Advertisement
Economic Forecasts

Washington Fiddles as Economy Teeters

The economy is sending warnings of a slowdown, but Congress, Obama aren’t listening.

Today, reality washed up on the eastern shore of the Potomac, but it was an unfamiliar sight to most of the locals.

As politicians continued their tragicomic struggle over raising the debt limit, the Commerce Department reported that economic growth was alarmingly weak in the first half of 2011, raising the chances that the economy has or could soon slip back into a recession.

Advertisement - Article continues below

Kiplinger still believes that growth will continue, but the warning signs are unmistakable.

History shows that in almost every case since World War II, when the annual growth rate slips below 2% for a 12-month period, then the United States has a recession. Remember: A recession isn’t always a contraction in growth — it is a period of diminishing economic activity.

It turns out that growth diminished abruptly in the first three months of 2011, from a 2.3% annual rate at the end of 2010 to only a 0.4% rate. And it didn’t get much better in the second quarter, growing at only 1.3%, according to a preliminary estimate.

As a result, economic growth is in the red zone: Over the last 12 months, it has grown only 1.6%. Only once, in the mid-1950s, did growth get this slow and not signal an immediate recession (in that case, a true recovery never arrived and a deep recession began a year later).

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

The report today led many economists to revise downward, again, their projections for growth in 2011, and prompted a handful to announce that another recession has already begun. Kiplinger is projecting that the United States will narrowly stay out of the ditch, posting 2% growth in Gross Domestic Product in 2011, with a strengthening recovery next year.

But this assumes that no other shock comes along. Recessions are usually caused by a series of events — natural disasters, military conflicts, oil price spikes — that combine with a weakened economy. America has endured some of these recently and kept growing, but today’s grim numbers mean there is little room for more bad news.

Often these economic shocks are out of the control of our government, but sometimes they are not. Occasionally, the Federal Reserve has to make a tough decision about whether to raise interest rates to control inflation. It is a dilemma, because higher rates sometimes cause a recession. Other times, however, the decision isn’t so tough, or at least it shouldn’t be.

Advertisement - Article continues below

This is one of those times. With economic clouds gathering around the world — the Greek debt crisis, instability in the Middle East — that are beyond our control, our leaders have voluntarily created another crisis. And while the effects of other economic shocks are debatable, there is little debate about what will happen if the government fails to act responsibly on the debt limit — a serious financial crisis that would probably engulf the world.

Advertisement
Advertisement - Article continues below

Considering this, you might imagine that today’s bad economic news seized the attention of those supposedly trying to reach a deal on raising the debt limit.

You would be wrong. Two hours after the numbers were announced, President Obama went before cameras to scold congressional negotiators, and didn’t mention the news on economic growth. He called on Congress to embrace a bipartisan compromise, while clinging to the Democratic political stance that deficit reduction is impossible without raising taxes on the wealthy.

Neither did House Speaker John Boehner address the topic. He was too busy lining up votes for a deficit-cutting plan, doomed to fail in the Senate, that was mostly intended as a statement on GOP unity and his hold on the Speaker’s gavel.

Deep in their rhetorical bunkers, the president and congressional leaders don’t hear the ordnance falling around them. The debt limit debate began as another dreary example of the way our leaders treat important responsibilities as an opportunity to seek political advantage. But now it has become something darker. The cold, hard facts about the faltering recovery should have transformed the debt limit farce, and led to a quick compromise. The fact that this news hardly registered in Washington said more about the dysfunction of our government than anything else could.

Advertisement
Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much could it save you?
August 13, 2020
8 Things You Must Know About Retiring to the Carolinas
retirement

8 Things You Must Know About Retiring to the Carolinas

From the mountains to the beaches, North Carolina and South Carolina offer retirees plenty of incentives.
August 14, 2020
7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020

Recommended

Vote by Mail: A State-by-State Guide to Absentee Ballot Voting
Politics

Vote by Mail: A State-by-State Guide to Absentee Ballot Voting

With health authorities recommending people continue to social distance, the idea of voting by mail is becoming an increasingly hot topic.
August 4, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
July 22, 2020
Answers to PPP Loan FAQs (Now That There's Fresh Funding for the Loans)
small business loans

Answers to PPP Loan FAQs (Now That There's Fresh Funding for the Loans)

Small business owners are getting another crack at Paycheck Protection Program loans. Here are answers to some frequently asked questions about the lo…
July 21, 2020
Travel Planning in the Time of Coronavirus
Travel

Travel Planning in the Time of Coronavirus

Insurance may not cover canceled vacations, but airlines and hotels may be flexible.
June 11, 2020