The number purveyors in economist land and government have been proclaiming this won’t be a double dip recession, with the worst yet to come. It’s thus worth asking a simple question: Why not?
On the domestic front. Private sector employment gains have been tepid to date, and there’s predictions that even these very modest gains might be reversed in coming months. Foreclosures in some parts of the country are only moderating because of government programs that are tapering off. Indeed, federal stimulus spending of all kinds, too small to begin with, is tapering off.
Consumers only took on a small billion dollars in new credit last month, and this was only the second increase in 15 months. Just today it was announced that retail sales plunged again in May, and much of the increase in recent consumer spending chalked up before last month came from tapping savings, which makes it inherently unsustainable. Banks are still very lean with their lending, the biggest ones preferring to use their money flash trading on the Wall Street, the smaller ones using it to boost sagging reserves to cover past and future losses.
State and local government spending is being squeezed like crazy, while state and local taxes (and quasi taxes a la fines and fees) are reducing people’s out-of-pocket spending potential. The 1.9 percent increase in wages for American workers in the last year is less than the 2.2 official inflation rate, so having a bit more still means people can buy less.
Put all these things together on the domestic front and you arrive at the obvious question: Where’s the beef? Where is the money, the economic oomph, to make a still very anemic economy strong enough not to sink again. From overseas? Not very likely.
The German government is cutting its own spending for an unusual reason these days — prudence. France is cutting its pension spending dramatically. Spain, Greece, Italy and Portugal are being forced to cut their spending because of excessive debt. Asia? Don’t look to Japan, which has been in a recession for more than a decade. Yes, China is still spending big, but not as much as it could because it has to lend so much to countries like ours, and from fears about its own CPI, which just rose above 3 percent.
Here’s reality. America’s economic pain of a thousand economic cuts is only a hundred or two hundred incisions along. It will likely get much worse again soon, in the form of a second big dip in this already very deep and protracted recession.
That’s the truth of it, and it’s wise to prepare accordingly.
This writer can be reached at wallstreetpoet.com