A short summary of the economy that ended the Bush administration

Americans are ahistorical. They can't even remember what happened three years ago. [The failure of the so-called news media to honestly and accurately cover it doesn't help.] Here's an exception.

Rachel Maddow very clearly lays out the utter collapse of the American economy in the last two quarters of 2008 (the Bush administration) and shows the effects of the stimulus spending from Washington, D.C. in 2009. It's clear and it's short.

Visit msnbc.com for breaking news, world news, and news about the economy

The Republicans claim that the stimulus didn't work. It was not big enough to eliminate the Great Recession, but it stopped the collapse into Depression. Even as soon as December 2009 it was clear that more stimulus was needed - and Congress refused. Largely this was through the Republican use of the filibuster and threat of the filibuster in the Senate.

So remember, Obama knew in 2009 that more stimulus was needed and requested it in December 2009. The Republicans were already blocking it and the Republicans were guaranteeing that America would have more and worse recession. This is intentional. The Republicans are the party that is against any government action, and their calculation is that if they can cause the government to fail in dealing with the Great Recession, the Republicans will gain power and replace the Democrats.

Notice the end of the Maddow segment, though. The statistics from the Bush administration showed a half percent GDP decline in the third quarter of 2008 and a 3.8% decline in the fourth quarter. But those were preliminary statistics. When the final numbers came in it became clear that America had been headed for the Second Great Depression. [This starts at minute 4.0 in the clip] Instead of a 1/2 % shrinkage of the economy in the third quarter of 2008 it was actually 3.7% shrinkage. Instead of 3.7% shrinkage in the fourth quarter of 2008 the shrinkage was actually 8.9%. America was headed into the Second Great Depression very rapidly. Only the stimulus (which the lame duck Congress of 2008 failed to act on - no leadership from the vacationing George Bush) passed within a month of Obama's inauguration kept America in the world from falling into the most massive economic Depression the world had ever seen.

One other thing to remember is that both the Great Depression of the 1930's and the almost Second Great Depression which started in 2007 with the mortgage crisis were caused primarily by unregulated, ignorant, and corrupt self-dealing by the massive banks in Wall Street. By 2008 America's GDP consisted of 40% the economically unproductive banking activities. The banks were creating markets with massive risk in them and then selling insurance to investors and borrowers to protect them against that risk the banks had created. Only the unregulated insurance the banks were selling were not capable of protecting the overall banking system from the extreme risk the bankers were creating and taking on.

Banks, through their lending, create the money supply the productive economy requires in order to function. They had by 2008 slipped into what is called the Shadow Banking System (unregulated and unmeasured private banking) which dominated the world financial economy. No one in banking itself knew what was going on overall, and the bankers successfully forced the federal government to remove itself from the regulation business, allowing the creation of the Shadow Banking System.

That unregulated banking system created the economic collapse that everyone became suddenly aware of in September 2008.

America and the world are now struggling to recover from the financial collapse of 2008. Only the conservatives world-wide are using the methods of Herbert Hoover, methods clearly shown in the 1930's to make the economic problems worse.

In the 1930's the bankers did not understand what they were doing when they passed the Smoot-Hawley Tarrif Act. Today the Republican Party knows exactly what it is doing. It is exacerbating the set of American economic problems based on Republican political calculation that the public will blame Obama and the Democrats for the failure to get us out of the economic problems.

Does the economy now need government stimulus or austerity?

Is the current economic set of problems the result of Democratic policies as implemented by Obama, or is the economy sputtering because the Republicans who control the House of Representatives refuse are doing their free market fundamentalist austerity policies? David Shorr writes on that issue:

The heart of the Republican argument is the claim that government spending and taxation is "job-destroying" and otherwise harmful to the economy. Well, this view among Republicans (and sympathetic deficit-hawk Dems) put limits on the 2009 stimulus package and ruled out the possibility of a subsequent injection of stimulus. So if the economic disaster brought about by Bush policies wasn't proof enough, we are tragically getting another demonstration of what happens when free market fundamentalist policies win out over J.M. Keynes' time-tested, Great Depression-taming approach.

