The Coming Double Dip Recession

Stirling is always worth a read, and today’s is especially important if you want a glimpse of where we are headed.

Whatever you do, get out of debt and stay out…. and push for us to end this stupid and costly war.

The Coming Double Dip Recession | The Agonist

The present coming recession is not going to cure any of the imbalances, nor is China likely to do anything other than buy up key US assets.

This means that with the massive monetary stimulus, inflationary expectations on the part of those say, selling oil, are going to continue, and it is not to their disadvantage to allow a major stock slide, when oil remains expensive. They can buy up assets with cheap dollars paid for with expensive oil, and then allow the price of oil to ebb. The corruption in the Arab financial system prevented this play the last time around, with events like BCCI being merely one example of many.

What this will mean is that as the US emerges from the coming recession, there will be intense pressure to raise the value of the dollar, and liquidate assets predicated on a deflationary housing boom. This will require massive monetary constriction, and lead to a second recession very close to the first, probably one which will be deeper and broader, and quite probably longer.

The alternative will be a period of increasing inflation, deterioration of the US position in terms of controlling the world financial apparatus, and ultimately a permanent downward adjustment in US standards of living.

Are there solutions? Not really, we have bought and paid for this recession, and a worse one to follow it. Already. However, while recessions are painful, they are not necessarily entirely evil. A recession shifts the decision making over the future of the economy from those who have possession of assets, to those who have possession of credit. This can mean that the “deep rich” gain control, as they did in this decade, but it can also mean that the social sector and the public sector use this as an opportunity to unify around a long term vision for the society.

This is why the shift in thinking from monetary to fiscal policy is important. Monetary policy gives an economy more of whatever it is already doing. Fiscal policy can change directions. When an economy is essentially in the right direction, monetary stimulus can be used effectively to grow or contract the economy around a trendline. When an economy is fundamentally providing poor incentives, fiscal policy looks better and better. Provided of course one has people running the fiscal policy who are not moral cripples suffering from rectal cranial inversion. Unfortunately for the US, it has replaced a personally corrupt evil stupid congress run by Republicans, with merely a corrupt cowardly evil stupid congress.run by Republicans with Bush Dogs as cosigners. It is that they aren’t personally corrupt. The catastrophic failure of Democratic leadership will be masked by the good conditions of 2008 for Democrats, but unless dramatically changed, will lead to their losing Congress right back in 2010, especially if there is a Democratic President being hammered for the recession.

This means that instead of Americans taking paper losses on the houses and retirements, they are goint to wake up and find a bi-partisan consensus, meaning Republicans plus Bush Dogs, to shave more off their entitlements. The Republican way to do this may well be double taxation: a national sales tax means that people who paid income taxes earning money, will then have to pay sales taxes spending it. The Democratic way will be nibbling away at benefits and technocratic shell games, as “hedonic adjustments’ were used to nibble away at Social Security.

Neither party is stating the obvious, that the various sticky fingers of the financial system, which have deprived Americans of the benefits of lower costs, now add up to over 10% of GDP. Plus the prison-security-military-industrial complex, this comes closer to 20 cents of every dollar boiling away into projects that do not improve the fundamentals of the American economy, but shift money directly from those who work, to those whose job it is to delay the day of reckoning.