Wednesday, August 03, 2011

Debt Ceiling results likely to trigger second Dip Recession

For anyone who has studied Macroeconomics and understands that the economy is driven by consumer demand (Kenyse) rather than money supply (Friedman) or taxes (idiocy from know-nothing conservative politicians.) The Congressional conservative political extortionists have forced Congress under threat of destroying the economy to cut programs that would create jobs and consumer demand in the debt ceiling discussions.

The Financial Times (registration required) has some understanding of economic history and reports this:
"Unless we are missing something the US is one false move away from a recession," says Jim Reid, strategist at Deutsche Bank, who has warned the US could be approaching a "1937 moment" - when authorities removed post-Depression stimuli from still-fragile markets and triggered another recession. This risk, he says, has in fact only been magnified in the markets' eyes by agreement on raising the US debt ceiling.

[Quote Source - Talking Points Memo.
This is in addition to Larry Summers OpEd in today's Washington Post:
"With growth at less than 1 percent in the first half of this year, the economy is effectively at a stall and facing the prospects of shocks from a European financial crisis that is decidedly not under control, spikes in oil prices and declines in business and household confidence," Summers writes. "The indicators suggest that the economy has at least a 1-in-3 chance of falling back into recession if nothing new is done to raise demand and spur growth."
Frankly I think that Summers is being optimistic. He's writing to the inside the Washington, D.C. beltway crowd who will reject the truth that their common "wisdom" that the idiocy which has engulfed Washington for the last month or two was completely meaningless and in fact was destructive of the American economy.

As we have seen since the Great Recession started, the inside the beltway crowd will accept nothing except economic happy talk. It's been consistently wrong, but the idea seems to be that recognizing how bad the economy really is and developing policies to improve jobs and consumer demand will never work if the "powers-that-be" ever admit publicly how bad the economy really is and how much work is going to be required to turn the economy around.

The Republicans have set America up for the second dip of the Great Recession. It's probably because they think they can run more successfully against Obama in 2012 during true recession than they could if the economy is growing, but the Republican leaders planning this will never admit it and the followers will not believe it.

My bet is that the economy has less than one-in-ten chances of not going into the second dip the Republicans so avidly hope for.

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