The real problem with Republican obstructionism isn't its rigid refusal to compromise or cynicism in wishing for the president's failure. What we have here is a grand experiment for our grand debate over government expenditure, regulation and the provision of public goods, i.e. whether they are necessities or threats for the economy. We should take the GOP at Grover Norquist and Ayn Rand's word; cuts in budgets and the public sector is the job- and prosperity-creating tonic for what ails our economy. Republicans have succeeded in sidelining the government and preventing it from propping up weak demand. It's not a stretch, therefore, to say this is the Republicans' economy -- not because of George Bush, but because of Paul Ryan, Michele Bachman, John Boehner, Mitch McConnell, Rand Paul, Mitt Romney, Tim Pawlenty, the Koch Brothers, Richard Viguerie...

The scorekeeper on this experiment can be considered to be the bond market. When the policies begin to work then businesses will begin to expand and they will need funds. Investors will invest in the companies and in the stock market rather than in the bond market. Demand for safe government bonds will drop, requiring bond issuers to offer higher interest rates.

In other words, low bond interest rates means that the economy is still doing poorly, higher bond interest rates will indicate that the economy is improving.

The Republican led charge into cutting government spending has resulted in the lowest bond interest rates since the 1950's. The markets are speaking very loudly. Why aren't the Republicans in the Congress listening? Or do they have other purposes rather than improving the American economy?

seven economic frauds - possibly innocent but still frauds

The link refers to the book SEVEN DEADLY INNOCENT FRAUDS OF ECONOMIC POLICY by Warren Mosler. Here is a fast summary:

Seven deadly (yet perhaps innocent) frauds.

First,government finance is supposed to be similar to household finance:government needs to tax and borrow first before it can spend.

Second, today’s deficits burden our grandchildren with government debt.

Third, worse, deficits absorb today’s saving.

Fourth, SocialSecurity has promised pensions and healthcare that it will never be able to afford.

Fifth, the U.S. trade deficit reduces domestic employment and dangerously indebts Americans to the whims of foreigners - who might decide to cut off the supply of loans that we need.

Sixth, and related to fraud number three, we need savings to finance investment (so government budgets lead to less investment).

And, finally, higher budget deficits imply taxes will have to be higher in the future - adding to the burden on future taxpayers.

Mosler shows that whether or not these beliefs are innocent, they are most certainly wrong. Again, there might be some sort of economy in which they could be more-or-less correct. For example, in a nonmonetary economy, a farmer needs to save seed corn to ‘invest’ it in next year’s rop. On a gold standard, a government really does need to tax and borrow to ensure it can maintain a fixed exchange rate. And so on. But in the case of nonconvertible currency (in the sense that government does not promise to convert at a fixed exchange rate to precious metal or foreign currency), none of these myths holds. Each is a fraud.

The best reason to read this book is to ensure that you can recognize a fraud when you hear one. And in his clear and precise style. Mosler will introduce you to the correct paradign to develop an understanding of the world in which we actually live.”

Now comes Warren Mosler with a small book, setting out his reasoning on seven key issues. These relate to government deficits and debt, to the relation between public deficits and private savings, to that between savings and investment, to Social Security and to the trade deficit. Warren calls them “Seven Deadly Innocent Frauds” - taking up a phrase coined by my father as the title of his last book. Galbraith-the-elder would have been pleased.

The common thread tying these themes together is simplicity itself. It’s that modern money is a spreadsheet! It works by computer! When government spends or lends, it does so by adding numbers to private bank accounts. When it taxes, it marks those same accounts down. When it borrows, it shifts funds from a demand deposit (called a reserve account) to savings (called a securities account). And that for practical purposes is all there is. The money government spends doesn’t come from anywhere, and it doesn’t cost anything to produce. The government therefore cannot run out.

Money is created by government spending (or by bank loans, which create deposits). Taxes serve to make us want that money - we need it in order to pay the taxes. And they help regulate total spending, so that we don’t have more total spending than we have goods available at current prices - something that would force up prices and cause inflation. But taxes aren’t needed in advance of spending - and could hardly be, since before the government spends there is no money to tax.

