The Dip Is Here
The fourth quarter contraction in the US economy is the result of austerity. The military has a lot of inertia, so they starting cutting based on their guess that a deal would not be forth coming on deficit reduction and the automatic cuts would take place. The Pentagon also believes that climate change is real and a very bad thing. Getting shot up and dealing with things that can go boom, helps you to focus.
Locally the Air Force has a hiring freeze and is laying off temporary workers. They are also reducing their energy use in ways that are visible. There have been fewer than normal training flights over my house, so they are cutting that back too.
As everyone who actually stayed awake for a real Economics 101 course could tell you, this drop in spending by a major consumer is dragging down the economy. This was the fourth quarter, which includes Christmas shopping, so it is a lot worse than the talking heads are admitting. Until Congress gets its act together, the military is going to continue to make cuts, which will hit the economy. Stalling by Congress, and kicking the can down the road are almost guaranteeing a second negative quarter and an official recession.
The stock market is up, but that gambling den has minimal impact on the real economy. Bernacke is pouring money into it, so of course it is happy. If they poured as much money into the budgets of the bottom 50% as they do into the stock market, things would be a lot further along.
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The flow of funds data continues to show that pretty much every dollar that Bernanke is printing flows into a rich person’s pocket then right back into the Federal Reserve as bank reserves. I don’t get it. It’s like he’s plumping mattresses with dollars. What’s that supposed to do, anyhow? Even Milton Friedman, Bernanke’s idol, wasn’t so stupid — Friedman at least created the notion of a helicopter drop that’d drop cash onto real people who’d spin it. If Bernanke mailed a check for $50,000 to every American household, that’d spur the economy big-time. But what he’s doing right now? Not so much.
I hear the pundits say that the housing market is “rebounding”. Part of what they mean by this is that rental prices have been rising even as wages and employment continue to fall. I guess it really depends on whose economy you are talking about.
It looks to me as if most working Americans are now just one economic failure away from, or are perhaps already arriving at, personal financial disaster. I’m not broke yet, but I believe I just had my failure. I’d better not do anything stupid like live to age 80…
This is a self-inflicted wound, that could become economic suicide if they continue with their plans to ‘cut deficit’ by doing things that we already know will increase the deficit.
Nothing Bernacke has done shows that he actually learned the basic lessons of the Great Depression. Despite the mission to promote full employment, the Fed has taken no action in that area. They keep giving money to people who don’t need it and won’t spend it.
Atrios keeps saying it – People got no jobs, they got no money. Until the Fed and Federal government start putting people back to work rebuilding the infrastructure, nothing is going to improve. The ‘confidence fairy’ assigned to the consumer markets is on a suicide watch, while the bugger who watches the stock market is at a manic peak,