Are We There Yet – Recession and Reaganomics

The discussion continues:

Is the US economy in a recession?

Will the US economy enter a recession?

Generally economists agree that either we are in a recession or we will enter one soon. Federal Reserve Chairman Ben Bernanke indicates that we are not in a recession but the downside risks to the economy outweigh the risks of inflation. There are those who say that we are not in a recession and that if we were in a recession this would be the most announced recession ever known. Their reasoning is that a recession cannot occur when it is widely expected.

The changes made since Reagan in the calculation of GDP make it almost impossible for the US to register a recession, defined as 2 consecutive quarters of negative growth. I wonder what would happen to 2004 to 2007 GDP if we eliminate the excess valuation and earnings now being discounted from the Housing and Financial sectors. Perhaps we would find that the GDP has been negative 12% for the last four years. Politicians would be happy, they could blame it on “9/11”.

I suggest further that while a recession is discussed, it is difficult to enter recession. In fact we are in a depression. The difference between a recession and a depression is the strength of the declines. A Depression is called when GDP diminishes by 10% while any negativity is a recession. The Federal Government will wait many years before making the adjustments to 2004-2007 GDP. The new President will use the modified data to say how good of a job he/she is doing. All of this has little importance except to help us understand what we need to do to make sure 4 years of depression does not become “4 more years”, as the presidential candidates like to say.

There has only been one other major depression in the US. It occurred in the 1930s. Again it was due to what was called at that time “Corporatism”. “Corporatism” also took off in the 1930s in Europe and is known as “Italian Fascism” (most interestingly banned from European politics in the 50s). The US resurrected it in the 80s. It is called Reaganomics. We worked our way out of it by investing in the US with the greatest program of structural investment ever known. The Italians did the same and the version in Germany, which added nationalism to the mix under the Nazi party, came out through the Marshal plan. The common denominator of the recovery is national investment.

It is no longer a question of whether or not the US economy will contract. The degree may be discussed but it is hard to see where the US economy will find 12% of GDP to substitute the smoke and mirrors sector propagated by the financial institutions. FED rate cuts will do nothing. Emergency intervention plans will be nothing more than band-aids when the patient has its guts spewed all over the street. We can decide to limit the damages and attempt to avoid the birth of Hoovervilles in parks across America.

We need Leadership from our Politicians. Leadership does not mean doing what Americans do not want to favor Corporate America or special interest groups like Amnesty for Illegal Immigrants and open borders. Leadership means going against those who are foraging the politicians with perks. Leadership means doing the good of Americans even though it may mean fewer “political contributions.” Leadership means putting the good of the country before the good of the politicians family.

We ask our soldiers to sacrifice their lives for the good of the country. It only seems reasonable to expect politicians to give up a few extra bucks to save this great nation.