A government borrowing in its own currency need never default on its debts; paying them is simply a matter of adding the interest to the bank accounts of the bond holders. A government can only decide to default – an act of financial suicide – or (in the case of a government borrowing in a currency it doesn’t control) be forced to default by its bankers. But a U.S. bank will always cash a check issued by the US

Government, whatever happens.

Nor is the public debt a burden on the future. How could it be? Everything produced in the future will be consumed in the future. How much will be produced depends on how productive the economy is at that time. This has nothing to do with the public debt today; a higher public debt today does not reduce future production - and if it motivates wise use of resources today, it may increase the productivity of the economy in the future.

Public deficits increase financial private savings - as a matter of accounting, dollar for dollar. Imports are a benefit, exports a cost. We do not borrow from China to finance our consumption: the borrowing that finances an import from China is done by a U.S. consumer at a U.S. bank. Social Security privatization would just reshuffle the ownership of stocks and bonds in the economy – transferring risky assets to seniors and safer ones to the wealthy – without having any other economic effects. The Federal Reserve sets interest rates where it wants.

All these are among the simple principles set out in this small book.

The book is a pdf of 63 pages, the first two of which are blank. Be sure you go down to the start of the document.

Roubini - Marx was right.

The prophet of doom Nouriel Roubini who predicted back in 2007 the massive financial collapse that occurred in the Fall of 2008 is at it again.

Marx, among other theories, argued that capitalism had an internal contradiction that would cyclically lead to crises, and that, at minimum, would place pressure on the economic system.

Companies, Roubini said, are motivated to minimize costs, to save and stockpile cash, but this leads to less money in the hands of employees, which means they have less money to spend and flow back to companies.

Now, in current financial crisis, consumers, in addition to having less money to spend due to the above, are also motivated to minimize costs, to save and stockpile cash, magnifying the effect of less money flowing back to companies.

"Karl Marx had it right," Roubini said in an interview with wsj.com. "At some point capitalism can self-destroy itself. That's because you can not keep on shifting income from labor to capital without not having an excess capacity and a lack of aggregate demand. We thought that markets work. They are not working. What's individually rational...is a self-destructive process."

Roubini added absent organic, strong GDP growth -- which can increase wages and consumer spending -- what's needed is large fiscal stimulus, agreeing with another high-profile economist, Nobel Prize-winner Paul Krugman, that, in the case of the United States, the $786 billion fiscal stimulus approved by Congress in 2009 was too small to create the aggregate demand necessary to advance the U.S. economic recovery to a self-sustaining expansion.

Absent additional fiscal stimulus, or unexpected strong GDP growth, the only solution is a universal debt restructuring for banks, homes (essentially households/families), and governments, Roubini said. However, no such universal restructuring has occurred, Roubini said.

Without that additional fiscal stimulus, that lack of restructuring has led to "zombie houses, zombie banks, and zombie governments," he said.

No Good Choices Outside of Fiscal Stimulus or Debt Restructuring

The United States, Roubini said, can in theory: a) grow itself out of the current problem (but the economy is currently growing too slowly, hence the need for more fiscal stimulus); or b) save itself out of the problem (but if too many companies and citizens save, the flaw Marx identified is magnified); or c) inflate itself out of the problem (but that has extensive collateral damage, he said).

However, Roubini said he did not think the U.S. or the world are now at the point where capitalism in self destructing.

"We're not there yet," Roubini said, but he did add that the current trend, if it continues, "runs the risk of repeating the second leg of the Great Depression" -- the 'mistake of 1937.'

The shock headline "Marx was right" ignores the fact that everything Roubini is reported here to have said is well-proven conventional modern macroeconomics. Everyone in the economics business and most honest bankers (there probably are at least two out there) know quite well that what Roubini says is true. The existing economic models all have this built into them! There is no honest argument!

Businesses cannot continue to hoard cash while cutting wages en mass and still have an economy which can afford to buy the products and services the businesses make. But at the same time, no single business is going to start hiring and paying more wages if the market does not exist. This conundrum can only be resolved by the government directly creating jobs and putting money into the hands of consumers.

