Double Dip or Off the Cliff?

The United States' economy has had two crises that were followed by long periods of depressed economic activity, high unemployment, and instability lasting more than a decade — the Panic of 1873 and the Crash of 1929.

Conditions are emerging that could cause that to happen again, and without a radical change in policy, the nation is at risk of a terrible calamity.

The economy has many natural resuscitative qualities that usually return it to growth after it falters. During downturns, businesses run down inventories, and after a time, those must be restored. Efforts to slash costs go too far, and businesses begin investing again in critical equipment and software, and then some new hires.

Inventory rebuild, capital spending and some new jobs jumpstarts growth, and this pattern emerged from July 2009 through March or April of this year.
Now faltering retail sales, jobs creation and consumer confidence, and stubbornly high new unemployment claims, indicate the economic recovery may be quitting.

If the economy goes down a second time, now, its resuscitative qualities will have been spent when government deficits can’t be much increased, and the Federal Reserve can’t further cut interest rates.

If the economy goes down a second time—for example, GDP declines significantly two quarters in a row—then it likely goes down for good. Unemployment would rise into the teens, and the economy would sink into a depression—a deep and painful slump from which it cannot soon recover.

President Obama’s policies are not helping.

More than one trillion dollars in stimulus was squandered, creating few jobs, and the President’s spending commitments are not proving temporary. Instead, federal finances are burdened by indefinite annual deficits exceeding one trillion dollars—much worse than when George Bush left office.

Obama’s health care reforms are long on mandated benefits and short on cost controls. This combination is raising insurance premiums for businesses and individuals, forcing state governments to increase taxes or trim other programs, and discouraging businesses from hiring.

The President touts green industries to radically reduce petroleum use and seeks to end much offshore drilling, but experts familiar with alternative energy technologies realize that windmills, solar panels, and converting crops to fuels won’t appreciably reduce petroleum use for decades. Either Americans develop more domestic petroleum or pay dearly for more foreign oil.