More to worry about … the US downturn looks to be getting worse

[RedEarth]

By bsetser

Paul Swartz, my colleague at the Council’s Center for Geoecononomic Studies, continues to track how the current recession compares to past recessions. The United States fiscal deficit is now rising faster than in past cases. The biggest previous change was in 2000-2001 recession, when W’s tax cuts combined with a big cyclical fall in tax revenue to produce a large swing in the United State fiscal position. A modest surplus quickly turned into a large deficit. The swing in the United States fiscal position this time around is likely to be even larger. Counter-cyclical fiscal policy is back.

As Dr. Krugman notes, though, the case for a large policy response is simple: the economy is declining at a rapid pace. The US actually started to slow back in 2006, when residential investment tailed off. The recession formally started in late 2007 or early 2008. For a while it was possible to hope that the recession might prove to be fairly shallow. Exports were doing well, and the contribution of growth from net exports helped offset the fall in residential investment. And the American consumer seemed quite willing to keep spending.

But, well, things have changed. Rather than getting better, things are still getting worse. Exports are poised to fall sharply, as the world not just the US has slowed. And the fall in US industrial production has accelerated. The following graph comes from Paul’s chart book. The fall in industrial production in the current cycle is already worse than the fall in an average post World War 2 recession.

.........

Unfortunately, the fall in US industrial production is approaching the worst falls in the post-World War 2 data set. Some recessions in the past produced a sharper initial fall. But in an average post-World War 2 recession, the economy would be recovering by now — not getting worse. If things don’t improve, the current fall may match the biggest fall in the post war data. And remember, industrial production wasn’t exactly booming during the boom years of this cycle; it took an awful long time for industrial production to top its 2000 levels …

That is why — despite the risks — I support a large stimulus. The United States debt levels suggest that it still has room to use the public sector’s balance sheet to try smooth the economic cycle. And there is nothing moderate about the current cycle.

It would certainly be nice though if other countries joined in, especially those with large current account surpluses. Low oil prices are bringing the US external deficit — and the United States need for external financing — down even as the US government borrows more. This combination won’t last forever. The US government can help support US and global demand, but it would be best if it didn’t do so alone. The more countries like China do to help put their legions of newly unemployed to work at home, the better.

plently of charts at this link.........

http://blogs.cfr.org/setser/2009/02/06/more-to-worry-about-the-us-downturn-is-getting-worse-when-it-should-be-getting-better/

[ixion]

1. all the stimulus in the world will do nothing unless we start making things here again, IMO

short of starting to make things here, I think we're screwed. The jig is up, people know that, not only are we insolvent, but that our financial sector has been bilking others out of billions.

Until we return to some real type of value, we're screwed, in my opinion.

[RedEarth]

2. I agree, I don't now how we can survive as a viable economy if

all we're doing is carrying each other's luggage. We have to again start making things here is the US. After the bust of 2000, companies used that as an excuse to accelerate outsourcing and it hadn't slowed down. Not only have companies outsourced manufacturing, but they are outsourcing R&D(Business Week had a big article on this a few years ago...Outsourcing the Holy Grail).

[ananda]

5. Yeah, the stimulus is no more than a temporary patch..

.. to stem some of the economic bleeding.

But the economy will bleed out... no
question.

[barb162]

10. You're correct.

I've been saying this a really long time. I think most people don't get it until their own job gets shipped elsewhere.

[SlowDownFast]

3. You can't "stimulate" an economy that has debt the size of Mt. Everest.

You have to clear the debt first.

Anything else is just digging a deeper hole. It's like a gambler trying to chase his losses, convinced that the next "stimulus" - or next hand - is going to be the one that pulls him out.

[notesdev]

4. And here I thought

that I was the only one on this site who understood that the problem is debt! You're a breath of fresh air.

[FieldsBlank]

6. read this article

http://www.latimes.com/news/printedition/opinion/la-oe-ferg6-2009feb06,0,5486779.column
by Niall Ferguson - economic historian

best quote I've read in a while:
"Americans, Winston Churchill once remarked, will always do the right thing -- after they have exhausted all other alternatives."

[notesdev]

8. Great article, thanks

Everybody who saw this shock coming thinks the stimulus is a horrible idea... most of the people pushing it are the ones who told us, right up the the edge of the cliff, that this could never happen.