How much trouble is America in? A lot.

Two more editorials describe the current state of American politics and its economic ramifications.

1. Credibility, Chutzpah and Debt Here Paul Krugman points to the idiocy of Standard and Poors senseless downgrading of the US treasury debt. It should be noticed that the international stock markets have been all over the map since they opened Monday, and where did money looking for safety and security go? To US treasury debt.
2. The Bad Deal University of Texas professor James K. Gailbraith points out that Obama is not only not a Progressive, he is in fact a conservative who is working league with the American conservatives and with the Pete Peterson Foundation to destroy the American middle class and the two programs that support it most, Social Security and Medicare.

Compare these two well-written editorials with the one Tom Friedman wrote about America's slow decline and you can see that America is in real trouble.

America's slow economic decline

Every once in a while Thomas Friedman discovers something that matters. The first part of his 08/07/2011 editorial is spot on. He is writing about America's decline in comparison with the other industrial nations in the world. And how does he characterize that decline?

...our country is now finding itself in the worst kind of decline — a slow decline, just slow enough for us to keep deluding ourselves that nothing really fundamental needs to change if our future is to match our past.

Our slow decline is a product of two inter-related problems. First, we’ve let our five basic pillars of growth erode since the end of the cold war — education, infrastructure, immigration of high-I.Q. innovators and entrepreneurs, rules to incentivize risk-taking and start-ups, and government-funded research to spur science and technology.

We mistakenly treated the end of the cold war as a victory that allowed us to put our feet up — when it was actually the onset of one of the greatest challenges we’ve ever faced. We helped to unleash two billion people just like us — in China, India and Eastern Europe. For us to effectively compete and collaborate with them — to maintain the American dream — required studying harder, investing wiser, innovating faster, upgrading our infrastructure quicker and working smarter.

Instead of doing that at the scale we needed — that is, building muscle — we injected ourselves with massive amounts of credit steroids (just like our baseball players). This enabled millions of people to buy homes they could not afford and to fill jobs in construction and retail that did not require that much education. Our European friends went on a similar binge.

All this debt blew up in 2008 in the U.S. and Europe, and that led to the second problem: Homeowners, firms, banks and governments are all now “deleveraging” or trying to — meaning that they are saving more, shopping less, paying off debts and trying to dig out from mortgages that are under water.

No one better explains the implications of this than Kenneth Rogoff, a professor of economics at Harvard, who argued in an essay last week for Project Syndicate that we are not in a Great Recession but in a Great (Credit) Contraction: “Why is everyone still referring to the recent financial crisis as the ‘Great Recession?’ ” asked Rogoff. “The phrase ‘Great Recession’ creates the impression that the economy is following the contours of a typical recession, only more severe — something like a really bad cold. ... But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation. ...

“In a conventional recession,” Rogoff noted, “the resumption of growth implies a reasonably brisk return to normalcy. The economy not only regains its lost ground, but, within a year, it typically catches up to its rising long-run trend. The aftermath of a typical deep financial crisis is something completely different. ... It typically takes an economy more than four years just to reach the same per capita income level that it had attained at its pre-crisis peak. ... Many commentators have argued that fiscal stimulus has largely failed not because it was misguided, but because it was not large enough to fight a ‘Great Recession.’ But, in a ‘Great Contraction,’ problem No. 1 is too much debt.” Until we find ways to restructure and forgive some of these debts from consumers, firms, banks and governments, spending to drive growth is not going to come back at the scale we need.

Our challenge now, therefore, is to deleverage the economy as fast as possible, while, at the same time, getting back to investing as much as possible in our real pillars of growth so our recovery is built on sustainable businesses and real jobs and not just on another round of credit injections.

Go back and look at the paragraph I highlighted. What characterizes the five basic pillars of growth? They are again

1. education,
2. infrastructure,
3. immigration of high-I.Q. innovators and entrepreneurs,
4. rules to incentivize risk-taking and start-ups, and
5. government-funded research to spur science and technology.

All require either government funding or government action. education, infrastructure and government-funded research were largely funded through the Pentagon or because of the Cold War.

