Posts Tagged ‘Recession’

Things got incredibly bad under President George W. Bush. He lead us into the Great Recession. Click on the link below to see why this is so.

Five Reasons Why Americans Are Right to Blame George Bush for the Economy

Read Full Post »

The conventional wisdom seems to be that our biggest economic challenge is runaway government spending. The reality is that government spending is contracting and pulling economic growth down with it. And worse is yet to come.

Given the federally sponsored redistribution of income and wealth from the 99 percent to the 1 percent since 1981, the demand by the 99 percent for goods and services in sufficient amounts to keep the economy afloat cannot be sustained without heavy and increasing government spending. The economy cannot stand on its own, which is what FDR discovered when the federal government cut back on spending in 1937. This is especially true given that more and more income is being redistributed from the 99 to the 1 percent. The process is continuing unabated under President Obama.

Perhaps the best measure of active government intervention in the economy is something called “government consumption expenditure and gross investment.” This includes total spending by all levels of government (federal, state, and local) on all activities with the exception of transfer payments (such as unemployment benefits, social security, and Medicare).

The graph below shows the yearly percentage change in real government consumption expenditure and gross investment over the period 2000 to 2012 (first quarter). As can be seen, the rate of growth in real spending began declining after the end of the recession, then jumped off a cliff beginning in 2011, which means that government spending (adjusted for inflation) is actually contracting.

The following chart shows the ratio of government consumption expenditure and gross investment to GDP; it highlights the fact that government spending is also falling as a share of GDP.

Adding transfer payments, which have grown because of the weak economy, does almost nothing to alter the picture. As the chart below shows, total government spending in current dollars, which means unadjusted for inflation, has stopped growing. If we take inflation into account, there can be no doubt that total real government spending, including spending on transfer payments, is also contracting.

The same is true for the federal government, everyone’s favorite villain. As the next chart shows, total federal spending, unadjusted for inflation, has also stopped growing.
Another chart

Not surprisingly, this decline in government spending is having an effect on GDP. Real GDP in the 4th Quarter of 2011 grew at an estimated 3 percent annual rate. The advanced estimate for 1st Quarter 2012 GDP growth was 2.2 percent. A just released second estimate for this same quarter revised that figure down to 1.9 percent. In other words, our economy is rapidly slowing.

What caused the downward revision? The answer says Ed Dolan is the ever deepening contraction in government spending:

What is driving the apparent slowdown? It would be comforting to be able to blame a faltering world economy and a strengthening dollar, but judging by the GDP numbers that does not seem to be the case. The following table (see below) shows the contributions of each sector to real GDP growth according to the advance and second estimates from the Bureau of Economic Analysis. Exports, which we would expect to show the effects of a slowing world economy, held up well in the first quarter. In fact, the second estimate showed them even stronger than did the advance estimate. The contribution of private investment also increased from the advance to the second estimate, although not by as much. Exports and investment, then, turn out to be the relatively good news, not the bad, in the latest GDP report.

Instead, the largest share of the decrease in estimated real GDP growth came from an accelerated shrinkage of the government sector. The negative .78 percentage point decrease of the government sector is the main indicator that we are already on the downward slope toward the fiscal cliff.

If current trends aren’t bad enough, we are rapidly approaching, as Ed Dolan noted, the “fiscal cliff.” That is what I was referring to above when I said that worse is yet to come. As Bloomberg Businessweek explains:

Last summer, as part of its agreement to end the debt-ceiling debate (debacle?), Congress strapped a bomb to the economy and set the timer for January 2013. Into it they packed billions of dollars of mandatory discretionary spending cuts, timed to go off at exactly the same time a number of tax cuts [for example, the Bush tax cuts and the Obama payroll-tax holiday] were set to expire

The congressional deficit supercommittee had a chance to disarm the bomb last fall, but of course it didn’t. And so the timer has kept ticking. The resulting double-whammy explosion of spending cuts and tax increases will likely send the economy careening off a $600 billion “fiscal cliff.”