[The Brethren]

9. I think denial has been used

regarding our economy to calm and quiet the masses. Denial can work for awhile, but it can't mask things forever.

Btw, I like your comment in your profile: "Currently of the impression that both parties have been bought out wholesale by big-money interests, both domestic and foreign."

[barb162]

11. Uh, Everest doesn't quite describe it

We are in so over our heads that I can't see why any other country would buy our Treasuries.

[Pale Blue Dot]

12. Yes yes yes yes yes.

People still don't get it. They won't even respond to the argument.

[The Brethren]

7. One very important

principle in any healthy, let alone strong economy, is the issue of competition. We have to have it in order stay afloat and actually succeed. And I am hardly anyone even talking about it. Our country use to be strong regarding competition for goods, but we have lost our strong hold in that area.

If we don't start addressing competition as a country along with how money flows - meaning within our country, then all the money spent on trying to rejuvenate companies and jobs is going to mean squat in the long run if companies can't compete to remain independent, thus keeping jobs going as well.

We have lost our financial balance involving competition which naturally adds, along with other factors, to a downward economic spiral. We can not spend our way out of this mess if we, as a country, don't look at the whole picture and do something about it.

[AntiFascist]

13. Excellent point....

true, healthy capitalism depends very much on competition. Lately, it seems the only companies that survive are the huge monopolies with the best government relationship. This is not healthy at all.

[The Brethren]

14. Thank you.

"only companies that survive are the huge monopolies with the best government relationship." You nailed it!

I think one of the problems going with much of the public is that they are confusing the grotesque corruption, exploitation, and mismanagement along with their ties to government of mega companies, with the average business owner, who is working as hard as they can to stay going and to do what they were intended to do -- to make a profit and stay in business.

And for this reason alone, as callous as it may seem, I so wish our government would let wall street and it's "employees" (over paid brokers, etc.), the top banks, and even GMC fall on their faces. If our business market were healthy (and well managed) and it was pulling in, at the very least, reasonable amts. of profits yrly, then one rule of capitalism should prevail. And that rule is that if a company fails -- for whatever reason, then there should be another one ready to take it's place. And that replacement company who then bids for the former company's clients, customers, etc. can be either an existing business or a newly formed one. The cycle should sustain itself. And if things are working correctly, the new company then can learn from the previous one's mistakes, thus become even better at what they do. This creates a continuation in our market, plus it should strengthen the business market by now offering smart, more efficient companies and owners. But that ain't happening!

It's also very frustrating to see the issue of competition being ignored in the general media for ex. because it is one of the most essential components in business and our economy. No businesses, no workers, no competition and profits, no companies...not unless every American were their own boss and traded with other for goods or services without involving money, or every business were a non-profit company that never need any amount of money to sustain itself. Neither of which is realistic.

[AntiFascist]

15. Walmart and China are the new business models for "success"....

China is allowed to exploit employees way beyond what would be allowed in the US, and produces the cheapest products as a result. Walmart is given privileged trading status with China. This is a win-win situation for the Chinese Communist elite and the Walmart plutocrats.

[The Brethren]

16. Yes. And what great examples of success they are.

:sarcasm:

I don't need a monthly business stat report to tell me who the biggest retail sellers are in the USA. All I have to do is go shopping locally, or even online, and I repeatedly will find most goods are imports -- and not just at Walmart, but all stores I gone to thus far locally and throughout my state. And the leader of the pack for imports is -- China.

Btw, I don't know if you've already heard this or not, but I believe about a yr. ago, the news had reported that China was using slave labor in addition to it's already extremely cheap non-slave labor. China has denied this, but if this is true, and I suspect it is, then they will remain at the top of retail globally for a number of reasons, but including the fact that you can't compete as one American business man put it, with slave labor. So if this info. is correct, then Obama needs to tell China, trade deals or not, you must prove you no longer use slave labor, or your goods will no longer be allowed to be sold in our country. This scenario I doubt will ever take place even if it is true China is using slaves (both it's citizens and foreigners) to mass produce products for a dirt cheap cost.

And Walmart is our top retailer in our country, how many years now in a row? The owners are following capitalism in our country, which is their choice. However, as the old expression goes: "they've gotten too big for their britches!" I wish someone could take them down a few pegs business wise, along with their massive ego.

[roamer65]

17. This downturn has years to go.

I don't expect full recovery until 2014 or 2015. Too much deleveraging remains.