We could fund those things because of the cold war, but not destroy the results in a hot war. The idiocy of the unnecessary invasion of Iraq led to a total waste of American government funds that otherwise would have been better used on education and infrastructure.

Today we live with the results of the tax cuts for billionaires and two unnecessary and poorly fought wars without taxes to support them. This is the libertarian "starve the beast program."

Instead of unleashing American productivity what is happening is that the American conservatives, led by the libertarians, is causing America's slow economic decline in comparison with the rest of the industrial world. This is what Thomas Friedman has caught on to.

The worldwide debt "binge" that Friedman whines about further on comes because the entire world is trapped in the libertarian fantasy that if governments just cut back enough then productivity will be unleashed. But what is actually happening is that the educated workers supported by needed infrastructure aren't there to be productive.

Instead we have big businesses (inherently not sources of increased productivity - that comes from small businesses) sucking up as much money as they can as profits and stashing it on their books as they search for places to invest it. (See the mortgage crisis.)

Until governments start increasing the spending on education and infrastructure and quit penalizing small businesses so that big businesses can make more profits then the world economy is going to continue to decline - with America slowly leading the way.

The conservatives have declared economic war on the American people

The expected idiocy from Faux "News" is here.



This is objective analysis? Not hardly. The right-wing liars are already repeating the same idiocies that created the current economic mess and which have made it worse. The problem is that after the bankers on unrestrained Wall Street were allowed to steal too much from the Mortgages they handled and crashed the economy the economy has stalled. It has stalled because there is too little consumer demand for businesses to invest in America! The top 100 businesses are sitting on over $2 trillion they cannot spend to hire workers because there are NO GROWING MARKETS TO INVEST IN! Budget cutting and austerity (the Herbert Hoover solution from 1929 and the 30's) did not work then to get the economy back on track and will not work now.

It's time to listent to Paul Krugman.

In case you had any doubts, Thursday’s more than 500-point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things.
Fred R. Conrad/The New York Times

It’s not just that the threat of a double-dip recession has become very real. It’s now impossible to deny the obvious, which is that we are not now and have never been on the road to recovery.

For two years, officials at the Federal Reserve, international organizations and, sad to say, within the Obama administration have insisted that the economy was on the mend. Every setback was attributed to temporary factors — It’s the Greeks! It’s the tsunami! — that would soon fade away. And the focus of policy turned from jobs and growth to the supposedly urgent issue of deficit reduction.

But the economy wasn’t on the mend.

Yes, officially the recession ended two years ago, and the economy did indeed pull out of a terrifying tailspin. But at no point has growth looked remotely adequate given the depth of the initial plunge. In particular, when employment falls as much as it did from 2007 to 2009, you need a lot of job growth to make up the lost ground. And that just hasn’t happened.

Consider one crucial measure, the ratio of employment to population. In June 2007, around 63 percent of adults were employed. In June 2009, the official end of the recession, that number was down to 59.4. As of June 2011, two years into the alleged recovery, the number was: 58.2.

These may sound like dry statistics, but they reflect a truly terrible reality. Not only are vast numbers of Americans unemployed or underemployed, for the first time since the Great Depression many American workers are facing the prospect of very-long-term — maybe permanent — unemployment. Among other things, the rise in long-term unemployment will reduce future government revenues, so we’re not even acting sensibly in purely fiscal terms. But, more important, it’s a human catastrophe.

[...]

To turn this disaster around, a lot of people are going to have to admit, to themselves at least, that they’ve been wrong and need to change their priorities, right away.

Of course, some players won’t change. Republicans won’t stop screaming about the deficit because they weren’t sincere in the first place: Their deficit hawkery was a club with which to beat their political opponents, nothing more — as became obvious whenever any rise in taxes on the rich was suggested. And they’re not going to give up that club.

But the policy disaster of the past two years wasn’t just the result of G.O.P. obstructionism, which wouldn’t have been so effective if the policy elite — including at least some senior figures in the Obama administration — hadn’t agreed that deficit reduction, not job creation, should be our main priority. Nor should we let Ben Bernanke and his colleagues off the hook: The Fed has by no means done all it could, partly because it was more concerned with hypothetical inflation than with real unemployment, partly because it let itself be intimidated by the Ron Paul types.

