Policymakers Have Made Another Depression Unavoidable

[Better Believe It]

June 3 / 5, 2011

Policymakers Have Made Another Depression Unavoidable
Down, Down, Down
By MIKE WHITNEY


This is something the deficit hawks don't seem to grasp. If you slash government spending, lay off workers, and trim the deficits, then spending will slow, incomes will shrivel, GDP will wither, and the economy will slip back into recession. In other words, if you take steps to shrink the economy, then the economy will shrink. This is why the economy has lost momentum, because congress and the White House have cut the blood flow of stimulus to the patient, so now we are headed back into ICU.

Consumers are still deleveraging from the losses they sustained during the financial crisis, so they've cut back on their borrowing and spending. This creates a problem, because consumer spending represents 70% of GDP. So if consumers don't load up on debt again, there will be no recovery. (Every recovery since WW2 has been the result of a credit expansion.) This is why Fed chairman Bernanke has tried to induce more borrowing by lowering rates to zero and buying US Treasuries from the banks (which, in effect, creates negative interest rates) But it hasn't worked. Negative rates have not sparked another credit expansion because there are times when people will not borrow regardless of the rates or the inducements. John Maynard Keynes figured this out more than 80 years ago, but Bernanke has "unlearned" the lessons of the past. As a result, we are headed for another slump.

Consumers aren't spending, businesses aren't investing, and credit is not expanding. At the same time, state and federal governments are trimming budgets and laying off workers. So, all the main players are cutting, cutting, cutting. Naturally, the economy has responded in kind; housing prices are falling, unemployment is rising, manufacturing is stalling and consumer confidence is dropping.

There's nothing here that should surprise us. We are headed into a Depression because policymakers have made another Depression unavoidable. A policy-driven Depression is different than a financial crisis. It is a matter of choice. It means that the objectives of the people who control the system are different than our own. There are those who will benefit from another severe downturn, but most of us will only needlessly suffer.

Read the full article at:

http://www.counterpunch.org/whitney06032011.html

[Ship of Fools]

1. destroy economy, oust Obama. easy enough.

[Donnachaidh]

2. kick and Rec! n/t

[robcon]

3. Utter bullshit, without a shred of precedent or convincing evidence.

Typical quote: "If you slash government spending, lay off workers, and trim the deficits, then spending will slow, incomes will shrivel, GDP will wither, and the economy will slip back into recession. "

There has been NO slashing of government spending, NO laying off of government workers and spending is still brisk.

If anyone thinks the arguments over the higher deficit cap means we've been cutting spending, a little remedial arithmetic is in order.

[Better Believe It]

5. Are you sticking with your claim that governments are not cutting spending and laying off workers?

"There has been NO slashing of government spending, NO laying off of government workers ...."

Politicians in state after state and city after city have cut budgets and layed off hundreds of thousands of public workers. And the budget cuts and lay-offs are intensifying.

That's just a fact.

However, if you have evidence to refute that please present it.

I'm listening.

[robcon]

7. Sorry... no selective facts, please. Federal spending has increased by many multiples of local cuts

...and by the way, I don't think you're listening. It seems to me you have a strong WISH that your strawman argument (local cuts in a very few areas) were significant compared to the Federal budget increases.

[Better Believe It]

8. You're using "old" selective facts and ignoring state/local government cuts.

What kind of federal spending are you counting? The hundreds of billions for war, homeland security, tax subsidies for billionaires, Wall Street and big business or federal spending for job creation? For job creation it's puny in comparison to war budgets and the tax cuts for the rich.

And the federal "stimulus" spending to help states is all used up.

Very little unused money remains in that 2009 "stimulus program" and most of it wasn't designed to create new infrastructure and public works jobs in the first place. It was mainly tax cuts and temporary assistance to local governments facing deficit problems.

"Spending cuts by cash-strapped state and local governments have already eliminated nearly 450,000 jobs since September 2008. In May, state and local governments cut 28,000 jobs, the most since November, while private businesses hired only 83,000 new workers."

http://www.msnbc.msn.com/id/43267547/ns/business-eye_on_the_economy

[Bonhomme Richard]

9. +1 n/t

[robcon]

10. More strawman arguments...

You wrote: "What kind of federal spending are you counting? The hundreds of billions for war, homeland security, tax subsidies for billionaires, Wall Street and big business or federal spending for job creation? For job creation it's puny in comparison to war budgets and the tax cuts for the rich."

1. I count all spending as, you know, spending. That's what spending is... ALL federal spending.
2. But tax cuts are not spending.

It gets more amusing each time you post.

[RC]

6. Consider ALL government, not just the Federal level.

The quote is correct. It takes time for the vine to wither down to the root. We are only to the State level.

[robcon]

11. But facts are inconvenient.

All government spending is up 10.5% in 2011 vs. 2010 to 3.8 trillion.
http://www.usgovernmentspending.com/usgs_

[RC]

14. State governments, City and County governments?

Most of which are strapped for money? Where is the money going?

[robcon]

17. You have any facts about state, city or county governments? Do you believe spending is down?

Do you have any facts - or are you just basing it on a few anecdotes like Illinois?

California, the biggest state budget, is still increasing its spending:

"The State Appropriations Limit is estimated to be $81.468... applying the growth factor of 3.07%"
http://www.ebudget.ca.gov/pdf/Revised/BudgetSummary/StatewideExpenditures.pdf

As far as I know increasing state and local government spending is still increasing, unless you have some facts to the contrary.

[OhioChick]

4. K&R n/t

[JoePhilly]

12. More Chicken Little.

The next depression was predicted around this time in the summer of 2009, and again and in the summer of 2010.

Both were wrong.

Maybe this time.

Like the end of the world guy.

[Harmony Blue]

13. I don't think it is chicken littl-ish

if the GOP slashes social security and Medicare. The poverty rate for the elderly before Social Security was in place was way, way too high.

[JoePhilly]

15. The GOP is not going to be able to slash either.

Yes, they would like to.

But this article is not about that. It predicts a deep depression with little mention of SS or Medicare.

The same predictions were made in the summer of 2009 and 2010.

[emilyg]

16. k/r