Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Great Recession - Politicians Still Don’t Get It!

Stock-Markets / Financial Markets 2013 Mar 02, 2013 - 12:35 PM GMT

By: Sy_Harding


In the early 1990’s, in the aftermath of the 1990-91 recession, the outcry to politicians was “It’s the economy, stupid!”

With the economy currently recovering, but anemically, an apt cry-out might be “It’s the politicians, stupid”. Or perhaps more accurately, “It’s the stupid politicians!”

The recovery from the 2007-2008 ‘Great Recession’ has been taking place for four years, but doing so in spite of the propensity for Washington to repeatedly throw fear and uncertainty in the way of the recovery, making it difficult for private sector spending to take over for the initial massive government spending that launched the recovery.

In spite of pleas from Fed Chairman Bernanke that Congress do its share from the fiscal side, each of the last three summers has seen the recovery stumble until the Fed finally rushed in alone (with another round of QE type monetary easing) to get the recovery back on track.

Each time the economy stumbled Congress remained gridlocked by political ideology, unable to act on even routine bills like extending the debt ceiling (so the bills covering spending Congress itself had previously authorized and spent could be paid).

It was only when the stock market showed its growing concern, by rolling over into corrections each spring, that politicians awakened to reality and in panicked late-night sessions reached last minute agreements on whatever was the worrisome issue at the time.

Obviously nothing has changed. The year-end fiscal cliff threat was ended only by a last minute late-night session to kick it down the road after the Dow tanked for five straight sessions in the final week of the year.

The amnesty was short-lived, and bickering and name-calling has resumed, this time over resolving the so-called ‘sequester’ issue and its automatic spending cuts.

So far there has been no pressure from the stock market (the only pressure source Congress seems to respond to), and so no effort to act as the March 1 sequester deadline approached. That is even though both sides agree the spending cuts as currently spelled out will cause significant fiscal harm to the economy.      

It’s important to realize what has happened in Europe.

The U.S. does not have exclusive rights to inept politicians. Over recent years, European politicians also reacted only to periodic scary plunges in their stock and bond markets, taking belated and panicked actions each time to repeatedly kick the euro-zone debt crisis down the road.

Meanwhile, U.S. Fed Chairman Bernanke warned European leaders a couple of years ago that they were cutting government spending and introducing austerity measures too soon in the global recovery. Sure enough, the 17-nation euro-zone economy slid back into recession, and shows few signs even now of coming out of it.

Congress might do well to listen to Bernanke’s similar blunt warning this week that the costs of the automatic spending cuts and already adopted 2% tax on the wages of those earning less than $114,000 would just about wipe out the positive impact on economic growth expected from the Fed’s ongoing easy monetary policy. It’s estimated that between the spending cuts and tax increase, 2013 economic growth would be reduced by 1.1%. That’s not a pretty picture for an economy that grew only 1.5% over the last six months of 2012.

 Bernanke wants Congress to work on a compromise that would lessen the effect of the automatic cuts so as to give the private sector more time to recover and be able to withstand larger government cuts and austerity measures later.

He noted in his testimony before Congress this week that the recovery is close to faltering again, and Congress should “avoid fiscal actions that could impede the ongoing recovery.”

And indeed we have seen potential warnings in recent economic reports. For instance, mixed in with ongoing positive reports, this week we learned that the Chicago Fed’s National Business Activity Index fell to -0.32 in January from +0.25 in December; Durable Goods Orders fell 5.2% in January; construction spending unexpectedly fell 2.1% in January; and personal incomes fell 3.6% in January, the biggest monthly decline in 20 years.

It’s not like Congress has to learn by making its own mistakes. It has only to look across the water to Europe to see how failure to manage the withdrawal of stimulus in an orderly manner can push economies back into recession, making it that much harder to tackle the ultimate goal of lowering government debt.

However, since Congress and the White House only seem to act when the stock market shows concern, the lack of concern shown by the market so far seems to have them again lulled into a sense of being under no pressure to do anything. That will allow any negative impact to get a firmer grip.

 I and my subscribers remain on a buy signal for the market from last fall, but those surrounding situations do nothing to change my expectation that the stock market will again run into problems as April and May approach and the market’s ‘favorable season’ ends.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2013 Copyright Sy Harding- 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.

Sy Harding Archive

© 2005-2019 - 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