Well, it’s time for all that to stop. Those plunging interest rates and stock prices say that the markets aren’t worried about either U.S. solvency or inflation. They’re worried about U.S. lack of growth. And they’re right, even if on Wednesday the White House press secretary chose, inexplicably, to declare that there’s no threat of a double-dip recession.

Earlier this week, the word was that the Obama administration would “pivot” to jobs now that the debt ceiling has been raised. But what that pivot would mean, as far as I can tell, was proposing some minor measures that would be more symbolic than substantive. And, at this point, that kind of proposal would just make President Obama look ridiculous.

The point is that it’s now time — long past time — to get serious about the real crisis the economy faces. The Fed needs to stop making excuses, while the president needs to come up with real job-creation proposals. And if Republicans block those proposals, he needs to make a Harry Truman-style campaign against the do-nothing G.O.P.

This might or might not work. But we already know what isn’t working: the economic policy of the past two years — and the millions of Americans who should have jobs, but don’t.

We were told last week that there was a 40% chance of a double dip recession. I said then that the real chance was closer to 90%. Unless Krugman's solution is applied then 90% is also too low.

As Krugman said above - there has been no recovery. It should be obvious we were lied to - by everyone including the Obama administration. The austerity idiots - including but not limited to the propaganda idiots of the criminal enterprises run by Rupert Murdoch - are after power for the conservatives, not recovery for America.

The announcement by S&P of the downgrading of US federal debt was a further statement of war against the American people. That war is going to either end in a right-wing dictatorship that pleases Rupert Murdoch and the teabaggers or it is going to end in the kind of revolt in the streets that the people of Wisconsin are now conducting against the right-wing libertarian dictator-governor Scott Walker which the Koch brothers installed in 2010.

It's going to be a long hard slog getting rid of the anti-American conservatives currently working to take over America. Krugman's solution will be a requirement for getting there, but the political wars will be coming first.

S&P downgrade of US debt not a financial decision - it's a rebuke of Republican national politics

S&P has essentially stated that while the GOP remains significant in national US politics S&P no longer trusts the US government to pay its bills. So they downgraded US government debt to AA+. Now S&P itself has rather dubious credibility but who could have followed the tea party-inspired Republican idiocy of the last month or so and still question S&P's decision?

The US is still the wealthiest nation in the world. It still CAN pay its bills. But with John Boehner and Mitch McConnell in Congress being whipsawed by the idiot teabaggers like Allen West there is reasonable doubt that the US WILL pay its bills. The S&P downgrade is an indictment of America's current politics.

It is also a total indictment of the Republican Party. Here is Steve Benen's timeline of major US financial decisions over the last 30 years.

1980: Ronald Reagan runs for president, promising a balanced budget

1981 - 1989: With support from congressional Republicans, Reagan runs enormous deficits, adds $2 trillion to the debt.

1993: Bill Clinton passes economic plan that lowers deficit, gets zero votes from congressional Republicans.

1998: U.S. deficit disappears for the first time in three decades. Debt clock is unplugged.

2000: George W. Bush runs for president, promising to maintain a balanced budget.

2001: CBO shows the United States is on track to pay off the entirety of its national debt within a decade.

2001 - 2009: With support from congressional Republicans, Bush runs enormous deficits, adds nearly $5 trillion to the debt.

2002: Dick Cheney declares, “Deficits don’t matter.” Congressional Republicans agree, approving tax cuts, two wars, and Medicare expansion without even trying to pay for them.

2009: Barack Obama inherits $1.3 trillion deficit from Bush; Republicans immediately condemn Obama’s fiscal irresponsibility.

2009: Congressional Democrats unveil several domestic policy initiatives — including health care reform, cap and trade, DREAM Act — which would lower the deficit. GOP opposes all of them, while continuing to push for deficit reduction.

September 2010: In Obama’s first fiscal year, the deficit shrinks by $122 billion. Republicans again condemn Obama’s fiscal irresponsibility.

