“Economist Robert Reich says the U.S. economy is moving toward a double dip as it grapples with high unemployment, weak housing and a stalled recovery.
“Under normal circumstances, this would be the time for the federal government to take bold action to ward off a double dip,” Reich writes in The Financial Times.
“But these are not normal circumstances. America has been through a devastating recession that poked a giant hole in the federal budget,” wrote Reich, now a professor of public policy at the University of California at Berkeley.
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| Robert Reich (Associated Press photo) |
The economy was supposed to be in bloom by late spring, but it is hardly growing at all, Reich notes. Expectations for second-quarter growth aren’t much better than the anemic 1.8 percent annualized rate of the first quarter, and that’s not nearly enough to reduce the ferociously high level of U.S. unemployment.
“The recovery has stalled,” Reich says. “It is unlikely that America will find itself back in recession but the possibility of a double dip cannot be dismissed.”
According to Reich, the problem is on the demand side of the ledger. …”
“Today’s data releases confirm that the US economy has undoubtedly hit another soft patch.
Mohamed El-Erian
CEO of PIMCO
It is not the only one.
Other economies are also slowing or contracting—some as a result of budget austerity (such as the UK and the struggling European peripheral economies) and others because they are tapping their monetary policy brakes to counter mounting inflationary pressures (China and other emerging economies).
With such broad-based economic slowing, and with unemployment stuck at very high levels and becoming more structural (and therefore protracted) in nature, market participants are asking whether the US authorities will again try to turbo-charge the economy. And with additional fiscal stimulus off the table due to deficit and debt concerns, the spotlight is fully on the Fed’s reaction function.
So, will there be a QE3 program—i.e., another round of asset purchases by the Fed that push valuations higher, make people feel wealthier and, thus, get them to spend on goods and services?….”
“Nouriel Roubini was on CNBC earlier, sparring with Mohamed El-Erian, providing a very indecisive prediction about the future of the US economy. The RGE economist who previously would say the depression is only just starting, is unwilling to commit to a prediction of a double dip for the US, and barely do so for Europe. His anticipation of sub 2% GDP growth in H2 is… higher than that of perpetually optimistic Goldman Sachs, which sees 1.5% H2 growth. So much for swinging for the fences. But when existing subscribers expect to a given set of data, it is quite understandable. It is, nonetheless, good to see that the Doctor read the ConvergEx report we posted some time agoindicating how the Fed, and everyone else calling for a projected reduction in unemployment, are pathological liars: “With 130.2 million people presently employed, that works out to an addition of 385,000 jobs in each month, May through December – and that’s just to reach 9.4%. The low-end Fed projection is 9.3%. Considering the economy added 290,000 jobs (more on this later) last month, 385,000 seems a touch ambitious to say the least.” And this does not include the atrocious May report, which means the economy has to add over 400k real private, non-census jobs a month. This is impossible. At least Roubini admits: “eventually even the US can’t outrun a trillion budget deficit for the next ten years.” To all speculators: good luck timing the turning point into the last crash. An oddly unsatisyfing clip, but the head to head between Roubini and El-Erian 5 minutes into the clip is amusing: Keynesian vs. non-Keynesian.”
