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Doing the Wrong Thing in DC: Moody's Economist Warns of Increasing Double-Dip Recession Risk

 

The chief economist at ratings agency Moodys is warning that the U.S. could be headed for a renewed recession.

Calling the current situation “very perilous,” John Lonski adds that the politicians in Washington, where both parties are vying to present budgets featuring massive cuts in spending, could help bring on that recession--just as the new Conservative Party-led government in Great Britain brought on a return to recession this year through its aggressive cutting of public spending. Worse yet, they could create a new shut-down in credit or “liquidity” in the financial industry that “could be more serious even than what caused the collapse of Lehman Brothers” in 2008.

Lonski, in an interview with ThisCantBeHappening!, said, “What scares me is that, because of the weakened condition of the federal government, there is less confidence in the philosophy of `too big to fail’-- the idea that the government will come in and back up any financial company that runs into trouble.” He said the government is probably no longer in a position to make trillions of dollars available to prop up failing big banks as it did in 2008 and 2009, and that fearing this, financial institutions may pull back, drying up lending.

Lonski and his colleague Ben Garber, another economist at Moody’s Capital Markets Research Group, today released a new report titled “Double Dip Risk Rises as DC Standoff Continues,” in which they warn that the U.S. “may be closer to a double dip recession than commonly thought.”

The two men note that the US economy “continues to soften,” and say that evidence is “proving elusive” of any recovery in the second half of of this year. And that’s “assuming a reasonable resolution of the debt standoff” between Republicans and Democrats in Washington, and increasingly even among Republicans themselves.

“Even with a market-friendly resolution of the debt standoff,” they write, “a double-dip recession is far from unlikely.”
The Economy (left) is heading south, while joblessness (right) continues to to riseThe Economy (left) is heading south, while joblessness (right) continues to to rise

The new Moody’s report comes out on the same day as new data from the U.S. Commerce Department, which is also alarming. The new government data show that growth in the last quarter of 2010 was actually running at only a 2.3% annual rate, not the more robust 3.1% rate initially reported. Annualized growth rates for the first and second quarters of this year were also revised downward by the Commerce Dept. to 0.4% and 1.3% respectively. Ryan Sweet, a senior economist at Moody’s Analytics says, “The economy essentially came to a grinding halt in the first half of the year.”

Of course, the over 20% of Americans who are out of work or who are working part-time because they cannot find full-time jobs, and the millions who have been out of work for so long that their unemployment compensation checks have been exhausted, already knew this. They’ve been in a recession ever since 2007, and they represent one in five of American workers. The 40 million living on Food Stamps or going hungry--almost one-seventh of all Americans, also knew this.



story | by Dr. Radut