October 2010: S&P endorses the nation’s AAA rating with a stable outlook, saying the United States looks to be in solid fiscal shape for the foreseeable future.

November 2010: Republicans win a U.S. House majority, citing the need for fiscal responsibility.

December 2010: Congressional Republicans demand extension of Bush tax cuts, relying entirely on deficit financing. GOP continues to accuse Obama of fiscal irresponsibility.

March 2011: Congressional Republicans declare intention to hold full faith and credit of the United States hostage — a move without precedent in American history — until massive debt-reduction plan is approved.

July 2011: Obama offers Republicans a $4 trillion debt-reduction deal. GOP refuses, pushes debt-ceiling standoff until the last possible day, rattling international markets.

August 2011: S&P downgrades U.S. debt, citing GOP refusal to consider new revenues. Republicans rejoice and blame Obama for fiscal irresponsibility.

Unless you are a Republican partisan practicing Tobacco Industry Executive-level blindness to facts this timeline clearly shows that the Republican Party is the party of profligate spending and refusal to pay government debts.

How long can America afford to accept Republican politicians as a legitimate American political party?

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Addendum 1:13 PM CDT
This is from Daniel Gross, Economics editor at Yahoo Finance

S&P, which covered itself in a substance other than glory during the mortgage crisis, may have a poor record and strange methodology when it comes to sovereign ratings. France, which has a far higher debt per capita ratio than the U.S., still enjoys a AAA rating. And a downgrade, alone, doesn't mean U.S. interest rates will spike -- on Monday or at any time in the future. Japan's credit rating was downgraded several years ago, when the interest rates its government paid on bonds was already extremely low, and they've generally trended lower in the years since.

Market conditions, the trajectory of economic growth and relative value can play as big -- if not a bigger -- of a role in determining interest rates than a rating.

But that doesn't mean we should ignore S&P's Friday evening shot across the bow. In downgrading the U.S.'s credit rating, S&P points out what has long been obvious: Washington's inability to come to an agreement on how to close the large fiscal gaps that have emerged since the recession began is troubling. Recent events have sapped the agency's confidence that the government can and will do what is necessary to align revenues with spending commitments. And it's difficult to escape the conclusion that America's credit rating was intentionally sabotaged by Congressional Republicans.

The decision was more than just S&P's opinion of the politics, though. This was a clear political statement BY S&P itself!

Steve Benen points this out.

Officials from Standard & Poor’s provided documents to the Treasury Department, explaining the downgrade. Obama administration officials noticed a problem: the S&P numbers didn’t add up.

On Friday, the company notified the Treasury that it planned to issue a downgrade after the markets closed, and sent the department a copy of the announcement, which is a standard procedure.

A Treasury staff member noticed the $2 trillion mistake within the hour, according to a department official. The Treasury called the company and explained the problem. About an hour later, the company conceded the problem but did not indicate how it planned to proceed, the official said. Hours later, S.& P. issued a revised release with new numbers but the same conclusion.

Got that? S&P prepared an analysis to justify a specific conclusion. The analysis was off by $2 trillion. Treasury explained to S&P that the analysis wasn’t even close to being accurate, which led the ratings agency to concede they’d made a mistake.

And a few hours later, S&P decided to reach the same conclusion anyway. The agency wanted to proceed with a downgrade; whether its numbers added up was irrelevant.

That certainly inspires confidence in the integrity of Standard & Poor’s decision making, doesn’t it?

S&P makes its evaluations supposedly on the financial records of the organizations issuing debt. If this were the case, then France would have a lower rating than the US, but France still as an AAA rating. S&P was incompetent during the mortgage crisis and it once again proved itself to be financially incompetent and a collection of wealthy political hacks.

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Addendum II 5:38 PM CDT
If you have any doubt at all that the S&P debt rating downgrade is totally a political act by an incompetent financial rating agency, then go read the analysis by Dean Baker. S&P's "justification" simply doesn't pass the smell test. There is no possibility at all that Social Security will contribute to the deficit in the future and the claim that out of control Medicare costs will effect the budget in the future overlooks the fact that Medicare has a great deal more control over medical costs than the private market does.

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.

