville-Harlingen area's rate jumped from 5.9 percent in August 2007 to 7.4 percent for the same period this year. Valley unemployment is the highest in Texas, but we're still better off than we were before the North American Free Trade Agreement, when the ranks of unemployed surged to more than 20 percent.

Despite the market's recent nosedive-on Oct. 10, the Dow Jones Industrial Average sank below the 8,000 mark for the first time since 2003-some say the outlook isn't as grim as it might seem.

"This is an awkward situation," said Rafael Otero, chairman of the School of Business at the University of Texas-Brownsville/Texas Southmost College. "Certainly the economy is not doing too well, but it's not a debacle as many in the media try to portray, either."

The list of reasons why our current crisis isn't so bad after all is an argument that falls on deaf ears, though, when presented to someone who can barely pay his bills.

"You can tell a person the economy is growing," said economist Ray Perryman, founder and president of the Perryman Group, an economic and financial analysis firm based in Waco, "but when they're looking at the cost of food, they don't feel so good, even if the economy is growing."

We see just that pessimism with people like Vanessa Samano, a recently divorced mother of three in Brownsville, trying to make ends meet on a teacher's annual salary of $39,000.

"Now we've basically cut down on a lot of things - like shopping, eating out, going to the movies. All of that is just when there's extra money, which is practically never," she said.

Independent trucker Albert Sosa has seen his profits dwindle as the price of diesel rose.

Not long ago he could fill his truck for $225, but his fuel payments have nearly tripled.

Teetering on the edge, Sosa doubts his already fragile business could sustain another blow.

"Hopefully, I don't have a breakdown, because I don't have the money to fix anything," he said.

Economists increasingly are delivering gloomy forecasts these days.

A recent survey by the National Association for Business Economics, a Washington D.C.-based association of professionals who monitor the latest economic data and trends, not only shows the economy is floundering in the fourth quarter of 2008, but predicts it will continue to slow through the first quarter of 2009.

Still, national forecasts seldom are especially insightful about money matters in the Valley. The region's cities consistently rank toward the bottom for per capita income and unemployment, yet against this improbable backdrop the Valley has flourished. Businessmen and businesswomen familiar with the region remain optimistic.

"In general, the Valley economy is showing pretty good signs of growth," said Perryman, the economist. "I agree it's coming down some now, but that's just a function of where markets are likely to be.

"However, if credit remains frozen at the national level for an extended period, then obviously the Valley as well as the rest of the country will experience negative effects."

TIES TO THE PESO

Part of the region's sustained development can be attributed to ties with Mexico.

So far, the Rio Grande Valley has been insulated from the brunt of economic woes plaguing the rest of the country, largely because of Mexican investment.

And it is because of Mexico that the relative strength of the peso is a more accurate barometer of the local economy's health than is the housing market crash in California or Florida.

If volatile U.S. financial markets have revealed anything about the Valley, it is that no matter how geographically removed we may be from the rest of the country, we do not exist in a vacuum; we live in a global economy.

Even before the recent tumult, remittances to Mexico had begun trailing off. As the crisis deepens, thousands of jobless immigrants are expected to return to Mexico, which experts say will only fuel unemployment there.

The Valley has been a direct beneficiary of economic stability in Mexico, and would be the among the most affected by a downturn.

IS MORE SPENDING THE ANSWER?

The engine of the American economy has been the spending power of consumers. Consumer spending accounts for three-quarters of the $14 trillion U.S. economy. Mexicans contribute more than $3 billion a year to the Texas border economy, by some estimates.

In the Valley, consumer spending over the past 15 years gave rise to scores of new restaurants and big-box retailers all too eager to cash in on the spending spree.

Despite our weakening economy, retail sales remain strong. This year through August, sales tax returns in the McAllen-Edinburg-Mission area were up 2.6 percent. Comparing just August 2008 to August 2007, retail sails were up 7.6 percent.

Given the financial climate, the economic policy espoused by some in Washington, including the current administration, is to encourage consumers to spend their way out of the downturn.

President Bush's stimulus plan was based largely on the premise that if you put money into the hands of citizens, they will be more likely to spend. Spending inevitably sparks economic activity to lift the nation out of economic doldrums.

However, what worked before may not fly in today's economy.

Reeling from rising prices and stagnant incomes, people in the Valley may be less willing to spend their way out of this one.

Besides, it hardly seems advisable to splurge on things we can't afford, since it is precisely that sort of consumer behavior that is largely responsible for the current crisis, according to Ernesto Aguilar, credit counselor with Consumer Credit Counseling of South Texas.

"It's going to be a stark reality," Aguilar said of the financial crisis for Valley residents.

As foreclosures have increased, Aguilar has seen more families sharing a home or carpooling to cut costs. The worst of the crisis may lie ahead.

"A majority of households in the city (Brownsville) have been financing on credit cards or subsidizing daily expenses with (high-interest) payday loans," he said.

Once in debt, Americans typically dig in deeper. Businesses aren't eager to mull over the problems, either. On the record, some are cheerfully optimistic and tell us opportunities abound.

"We're inundated with negative information, and that starts people doubting," said Carlos Garza, president of McAllen-based Inter National Bank. "The fact is, we're still lending and we still have plenty of liquidity."

Most business owners will tell you conditions are fine because anything else might scare consumers. Local as well as international markets ebb and flow largely on fear and confidence.

Fear that Congress might leave Wall Street to fend for itself sent the Dow Industrials plummeting a record 782 points in one day, now known as "Frantic Friday." Fear of risky ventures has made it challenging to get a loan for a small business or to buy a home.

"Two years ago we were able to get started on projects, no problem," said Hope, the Brownsville developer. "But because of the financial credit crunch, banks just aren't willing to do any loan they see as a significant risk."

HALF FULL OR HALF EMPTY?

It seems every conversation over a cup of coffee revolves around the best way to move forward; the conventional wisdom says innovation is born where obstacles force businesses to adapt to new economic conditions or perish.

Hope already is kicking around the idea of a public-private partnership. Government involvement could help loosen the purse strings for projects banks deem risky, he reasons.

"Things are going to be tight - we're going to struggle, but we're going to survive," Hope said. "Of course I have to be of that opinion or I'll just shut the doors and go home."

Price pressures have eased somewhat lately, but competition for resources from emerging markets in China and India make stabilizing the price of regular unleaded gasoline at $2 a gallon again an unlikely prospect. Although gasoline prices dropped below $2 a gallon in the Rio Grande Valley this past week, how long they will remain at that level is an unknown.

So how does a mother of three living on a fixed income compensate for rising costs? How does an independent trucker afford a $700 tank of fuel?

The low cost of living is largely offset by low occupational wages, forcing families in the Valley to trim the already meager fat from their budgets.The economy eventually will rebound. But it is unlikely that a recovery will resemble the freewheeling halcyon days of the 1980s and ‘90s.

Economists draw from the Great Depression to put today's economy into perspective. In both instances, a credit crisis was largely responsible for broader economic problems.

"There's no doubt things are slowing down," said Garza, the Inter National Bank president. "I think, in the future, people will view the way they use their bank a little differently. If that's a permanent shift, I see that as a positive."