Deficit Hysteria: Wrongheaded in Times of Depression

by Stephen Lendman

June 5, 2010

When economic stimulus and productive investment are most needed, public spending cuts are coming, G20 governments agreeing to cut deficits and balance budgets, what economist Michael Hudson calls "fiscal suicide, (months into) a carefully orchestrated financial war against the 'real' economy."

Begun in Washington, Obama, in his first State of the Union address, announced plans to "freeze government spending for three years," starting in 2011, and said he'll establish a bipartisan fiscal commission by executive order, to cut the deficit by imposed austerity - social spending cuts, including Medicare, not defense, banker bailouts, or other handouts to corporate favorites, how Washington works under both parties, anti-populist by any standard, anti-productive when large stimulus is needed to revive the cratering economy.

Yet on February 18, 2010, a White House press release announced the commission's establishment - a "bipartisan National Commission on Fiscal Responsibility and Reform," co-chaired by two deficit hawks, former Republican Senate Whip Alan Simpson and former Clinton administration White House Chief of Staff Erskine Bowles, heading an 18-member team stacked with like-minded members, Democrat and Republican austerity advocates against Medicare, Social Security, and other social spending.

Deepening Global Depression

In his July 3 commentary, longtime market analyst Bob Chapman sees the US economy cratering, perhaps towards another credit collapse, saying:

-- "the (US) housing market is in serious freefall;" June mortgage applications plunged 15% and pending home sales dropped 30% (after temporary tax credits expired), a record low in May;

-- "US (and world) stock markets (are) hav(ing) a case of indigestion;

-- sovereign debt problems rage across the world financial scene;"

-- across the board, economic fundamentals signal worsening hard times;

-- unemployment is increasing, not decreasing, accurate measures putting it over 20%, not the bogus Labor Department figures, hiding the real level;

-- the "warning signs can't be missed, they are all around (us); don't be fooled by smoke and mirrors; stick with reality," a dark one Wall Street and Washington engineered and won't explain;

-- as a result, stock and commodity prices are fading; "bonds could be topping out;"

-- the US economy may "collapse into a deflationary depression;" and

-- America's unemployed won't get extended benefits, but so-called "financial reform" pleases Wall Street, the public again stiff-armed by Congress and the White House, Democrats as corrupted as Republicans.

Economist David Rosenberg is just as negative, publishing daily assessments, the kinds not heard in the mainstream, producing fantasy ones to deceive and defraud, claiming the recession is over, prosperity just ahead, the same all is well theme pundits and politicians repeated at the onset of the Great Depression, what was wrong then and again now. Only a few honest analysts explain it.

In recent weeks, Rosenberg's observed the following:

-- America has "too many vacant houses, empty apartment and office buildings, idle manufacturing plants and unemployed people;"

-- credit keeps contracting rapidly; and

-- money velocity and the multiplier are anaemic, signaling a "highly deflationary brew."

His "worry list" includes:

-- Greek default spreading, harming world economies;

-- credit tightening when stimulus is needed; and

-- America heading for a double-dip recession, a depression he signaled earlier.

"Scary math," examples include:

-- one in 10 US homeowners missed a Q 1 mortgage payment;

-- one in six are either unemployed or underemployed;

-- over four in 10 US workers have been unemployed for at least six months;

-- only one in 10 Americans think their income will rise in the next six months;

-- only one in eight believe government policy is improving the economy;

-- only one in 50 plan to buy a home in the next six months;

-- only one in 10 US small businesses have job openings;

-- one in ten credit card users are defaulting on debt; and

-- five or more unemployed workers compete for every job, "hence downward pressure on wage growth."

He also cites rolled over leading economic indicators, weak retail sales, weak consumer sentiment, rising jobless claims, slowing industrial production, ("the last vestige" of US economic strength), and a disappointing June nonfarm payroll report - distorted by the "fantasy" birth-death model, boosting it by 147,000, and an unemployment level drop to 9.5%, a "statistical illusion" because the labor force "plunged" by 652,000, discouraged workers not looking, not counted, and ignored.

It's so hard finding a job that seekers take "an average of 35.2 weeks," an "unheard of" amount of time, and about 46% of the unemployed have looked in vain for at least six months - "again, this is without precedent."

The broader Household survey, more sensitive to the small business climate, plunged 301,000 in June, following a May 35,000 drop, "the steepest contraction for the year and first back-to-back declines since last fall, (showing) the amount of slack in the US labor market is palpable," deflationary seeds being sown.

"We need a war room dedicated to reviving the moribund labor market," yet administration policies are killing it.

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