Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - 19th Mar 18
2018 Reversal Dates for Gold, Silver and Gold Stocks - 19th Mar 18
This Tech Breakthrough Could Save The Electric Car Market - 19th Mar 18
Stocks Set to Open Lower, Should You Buy? - 19th Mar 18
The Wealth Machine That Rising Interest Rates Create Conflict With The National Debt - 19th Mar 18
Affiliate Marketing Tips and Network Recommendations - 19th Mar 18
Do Stocks Bull Market Tops Need Breadth Divergences? - 19th Mar 18
Doritos Instant £500 Win! Why Super Market Shelves are Empty - 19th Mar 18
Bonds, Inflation & the Market Amigos - 19th Mar 18
US Housing Real Estate Market and Banking Pressures Are Building - 19th Mar 18
Stock Market Bulls Last Stand? - 18th Mar 18
Putin Flip-Flops Like A Drunken Whore On Bitcoin Cryptocurrency Legalization - 18th Mar 18
How to Legally Manipulate Interest Rates - 18th Mar 18
Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - 18th Mar 18
Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - 17th Mar 18
Strong Earnings Growth is Bullish for Stocks - 17th Mar 18
The War on the Post Office - 17th Mar 18
GDX Gold Mining Stocks Fundamentals - 16th Mar 18
Nationalism, Not the Russians, got Trump Elected - 16th Mar 18
Has Bitcoin Bought It? - 16th Mar 18
Crude Oil Price – Who Wants the Triangle? - 16th Mar 18
PayPal Cease Trading Crypto Currency Bitcoin Warning Email Sophisticated Fake Scam? - 16th Mar 18
EUR/USD – Something Old, Something New and… Something Blue - 16th Mar 18
DasCoin: A 5-Minute Guide to How It Works - 15th Mar 18
Stock Market Downward Pressure Mounting - 15th Mar 18
The Stock Market Trend is Your Friend ’til the Very End - 15th Mar 18
6 Easy Ways to Get What Women Want, for Less! - 15th Mar 18
This Isn’t Your Grandfather’s (1960s) Inflation Scare - 15th Mar 18
Eye Opening Stock Market Index, Volatility, Charts and Predictions - 15th Mar 18
Gold Cup At Cheltenham – Gold Is For Winners, Not For Gamblers - 15th Mar 18
Upcoming Turnaround in Gold - 14th Mar 18
Will the Stock Market Make Another Correction this Year? - 14th Mar 18
4 Ways To Writing An Interesting Education Research Paper - 14th Mar 18
China Toward Sustainable Economic Growth - 14th Mar 18
Stock Market Direction Is No Longer Important - 14th Mar 18
Trade Tariffs Defeat Globalists and Return Prosperity - 14th Mar 18
Stock Market Crash is Underway and Cannot be Stopped! - 14th Mar 18
Are Energy Sector Stocks Bottoming? - 14th Mar 18
Nasdaq Stocks Soars to New Record High After Strong Job Reports - 14th Mar 18
Bitcoin BTCUSD Elliott Wave View Calling for Rally toward $15,000 - 13th Mar 18
Hungary’s Gold Repatriation Adds To Growing Protest Against US Dollar Hegemony - 13th Mar 18
Record Low Volatility in Precious Metals and What it Means - 13th Mar 18
Tips for Writing and Assembling the Classification Essay - 13th Mar 18
Gerald Celente "If Rates go up too High, the Economy goes Down, End of Story" - 13th Mar 18
Stock Market Selloff Showed Gold Can Reduce Portfolio Risk  - 13th Mar 18
Silver Does it Again! Severe Consequences - 12th Mar 18
Has the Stock Market Rally Run Out of Steam? - 12th Mar 18
S&P 500 at 2,800 Again, Stock Market Breakout or Fakeout? - 12th Mar 18
The No.1 Energy Stock To Buy Right Now - 12th Mar 18
What Happens Next When Stock Market Investor Sentiment is Neutral - 12th Mar 18
Economic Pressures To Driving Gold and Silver Prices Higher Long-Term - 12th Mar 18
Labour Sheffield City Councils Secret Plan to Fell 50% of Street Trees Exposed! - 12th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

How Long Will the Economic Recovery Continue?

