Policymakers are determined to drag the country into another Depression. And that's the tragedy.

[Better Believe It]

August 5, 2010

Land of Squandered Opportunity
An Avoidable Depression
By MIKE WHITNEY

The economy has gone from bad to worse. On Friday the Commerce Department reported that GDP had slipped from 3.7% to 2.4% in one quarter. Now that depleted stockpiles have been rebuilt and fiscal stimulus is running out, activity will continue to sputter increasing the likelihood of a double dip recession. Consumer credit and spending have taken a sharp downturn and data released on Tuesday show that the personal savings rate has soared to 6.4%. Mushrooming savings indicate that household deleveraging is ongoing which will reduce spending and further exacerbate the second-half slowdown. The jobs situation is equally grim; 8 million jobs have been lost since the beginning of the recession, but policymakers on Capital Hill and at the Fed refuse to initiate government programs or provide funding that will put the country back to work. Long-term "structural" unemployment is here to stay.

Consumer confidence has plunged due to persistent high unemployment, flat-lining personal incomes, and falling home prices. Ordinary working people do not care about the budget deficits; that's a myth propagated by the right wing think tanks. They care about jobs, wages, and providing for their families. Congress's unwillingness to address the problems that face the middle class has led to an erosion of confidence in government.

Unlike stocks, the bond market reflects the true condition of the economy. 2-year Treasuries are at historic lows, while the 10-year has dipped below 3%. The flight-to-safety is pushing bond yields down even while equities continue to surge. Deflationary pressures are building. Bondholders are not taken-in by the cheery news of green shoots. They know how to read the data--spending is down, credit is tight, unemployment is headed higher, the banks are hiding their red ink, Europe's in trouble, manufacturing is about to slide, housing is in freefall, the money supply is shrinking, and the Fed is sitting on its hands doing nothing. When industry-leader Proctor & Gamble missed analysts estimates on Tuesday, it became clear that product prices would be slashed in an effort to retain market share. When prices fall, inventories are reduced and workers are laid-off. That's how the downward spiral begins.

The economy is slipping fast into deflation, but there's still time to act. The bond market is telling us that the economy needs more fiscal stimulus. The labor market is telling us that the economy needs more fiscal stimulus. The housing market s telling us that the economy needs more fiscal stimulus. Manufacturing, consumer spending, consumer credit and bank lending are all telling us that the economy needs more fiscal stimulus. Every sector and data-point is telling us the economy needs more fiscal stimulus. But congress, the White House, and the myriad far-right think tanks and foundations won't budge. They want debt consolidation, austerity measures, structural adjustment and belt-tightening. "That is what the market demands", they opine. Here is a response from economist J.Bradford DeLong from his blog "Grasping Reality With Both Hands":

History teaches us that when none of the three clear and present dangers that justify retrenchment and austerity--interest-rate crowding-out, rising inflationary pressures on consumer prices, national overleverage via borrowing in foreign currencies--are present, you should not retrench and austerity: don’t call the fire truck when there is no smoke. And history teaches us that when economies suffer from high unemployment, enormous excess capacity, incipient deflation, businesses terrified of a lack of customers, and an enormous excess demand for high quality assets, then is the time for expansion and stimulus: when the deck is awash, start bailing."

Policymakers are determined to drag the country into another Depression. And that's the tragedy.

Read the full article at:

http://www.counterpunch.org/whitney08052010.html

[Warpy]

1. Policy makers see themselves as shoring up the system

so that business as usual can continue. The problem is business as usual, it had become more and more the business of thieves, floated on an ocean of debt.

They do this every time, try to put bandaids on a bad system because that's the system they're familiar with. They know what works, it's been done before, but they're too afraid to take the drastic step of junking business as usual.

It's going to be a bumpy ride for a while. Be as generous as you can with people who are worse off because there will be a lot of them for a long time.