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Lonski and his colleague Ben Garber, another economist at Moody’s Capital Markets Research Group, today released a new report titled “Double Dip Risk Rises as DC Standoff Continues,” in which they warn that the U.S. “may be closer to a double dip recession than commonly thought.”
The two men note that the US economy “continues to soften,” and say that evidence is “proving elusive” of any recovery in the second half of of this year. And that’s “assuming a reasonable resolution of the debt standoff” between Republicans and Democrats in Washington, and increasingly even among Republicans themselves.
“Even with a market-friendly resolution of the debt standoff,” they write, “a double-dip recession is far from unlikely.”
The new Moody’s report comes out on the same day as new data from the U.S. Commerce Department, which is also alarming. The new government data show that growth in the last quarter of 2010 was actually running at only a 2.3% annual rate, not the more robust 3.1% rate initially reported. Annualized growth rates for the first and second quarters of this year were also revised downward by the Commerce Dept. to 0.4% and 1.3% respectively. Ryan Sweet, a senior economist at Moody’s Analytics says, “The economy essentially came to a grinding halt in the first half of the year.”
Of course, the over 20% of Americans who are out of work or who are working part-time because they cannot find full-time jobs, and the millions who have been out of work for so long that their unemployment compensation checks have been exhausted, already knew this. They’ve been in a recession ever since 2007, and they represent one in five of American workers. The 40 million living on Food Stamps or going hungry--almost one-seventh of all Americans, also knew this.
It is getting hard to find any good economic news, write Lonski and Garber, especially with regional manufacturing statistics “hinting of stagnation,” and with housing markets still unable to “find a bottom.”
They two economists note that the Chicago Federal Reserve’s National Activity Index (CFNAI), in its latest three-month moving average for the last quarter, registered a figure of -0.60. They warn that 5 out of the last 9 times that the CFNAI fell that low, “recession was often impending, or was already present.”
The U.S. cannot expect much help this time from the rest of the world, either, because which most other countries are experiencing a slowdown in growth, though not as severe as the U.S.
Many economists, and not just those on the left, worry that politicians in Washington from both the Republican and Democratic Parties, focused as they are now in competitive cutting of the budget deficit, could make things worse.
As Lonski says, “Even [Fed Chairman] Ben Bernanke has said it’s very important not to bring on budget cuts until we can be reasonably certain that the U.S. economy is self-sustaining.”
These days, in what Lonski calls a “political theater,” many politicians, as well as President Obama, are calling for immediate cuts in social spending programs like Social Security, Medicaid, Welfare, Education, etc., but Lonski warns, “The problem with the U.S. budget is not what is being spent now,” but what is being spent over the longer term.
The irony, he noted, is that if government inaction on raising the debt ceiling, or government action in the form of overly-aggressive near-term budget cutting, helped usher in a double-dip recession, it would have the perverse effect of just worsening the debt, as tax receipts would plunge.