Economics / Economic Recovery Jan 07, 2010 - 01:59 PM GMT

By: Mike_Whitney


Best Financial Markets Analysis ArticleThere's no denying that the economy is getting better, but will it last? Many economists don't think so, including experts at opposite ends of the ideological spectrum, like Paul Krugman and Martin Feldstein. They think the economy will begin to fizzle sometime in the latter part of 2010 when Obama's $787 billion fiscal stimulus runs out and consumers are forced to pick up the slack in demand. That's a safe bet, too, considering that unemployment will still be somewhere in the neighborhood of 9 percent and households will still be digging out from the $13 trillion they lost during the crisis. And the fact that the Fed is planning to end its quantitative easing (QE) program in early April, doesn't help either.

That will just suck more liquidity out of the system and push long-term interest rates higher. When that happens, housing prices will fall, inventory will rise, and a surge in foreclosures will put more pressure on the banks balance sheets. That's why the pros are so glum, because they know the economy needs a second dose of stimulus to stay on track, but the politicos are dead-set against it. Congress is afraid of the backlash from voters in the upcoming midterm elections. They'd rather drive the economy back into recession then risk losing their jobs.

Despite the propaganda in the media, stimulus works. In fact, Goldman Sachs attributes all of last quarter's (positive) growth to Obama's stimulus. Here's how Nobel prize winning economist Joseph Stiglitz sums it up in his China Daily article "Harsh lessons we may need to learn again":

"Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit - raise taxes or cut expenditures - to "restore confidence." But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence."

When consumers are forced to cut back on spending, because they're too far in debt or worried about their jobs, the government has to step in and make up the difference or the economy goes into a tailspin. The deficits need be big enough to maintain aggregate demand while the private sector regains its footing. Otherwise, consumer spending declines, which lowers earnings and forces businesses to lay off more workers. It's a viscous circle. But if the stimulus is distributed wisely, multipliers kick in and help to lift the economy out of the doldrums. Here's a good breakdown of how it works from an article in the New York Times:

"Every dollar of additional infrastructure spending means $1.57 in economic activity, according to Moody’s, and general aid to states carries a $1.41 "bang" for each federal buck. Even more effective are increases for food stamps ($1.74) and unemployment checks ($1.61), because recipients quickly spend their benefits on goods and services.

By contrast, most temporary tax cuts cost more than the stimulus they provide, according to research by Moody’s. That is true of two tax breaks in the stimulus law that Congress, pressed by industry lobbyists, recently extended and sweetened — a tax credit for homebuyers (90 cents of stimulus for each dollar of tax subsidy) and extra deductions for businesses’ net operating losses (21 cents). " ("New Consensus Sees Stimulus Package as Worthy Step " Jackie Calmes and Michael Cooper, New York Times)

So far, the stimulus has done exactly what it was designed to do; give the economy a big enough boost to get through a deflationary rough patch. Unemployment is flattening out, manufacturing is expanding again, the stock market keeps climbing higher, and a recent survey of individual investors shows the highest ratio of bulls-to-bears since 2007. That's a good start, but the economy is still weak and needs more help. So why are policymakers so eager to take the patient off the ventilator before he can breathe on his own again?

Politics, that's why.

The congress is worried about voter rage at the ballotbox, but that doesn't explain why Obama has started moaning about slashing deficits in the middle of a severe slump. The administration's agenda is entirely different than congress's. The White House economics team is trying to garner support for policies that will strap the faltering economy into a fiscal straightjacket and pound the green shoots into mush. All the railing against deficits is just empty blather backed by junk economics.

Here's ex-Treasury Secretary Robert Rubin--one of the chief architects of the global financial crisis--articulating the position of his proteges at 1600 Pennsylvania Ave.

