Thomas R. Eddlem
Britain's leading financial newspaper, the London Financial Times, now believes that the U.S. economy may be headed toward a Japanese-style "Lost Decade."
The stalling of the US recovery raises big, scary questions. After a recession, this economy usually gets people back to work quickly. Not this time ... traits seen as distinctive strengths are now weaknesses, and a “lost decade” of stagnation, like Japan’s in the 1990s, might lie ahead.
The Japanese economy has experienced zero economic growth in terms of Gross Domestic Product (GDP) since 1991. In essence, the Japanese have experienced two "lost decades."
Stocks retreated and commodities predictably soared Monday after Federal Reserve Bank Chairman Ben Bernanke told CBS's 60 Minutes that “it's certainly possible” the Fed could create additional “quantitative easing” beyond the $600 billion already announced. “Quantitative easing” is the modern term coined by Federal Reserve officials that means creating hundreds of billions of dollars in currency out of thin air, thereby inflating the currency, but hopefully not raising consumer prices beyond a target two percent per year.
Just one week after James Bullard of the St. Louis branch of the Federal Reserve Bank released his August 6 paper declaring that “the U.S. is closer to a Japanese-style outcome today than at any time in recent history” (meaning that the United States will likely have decades of economic stagnation, which Bullard blames on “deflation”), the news media have taken up a chorus against the bogeyman of “deflation” to explain the need for further social spending by the government and more debasement of the U.S. dollar (causing consumer prices to rise through inflation).
Real U.S. Gross Domestic Product increased at a far slower pace than previously reported, according to the U.S. Bureau of Economic Analysis (BEA), which reported that second quarter GDP increased at a 1.6 percent annualized rate rather than the 2.4 percent rate it estimated back on July 30. The lowered estimate means that another recession — the infamous “double dip” — may be just on the horizon.
The San Francisco Branch of the Federal Reserve Bank has found that the United States will more likely than not be dipping back into formal recession over the next two years, according to an August 9 study of nine economic indicators. Study authors Travis J. Berge and Òscar Jordà concluded that “for the period 18 to 24 months in the future, the probability of recession goes above 0.5 [50 percent], putting the odds of recession slightly above the odds of expansion.”
The New York Times' leftist columnist Paul Krugman has garnered some headlines recently for attacking the House Republican alternative budget proposal, the so-called “Roadmap to America's Future,” and its author Paul Ryan as “The Flimflam Man.” Krugman calls Ryan's plan the “audacity of dopes” and claims that it wouldn't bring the budget any further into balance than President Obama's budget.
Just one week after James Bullard of the St. Louis branch of the Federal Reserve Bank released a paper declaring that “the U.S. is closer to a Japanese-style outcome today than at any time in recent history” (meaning that the United States will likely have decades of economic stagnation, which Bullard blames on "deflation"), the news media has taken up a chorus against the bogeyman of “deflation” to explain the need for further social spending by the government and more debasement of the U.S. dollar (causing consumer prices to rise through inflation).
The non-partisan Congressional Budget Office released its most dire warning yet of a looming U.S. debt crisis, openly comparing the U.S. budget situation to the Greek, Irish, and Argentinian debt crises and calling for a 20 percent cut in the size of the federal government. The July 27 report, “Federal Debt and the Risk of a Fiscal Crisis,” comes just days after the Obama administration revised upward its deficit projections for fiscal 2010-11 to a two-year total of $2.89 trillion. The CBO had labeled the federal spending path “unsustainable” in a June report.
The non-partisan U.S. Congressional Budget Office declared that the U.S. government is on an “unsustainable” path of accumulating debt in a new analysis entitled The Long-Term Budget Outlook.