Double Dip for the U.S. ** A Way Out or Dire Consequences

IMG_3685Today’s economic news was horrible and could be a foretelling of much worse to come. The GDP for the 3rd Quarter of 2012 shrank .1%. For those that arent familiar, the GDP is the gross domestic product which is the measure of the entire economy and its performance. A recession is an economic term used for 2 consecutive quarters of shrinking GDP. Thats why the Great Recession technically ended in June 2009, but the growth has been so slow it has never felt like a recovery. With the historic levels of high unemployment we would need 8 quarters at 4% growth to start making a serious dent and getting people back to work. Instead since June of 2009 we have had 1.8 or 2% GDP which is why it has never felt like a recovery and why the number of unemployed people has not dropped in over 2 years. One more quarter of decline and we will be back in recession.  That is not good.

What caused the shrinkage in GDP, especially since the quarter before was 3.1%? Many things contributed to this decline. Government spending dropped the largest amount in 40 years; businesses continued not to invest in new hires, the speculation of U.S. default; trade was also down 5.7%. The reason this is such a serious predicament is because the $1.2 Trillion sequestration starts March 1; this will lead to drastic cuts in all government programs and could sharply lower the GDP yet again. This also has a trickle down effect; more people will lose their jobs, more people wont be hired, which means more government money will be needed to be spent. So the budget cuts will backfire and end up costing a lot more than it would ever cut. Consumer spending accounts for 70% of GDP; the Consumer Sentiment survey plummeted while Washington was posturing, making threats and thumping their chests. Their words have serious consequences to every day people, hiring companies and they set the tone for what people will do with their money. Also, this uncertainty about taxes has made businesses not hire people. This is a disastrous place for the U.S. to be in since we are doing nothing about the problem, the problem is getting worse and worse.

For those who think we need fiscal responsibility, we need to cut the deficit and long term debt; you are right. We do need to do  all of that, its imperative to the future of our country. So there is no argument by me that we have to deal with this very real problem. The question is when and how. What we are on a plan to do, enact the sequestration, would be disastrous. As we saw from last quarter one of the reasons GDP shrank was the sharpest drop in government spending in 40 years. If we cut more now we are going to see more of the same. Before anything can be done the economy needs to be growing. We need to get back to 3 or 4% GDP growth. We need the 10 million longterm unemployed people getting jobs again. What that would do is bring in much more revenue to the government,  thus lowering the deficit. Cutting back on government now will raise the deficit with unemployment insurance and other programs. So cutting now will put us in a worse place for our future. Whats needed now is a robust plan of action to get people back to work. Its been estimated that if we can raise GDP by 1% per quarter, after 10 years we will save $4Trillion, that is monumental.

So, how do we accomplish this? First I call on Barack Obama to meet with the congressional leaders of both parties to have a firm message for the country and the world that the United States of America will never default on any of its debts and that we will have a plan for robust growth as well as serious measures to lower the deficit, debt and balance the budget. A united front from all the leaders in Washington would send a tremendously strong signal of our investing in our future. That alone would boost confidence in a huge way. Next, the top priority must be getting people back to work; offer companies tax breaks for each longterm unemployed hire, create public/private infrastructure  banks to fix our crumbling airports and highways. Then we should invest the money we were spending in Iraq and Afghanistan and put $1Trillion dollars of new spending for this year and another $Trillion for next year. This will boost the economy, GDP, tax revenues, get people working again and in the long run lower the deficit and longterm debt. When the economy is growing at a serious clip we should enact cuts where cuts can be made. Again Obama and the senior leaders of congress should hammer out that grand bargain now. Yes look at entitlements, means testing, closing loop holes. Do it all.

A united Washington saying we will all do what it takes to strengthen the economy; we have a plan for reducing the debt and deficit would fill the world, the country and business leaders with confidence. Next the government investment would strengthen and grow the economy while bringing in more revenue. As the economy strengthens we put the cuts in effect and the Grand Bargain. Its win/win for our country.

If we do nothing expect to see a double dip, which could be much deeper than 2008; expect to see soaring deficits for decades to come. Expect to see more unemployed, more poverty. Its our choice. Lets make clear what we want.