In a few more months, it will be the fourth year since the banking crash of September 2008, the election of Barack Obama, and the deep recession and weakest recovery on record that followed. After nearly four years—and more than $3 trillion in tax cuts and spending by Obama and Congress and $9 trillion in free money given to the banks by the Federal Reserve—the U.S. economy has still not been able to generate a sustained economic recovery. Since April 2012 key sectors of the US economy are once again weakening. And with $2.2 trillion in sequestered government spending reduction scheduled to hit the economy beginning January 2013—plus the likelihood of trillions more in additional spending cuts to occur immediately after the November elections, the Eurozone’s deepening crisis, and China-India-Brazil all headed for a hard landing—the prospect of a double dip recession in the U.S. is increasing.
The prediction of double dip was first raised by this writer a year ago, in Z magazine’s June 2011 issue. It was reaffirmed in this writer’s latest book, ‘Obama’s Economy: Recovery for the Few’, completed November 2011 at a time when pundits and mainstream economists were all forecasting a robust rebound of the US economy over the winter, and repeated once again in the writer’s article, “Economic Predictions 2012-13” in the January 2012 issue of Z magazine. The double dip would most likely come in early 2013, it was argued, but possibly even earlier if the Eurozone and global economy experienced a second major banking crisis beforehand.
To quote from the January 2012 publication, “The first quarter of 2012 will record a significant slowing of GDP growth once again. Should the Eurozone debt crisis escalate in the second quarter of 2012, the U.S. economy will weaken further. It may even slip into recession if the Euro crisis is severe. More likely, however, is the scenario of an emerging double dip recession in early 2013, when deficit cutting by Congress and the Administration intensifies.”
The forecast of a double dip was, and remains, predicated on three factors: first, the continuing inability of Obama and Congressional policies to generate a sustained recovery. Second, a growing financial crisis and deep recession in Europe spilling over to the U.S. And third, a consensus decision and action by both political parties, Republicans and Democrats, immediately after the November 2012 elections to cut spending by several additional trillions of dollars, over and above the $2.2 trillion already scheduled to begin taking effect January 2013.
The ‘grand bargain’ revived immediately after the November elections will most likely include some token initial spending for a year, more stimulus in the form of even more tax cuts for business plus more subsidies for the states, a continuation of the Bush tax cuts for another decade in most part that will cost over $4 trillion more in deficits, further cuts in the top tax rate from 35% to 25% for corporations and the rich, and, to pay for it all, massive cutting of Medicare, Medicaid, Social Security disability, education, and just about all other areas of discretionary spending, except for defense where cuts will be reduced from the $600 billion already projected in the sequestration package of 2011.
So far as the short term of the past three years is concerned, none of the Obama administration’s three economic recovery programs introduced 2009-11 have been able to result in a sustained economic recovery. Each has led, in succession, to three economic ‘relapses’—where the latter is defined as a dramatic loss of economic momentum across key economic sectors of the economy following short, modest and temporary rebounds. At mid-year 2012 the U.S. economy consequently now finds itself in the midst of the third such relapse, following a third (shortest and weakest) rebound that occurred November 2011-March 2012.
With the U.S. third rebound now clearly showing signs of dissipating at mid-year 2012, and the economic crisis progressively growing in scope and intensity across Europe, two of the three strategic preconditions for double dip are thus being realized. The third precondition—the aforementioned immanent turn by U.S. political elites of both parties to still more spending cuts in addition to the $2.2 trillion already scheduled this November-December—appears increasingly likely. And should that occur, along with the first two preconditions already well evolved, a double dip is assuredly on the agenda for 2013.
This writer’s 2011 forecast of a double dip in 2013 is not unique, but is shared by others, including economist, Nouriel Roubini, financial George Soros, and the Economic Cycle Research Institute (ECRI), the latter of which has had the distinction of predicting the beginning and end of the last two recessions in 2001 and 2007-09 and has been calling a recession even earlier in 2012.
This past spring, 2012, another even more conservative source has added its voice to the prediction: the Congressional Budget Office. The CBO predicts recession in 2013 should just the $2.2 trillion in sequestered spending cuts agreed by Congress last August 2011 start taking effect in 2013. The $2.2 trillion cuts alone would be sufficient, according to the CBO, to drive the economy into recession again in 2013. Add to this the already weakening US economy and the Eurozone crisis, the scenario of double dip is therefore even more likely.
Politicians of both political parties have failed miserably over the past four years to deal with the fundamental causes and the resulting consequences of the economic crisis that erupted in 2007, morphed into the worst economic downturn in seven decades in 2008-09, followed by the weakest, most lopsided recovery on record for the past three years since 2009 that continues to date. But underlying this short term failure are a number of just as serious, if not more so, fundamental longer term crises.
Copyright June 2012
Jack is the author of the recently published book, Obama’s Economy: Recovery for the Few, April 2012, published by Pluto books and Palgrave-Macmillan. His blog is jackrasmus.com and website, http://www.kyklosproductions.com, where his articles and radio and tv interviews are available.