Robert Rubin: "Putting another major stimulus on top of already huge deficits and rising debt-to-GDP ratios would have risks. And further expansion of the Federal Reserve Board's balance sheet could create significant problems.... Today's economic conditions would ordinarily be met with expansionary policy, but our fiscal and monetary conditions are a serious constraint, and waiting too long to address them could cause a new crisis....

First, there must be sound fiscal and monetary policies. The United States faces projected 10-year federal budget deficits that seriously threaten its bond market, exchange rate, economy, and the economic future of every American worker and family. Those risks are exacerbated by the context of those deficits: a low household-savings rate, even after recent increases; large funding requirements for federal debt maturities every year; heavy overweighting of dollar-denominated assets in foreign portfolios; worsened fiscal prospects in the decades after the current 10-year budget period; and competing claims for capital to fund deficits in other countries." ("Getting the Economy back on track" Robert Rubin, Newsweek)

Interesting. Rubin admits that the recession "would ordinarily be met with expansionary policy", but suggests that he has a better remedy than stimulus. Does that make sense? After all, it was Keynes counter-cyclical public spending (stimulus) that just produced positive GDP for the first time in 4 quarters, whereas, it was Rubin's deregulation of the financial system that pushed the global economy to the brink of disaster. There's no question of whose theory is more credible or likely to work. Even so, it's worth considering what Rubin has to say, because it clarifies the views of Obama's chief economics advisors Geithner and Summers. After all, the trio is joined at the hip.

Rubin again: "The American people are growing increasingly concerned about deficits, creating a public environment more conducive to political action. And the Obama administration, in my view, has a deep understanding of the critical importance of addressing this issue..... "

Indeed. So, Obama has already joined the ranks of the deficit terrorists.

Rubin again: "As President Obama and the other G20 leaders warned, restrictive trade measures in response to the current crisis could lead to highly destructive trade wars. For the long run, we should continue pursuing the open markets that the Peterson Institute for International Economics, a Washington think tank, estimates have added $1 trillion to America's current GDP."

So Rubin is working for Peterson? That explains everything. Here's an excerpt from a Dean Baker article which appeared in the UK Guardian this week:

"Peter Peterson is a Wall Street billionaire and former Nixon administration cabinet member who has been trying to gut Social Security payments and Medicare for at least the last quarter of a century. He has written several books that warn of a demographic disaster when the baby boomers retire. These books often include nonsense arguments to make his case. For example, in one of the books making his pitch for cutting social security as matter of generational equity, Peterson proposes reducing the annual cost of living adjustment." (U K Guardian)

Ah ha! So, the real goal is to slash spending to impose onerous austerity measures that will lay the groundwork for dismantling critical social programs, like Social Security, Medicaid and Medicare. That's why Rubin is working hand-in-hand with his allies in and out of the White House. It has nothing to do with what's best for the country. It's another looting operation spearheaded by the same band of Wall Street pirates who just blew up the financial system.

Rubin again: "For American workers, sustained growth is the most powerful force for higher wages and greater personal economic security....The dynamism of American society, its flexible labor and capital markets, its entrepreneurial spirit and the sheer size of its economy, are great strengths for succeeding in a rapidly transforming global economy....Finally, in an increasingly interdependent world, transnational issues key to all of us can only be addressed through effective global governance."

Yada, yada, yada. More free trade, more outsourcing, more off-shoring, more lost jobs, more structural adjustment (at home, this time) more privatization, more screwball globalist Utopianism. It's all right out of the Neoliberal playbook, corporate America's sacred text. And it looks President Moonbeam is marching in lockstep with the rest of the hucksters.

Face it; the Obama administration is less interested in engineering a strong recovery than they are with micromanaging a protracted downturn. That's because a long drawn-out mini-Depression puts the Rubin troupe right where they want to be---with one hand choking the life out of the economy while the other steals whatever is left in the national vault. They're all scoundrels. Obama, too.

By Mike Whitney


Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2010 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules