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NYT: Spending Cuts Will Cause ‘Double Dip’

From a shameless New York Times:

Time to Say It: Double Dip Recession May Be Happening

By FLOYD NORRIS
Published: August 4, 2011

It has been three decades since the United States suffered a recession that followed on the heels of the previous one. But it could be happening again. The unrelenting negative economic news of the past two weeks has painted a picture of a United States economy that fell further and recovered less than we had thought.

When what may eventually be known as Great Recession I hit the country, there was general political agreement that it was incumbent on the government to fight back by stimulating the economy. It did, and the recession ended.

No, it most decidedly did not end. But if even if the recession had ended, it would not have ended because of the government fighting back by "stimulating the economy."

In fact, it could be argued that it’s the government’s massive stimulus spending that is causing the financial hemorrhaging we are seeing today.

But Great Recession II, if that is what we are entering, has provoked a completely different response. Now the politicians are squabbling over how much to cut spending. After months of wrangling, they passed a bill aimed at forcing more reductions in spending over the next decade.

There it is. The New York Times is now promulgating the big lie that August 2nd debt deal is causing all of our economic problems, and will soon push us into a second recession.

If this is the beginning of a new double dip, it will have two significant things in common with the dual recessions of 1980 and 1981-82.

In each case the first recession was caused in large part by a sudden withdrawal of credit from the economy. The recovery came when credit conditions recovered.

And in each case the second recession began at a time when the usual government policies to fight economic weakness were deemed unavailable. Then, the need to fight inflation ruled out an easier monetary policy. Now, the perceived need to reduce government spending rules out a more accommodating fiscal policy

"The perceived need to reduce government spending"? Before the debt ceiling deal the credit rating agencies (Moody’s, S&P, Fitch) were considered great oracles. But now that they are saying we need to cut our debt to GDP ratio by more than 25% they are being ignored – and worse.

Until recently, most observers believed the American economy was in a slow recovery, albeit one with very disappointing job growth…

Then last week the government announced its annual revision to the numbers for the last several years. New government surveys indicated Americans had spent less than previously estimated in 2009 and 2010 on a wide range of things, including food, clothing and computers. Tax returns showed Americans even cut back on gambling. The recession now appears to have been deeper — a top-to-bottom fall of 5.1 percent — and the recovery even less impressive. The economy is still smaller than it was in 2007

Oddly enough, the Democrats took control of the economy when they took control of Congress in January 2007.

The Times also neglects to mention that this same "annual revision" revised down the GDP numbers during the so-called recovery. So the stimulus they are touting here did far less than what was previously believed. 

There is, of course, no assurance that a new recession has begun or will do so soon, and a positive jobs report on Friday morning could revive some optimism. But concerns have grown that the essential problems that led to the 2007-09 recession were not solved, just as inflation remained high throughout the 1980 downturn… Extremely low interest rates helped to push up corporate profits, but companies have hired relatively few people.

In any other cycle, the recent spate of poor economic news would have resulted in politicians vying with one another to propose programs to revive growth.

Exactly what "programs" did Ronald Reagan propose to revive growth, apart from cutting taxes and cutting regulations? President Reagan inherited a far worse economy from Jimmy Carter than Obama inherited from President Bush.

Mr. Obama turned the economy around in less than 15 months. Obama has had 32 months. He has spent trillions of taxpayer dollars. And what we have got to show for it? A jobless recovery. A recovery-less recovery.

President Obama has called for more spending on infrastructure, but there appears to be little chance Congress will take any action. The focus in Washington is now on deciding where to reduce spending, not increase it.

There have been some hints that the Federal Reserve might be willing to resume purchasing government bonds, which it stopped doing in June, despite opposition from conservative members of Congress. But the revised economic data may indicate that the previous program — known as QE2, for quantitative easing — had even less impact than had been thought. With short-term interest rates near zero, the Fed’s monetary policy options are limited.

Government stimulus programs historically have often appeared to be accomplishing little until the cumulative effect suddenly helps to power a self-sustaining recovery. This time, the best hope may be that the stimulus we have already had will prove to have been enough.

Apparently, even The Times is embarrassed to come right out and demand another round of stimulus spending. But they will get around to it. This article is just the first step.

They want to lay the groundwork here for putting the blame for this so-called ‘Grand Recession II’ on the shoulders of the Republicans and their excessive spending cuts.

They are that crazy. Or, rather, that unrelenting.

This article was posted by Steve on Friday, August 5th, 2011. Comments are currently closed.

6 Responses to “NYT: Spending Cuts Will Cause ‘Double Dip’”

  1. BigOil says:

    Stimulus spending has never ended. Our federal leviathan is spending 1.5 trillion in stimulus every year – it’s called the federal deficit. Sure is working wonders.

  2. Howard Roark says:

    President Obama has called for more spending on infrastructure, but there appears to be little chance Congress will take any action. The focus in Washington is now on deciding where to reduce spending, not increase it.

    Let’s see….if it was so important to Barry and the Dems to increase budget spending, why didn’t the Democrat-owned Congress pass a budget bill last year when they were mandated to? Their prime directive as US representatives is to pass a budget for government spending and they were too spineless to do it last fall because they knew that deficit spending would cause further havoc on our credit rating, inflation, and job growth.

    So what do they do? They sat on their hands last Sept-Oct, knowing what their polling firms told them about the GOP candidates gaining control of the House in November, wanting their foes to come in and perform the nasty job of deciding on a budget. It was a strategic calculation to make the GOP look like Scrooges again (a’la Gingrich in ’95), heading into next year’s big election cycle.

    I’m no uber-fan of Bill O’Reilly, but this interview illustrates this point to all but the most naive’ or dimwitted:
    http://www.youtube.com/watch?v=rNHk6Kh37PY&feature=player_embedded

    • Rusty Shackleford says:

      Yup, last time the meme was “shovel-ready” but he’s been shovelin’ so much of it around that he can come along for the ride, but he’ll have to sit in back and keep his mouth shut.

    • JohnMG says:

      So when he gives his next press conference or national address I won’t be caught unprepared. I’ll have my “shovel ready”.

  3. proreason says:

    What a knee slapper.

    There are no spending cuts.

    When will somebody start showing us “private sector GDP growth” vs “public sector GDP growth”?

    That is the key. Every public sector dollar spent is a DRAIN on the economy, because it has to be clawed out of the back of the private sector.

    Here is a rough estimate:

    GDP data:
    2008 – $14.4 Trillion
    2009 – $14.1 T
    2010 – $14.5 T
    2011 – $14.8 T (estimate)

    On the surface, it look like there has been modest growth, doesn’t it?

    But Federal government spending has “skyrocketed”:
    2008 – $3.0 Trillion
    2009 – $3.5 T
    2010 – $3.5 T
    2011 – $3.8 T (estimate)

    So the most important number, Private sector GDP (Total GDP les federal spending) looks like this:
    2008 – $11.4 Trillion
    2009 – $10.6 Trillion
    2010 – $11.0 Trillion
    2011 – $11.0 Trillion

    From wikipedia “In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle.”

    “sustained, long-term downturn” 2008 – $11.4T 2011 – $11.0T. But that doesn’t include the demographic growth of the country. The country has grown about 1% per year since 2000. So, if you adjust GDP backwards for 3 years of population growth, the private sector numbers are: 2008 – $11.7T 2011 – 11.0T.

    We have been in a depression for 3 years. The Obamy Depression. Three years after he tanked the financial markets to sieze the presidency, GDP is effectively 94% of what it was at when he took over. Normal growth in our country would have the eonomy at 111% after 3 years prior. The growth during the Bush years would have put us at 107.5% after 3 years.

    Another way to look at it is that economic activity in the private sector is 15% lower than what it should be at. And that correlates very closely with personal income. That’s why you feel poorer by the way. That’s a lot, not a marginal amount.

    But not to worry, the bureaucrats are experiencing an unprecedented boom. The are fat and sassy.

    The private sector numbers would probably be a marginally worse if State and Local government spending was included.

    And the skyrocketing debt guarantees that things will get worse before it will bet better.

    • proreason says:

      Followup.

      In addition, the skyrocketing federal spending has created an enormous drag on the economy.

      It’s as if you had 114 employees in 2008 and were saddeled with 30 government watchdogs who added up your beans upteen different ways and made up stupid rules you had to follow. Of course, you have to pay for them out of your own pocket. Your toxic overhead is 26.3%.

      In 2011 you are down to 110 employees, only now you have 38 government watchdogs…and you will never be able to get rid of them. In this year, you pay for 25 of them out of your pocket and the cost of the other 13 is added to your debt. Your toxic overhead has become 34.5%, and you are paying interest on a lot it.

      How long do you think you will remain in business?


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