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Bush Watch Home: "Bush Sec. of Treasury Caught in a Lie About Tanking Economy, says Krugman (excerpt): [The falling dollar, the weakening housing market, and the high cost of gas may usher in the end of the Bush spin economy.] 'On May 10 the White House issued a press release titled 'Setting the Record Straight: The New York Times Continues to Ignore America's Economic Progress.' The release attacked The Times for asserting that paychecks weren't keeping up with fixed costs like medical care and gasoline. The White House declared, 'But average hourly earnings have risen 3.8 percent over the past 12 months, their largest increase in nearly five years.'

'On Wednesday Treasury Secretary John Snow repeated that boast before a House committee. However, Representative Barney Frank was ready. He asked whether the number was adjusted for inflation; after flailing about, Mr. Snow admitted, sheepishly, that it wasn't. In fact, nearly all of the wage increase was negated by higher prices. Meanwhile, the return of economic gravity poses a definite threat to U.S. economic growth. After all, growth over the past three years was driven mainly by a housing boom and rapid growth in consumer spending. People were able to buy houses, even though housing prices rose much faster than incomes, because foreign purchases of U.S. debt kept interest rates low. People were able to keep spending, even though wages didn't keep up with inflation, because mortgage refinancing let them turn the rising value of their houses into ready cash.

'As I summarized it awhile back, we became a nation in which people make a living by selling one another houses, and they pay for the houses with money borrowed from China. Now that game seems to be coming to an end. We're going to have to find other ways to make a living — in particular, we're going to have to start selling goods and services, not just I.O.U.'s, to the rest of the world, and/or replace imports with domestic production. And adjusting to that new way of making a living will take time.'"