FacebookTwitterRedditEmail

Manufacturing a Double-Dip

The chief economist at ratings agency Moodys is warning that the U.S. could be headed for a renewed recession.

Calling the current situation “very perilous,” John Lonski adds that the politicians in Washington, where both parties are vying to present budgets featuring massive cuts in spending, could help bring on that recession–just as the new Conservative Party-led government in Great Britain brought on a return to recession this year through its aggressive cutting of public spending. Worse yet, they could create a new shut-down in credit or “liquidity” in the financial industry that “could be more serious even than what caused the collapse of Lehman Brothers” in 2008.

Lonski, in an interview with ThisCantBeHappening!, said, “What scares me is that, because of the weakened condition of the federal government, there is less confidence in the philosophy of `too big to fail’– the idea that the government will come in and back up any financial company that runs into trouble.” He said the government is probably no longer in a position to make trillions of dollars available to prop up failing big banks as it did in 2008 and 2009, and that fearing this, financial institutions may pull back, drying up lending.

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.

DAVE LINDORFF is a founding member of ThisCantBeHappening!

More articles by:

Dave Lindorff is a founding member of ThisCantBeHappening!, an online newspaper collective, and is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press).

bernie-the-sandernistas-cover-344x550
March 30, 2020
Marshall Auerback
Washington Uses the Pandemic to Create a $2 Trillion Slush Fund for Its Cronies
Ron Jacobs
Going After Maduro
Justin Podur
When Economists Try to Solve Health Crises, the Results Can Often be Disastrous
Thomas Knapp
Decarceration: COVID-19 is Opportunity Knocking
Arshad Khan - Meena Miriam Yust
Dying Planet and a Virus Unleashed
William Astore
How My Dad Predicted the Decline of America
Seth Sandronsky
Reclaiming Vacant Homes in the COVID-19 Pandemic
John G. Russell
Racial Profiling Disorder: the All-American Pandemic
Vijay Prashad, Paola Estrada, Ana Maldonado, and Zoe PC
As the World Tackles the COVID-19 Pandemic, the U.S. Raises the Pressure on Venezuela
Laura Flanders
Covid-19: Our Health Crisis is Born of Bigotry
Cesar Chelala
The New World of Coronavirus
Lawrence Wittner
The World’s Major Military and Economic Powers Find Happiness Elusive
Ted Rall
My Dead French Grandfather Helped Me with COVID-19
Rob Okun
A Citizens’ Call to Invoke the Twenty-fifth Amendment
Ashar Foley
COVID-19 Proves It: We Need Medicare-for-All
Robert Koehler
The Virus is Our Teacher
Wim Laven
Are You Prepared to Needlessly Die for Your Country?
Jill Richardson
Stay Home, Stay Angry
ADRIAN KUZMINSKI
What’s Wrong with Ranked Choice Voting
Mike Garrity
Alliance for the Wild Rockies Sues Trump’s Bureau of Reclamation for Bull Trout Fatalities in Saint Mary-Milk River Irrigation Project on the east Side of Glacier National Park
Weekend Edition
March 27, 2020
Friday - Sunday
Rob Urie
Bailouts for the Rich, the Virus for the Rest of Us
Louis Proyect
Life and Death in the Epicenter
Paul Street
“I Will Not Kill My Mother for Your Stock Portfolio”
Jeffrey St. Clair
Roaming Charges: The Scum Also Rises
Pam Martens - Russ Martens
Stimulus Bill Allows Federal Reserve to Conduct Meetings in Secret; Gives Fed $454 Billion Slush Fund for Wall Street Bailouts
Jefferson Morley
Could the Death of the National Security State be a Silver Lining of COVID-19?
Ruth Hopkins
A Message For America from Brazil’s First Indigenous Congresswoman
Kathleen Wallace
The End of the Parasite Paradigm
Anthony DiMaggio
Misinformation and the Coronavirus: On the Dangers of Depoliticization and Social Media
Andrew Levine
Neither Biden Nor Trump: Imagine Cuomo
David Rosen
God’s Vengeance: the Christian Right and the Coronavirus
Evaggelos Vallianatos
In the Grip of Disease
David Schultz
The Covid-19 Bailout: Another Failed Opportunity at Structural Change
Edward Leer
Somebody Else’s World: An Interview with Kelly Reichardt
Robert Fisk
What Trump is Doing in the Middle East While You are Distracted by COVID-19
Daniel Warner
COVID-19: Health or Wealth?
Thomas Klikauer – Norman Simms
Corona in Germany: Hording and Authoritarianism
Ramzy Baroud
BJP and Israel: Hindu Nationalism is Ravaging India’s Democracy
Richard Moser
Russia-gate: the Dead But Undead
Ron Jacobs
Politics, Pandemics and Trumpism
Chris Gilbert
Letter From Catalonia: Alarming Measures
Richard Eskow
Seven Rules for the Boeing Bailout
Jonathan Carp
Coronavirus and the Collapse of Our Imaginations
Andrew Bacevich
The Coronavirus and the Real Threats to American Safety and Freedom
Peter Cohen
COVID-19, the Exponential Function and Human the Survival
FacebookTwitterRedditEmail