The disastrous American economy which Republican want to make worse

This is from Steve Benen today:

In early May, Macroeconomic Advisers, one of major firms providing economic modeling and forecasting, released its projection for economic growth in the second quarter, and things looked pretty good. The firm projected that the U.S. economy was on track to show 3.7% growth in the second quarter, which would be evidence of a pretty healthy recovery.

Soon after, the projections were lowered. Then lowered again. Then lowered some more. As Europe struggled with debt crises, Japan struggled with the aftermath of a natural (and unnatural) disaster, state and local governments continued to scale back, and congressional Republicans took a sledgehammer to the American political process, the prospects for the second quarter kept getting worse.

Today, those fears were confirmed.

The economy grew less than expected in the second quarter as consumer spending barely rose amid higher gasoline prices, and growth braked sharply in the prior quarter, a government report showed on Friday.

Growth in gross domestic product — a measure of all goods and services produced within U.S. borders - rose at a 1.3 percent annual rate, the Commerce Department said. First-quarter output was sharply revised down to a 0.4 percent pace from 1.9 percent.

Economists had expected the economy to expand at a 1.8 percent rate in the second quarter.

It’s worth emphasizing that economic growth data for the previous two quarters were also both revised downward — by quite a bit. We thought the first quarter (January through March) was weak, but the revised number, 0.4%, suggests the economy barely grew at all. By that measure, the second quarter’s 1.3% may even look like progress.

But make no mistake, this is anemic growth. Coming out of the deepest recession in generations, we need much stronger and more robust growth to help get us back to where we were.

And that’s precisely what makes the current debate in Washington so infuriating. Instead of looking at the GDP numbers and rising unemployment as evidence of an economy that needs a boost, policymakers are engaged in a deliberate effort to take money out of the economy and focused on a debt crisis that doesn’t exist.

And with that, here’s another home-made chart, showing GDP numbers by quarter since the Great Recession began. The red columns show the economy under the Bush administration; the blue columns show the economy under the Obama administration.

This is from Ezra Klein today:

Plenty of conservatives are peeking at this morning’s grim GDP numbers, as well as the downward revisions to previous years, and concluding that the stimulus clearly must have failed. “But remember,” snarks James Pethokoukis, “no matter how bad the economy is, Obama stimulus still created 3 million jobs, right?”

That’s one way to look at it. Another is to dig a little deeper into the new GDP numbers, which tell a different story. As Moody’s chief economist Mark Zandi told me this morning, the revisions suggest that the recession following the financial crisis was much, much more severe than we’d thought—the economy actually shrank at a 8.9 percent annual rate the fourth quarter of 2008 and 6.7 percent in the first quarter of 2009 (earlier estimates had shown a smaller, 5.9 percent annualized drop across the two quarters).

Then, Congress passed the stimulus bill, the fall in growth dwindled to 0.7 percent in the second quarter, and, by the third quarter of 2009, we had 1.7 percent growth. “We went from negative to positive at precisely the time that the stimulus was providing maximum benefit in terms of tax cuts and spending increases,” Zandi says. “The numbers actually reinforce the importance of the stimulus in jump-starting a recovery.” What the stimulus didn’t do, however, was raise employment to the levels that the White House had predicted — partly because the economy was in worse shape than anyone, even the official data-crunchers, knew.

Of course, the stimulus only lasted two years, winding down in the end of 2010. And what happened then? As Dean Baker, an economist at the Center on Economic and Policy Research observes, “The downward revision to the first quarter data coupled with the revision of the fourth quarter growth to 2.3 percent from 3.1 percent, suggests that the winding down of the stimulus has seriously dampened growth.” Zandi agrees: “If fiscal policy had simply stayed neutral, the numbers suggest we would have had around 2 percent growth these past two quarters, which isn’t great, but it’s a lot better than what we actually had.” Except fiscal policy wasn’t neutral—it was shrinking. The stimulus wound down, that extra government spending started disappearing, and, with it, economic growth dwindled.

Face facts, folks. The Republican economic policies are designed to destroy the economy, not to fix it. And the Republicans are succeeding in destroying the American economy.