The fiscal contraction will actually be even worse, since the extended unemployment benefits program is also scheduled to expire at the end of the year.

So, what does all of this mean? According to Bloomberg Businessweek:

If Congress does nothing, the U.S. will almost certainly go into recession early next year, as the combo of spending cuts and tax hikes will wipe out nearly 4 percentage points of economic growth in the first half of 2013, according to research by Goldman’s Alec Phillips, a political analyst and economist. Since most estimates project the economy will grow only about 3 percent next year, that puts the U.S. solidly in the red.

One can only wonder how it has come to past that we think government spending is growing when it is not and that it is the cause of our problems when quite the opposite is true. Painful lessons lie ahead—if only we are able to learn them.

Read Full Post »

Greece is about the leave the Eurozone

The Greek government is limited in its abilities to use fiscal policy to stimulate its economy because Greece is attached to the euro. Germany governs how and when an expansion of the euro will take place, and the Germans are mostly worried about inflation, which is not a problem that Greece has. Attachment to the euro has created a disaster for Greece. Now the government there is preparing to leave the Eurozone. Staying in the eurozone redistributes income from Greek citizens to foreign bankers because the government needs to borrow money in order to stimulate the economy, and the terms of the borrowing has been onerous for the citizens of Greece since linkage to the euro has pushed the nation into a deep and long lasting recession since 2009.

Banks prepare for the return of the Greek drachma

Read Full Post »

England has moved into a double-dip recession thanks to government budget cutting during a time of economic weakness, owing to the redistribution of income from working people to the one percent over the last thirty years. In other words, the corporate economic system of England may no longer be able to stand on its own. In other words, the economy of England is collapsing, slowly.

Austerity Policies Drive England into a Double Dip Recession

Read Full Post »

New orders for durable goods fell 4.2 percent last month. Orders have dropped two out of the last three months. When the orders for durable goods drops, it can herald the beginning of the end of whatever business expansion we’re in. It’s the scary canary in the economic coal mine. However, falling orders for durable goods does not necessarily signal the beginning of the end, but it is always the first step.

Durable goods are those things that ordinarily last three or more years, like pipes, computers, cars, toilets, stereos and stuff like that.

We should keep an eye on financial events as they unfold because the next recession could come quickly and with savage intensity since the rich are getting an ever greater share of the total national income through their political power over Republicans and Democrats alike. The one percent heisted 93 percent of the total national income growth from 2009 to 2010, and it is likely their share is about the same for the 2010 to 2011 fiscal year. That means there’s less money among the 99 percent to demand the goods and services necessary to keep the economy floating and to increase the number of jobs, while the rich have more money and political clout to demand and get legislation that redistributes even more income into their already fat wallets.

So hold on to your jobs, because the recession could be coming soon. Oh, and by the way. We’re still in the Second Great Depression that began in December 2007.

Click here for the full durable goods story

Read Full Post »

A few European governments tried to cut back on spending during the greatest economic crisis since the Great Depression. Now look at them. Europe is on the verge of another recession, and the entire Eurozone may crack up. There’s a ton of reasons why. One of them is that Italy, for example, redistributed income and wealth from working folks to the rich, so now the demand for goods and services is miniscule in that country. Much of the manufacturing base is in China and Vietnam. The same holds true for a ton of those European nations.

Click here for Paul Krugman's take on this issue

Read Full Post »

President Obama has been lucky the weak American economy hasn’t gone back into recession, at least not so far. Under Obama’s watch, the economy has even managed to create jobs, although at a pace that any previous business expansion beats, except for the dismal record of George W. Bush. But can the so-called business recovery survive a global downturn and fiscal conservatism on Capitol Hill?

Click here for the answer

Read Full Post »

« Newer Posts - Older Posts »


Get every new post delivered to your Inbox.

Join 1,930 other followers