Unwelcome Correction Mistaken for a Double-Dip Recession

Oh Bama…could this really be the end?
To be stuck inside this mobile, with the Memphis Blues again…

– Bob Dylan, sort of

Who believes in the ‘recovery’ now?

Robert Reich (former Labor Secretary under Bill Clinton):

“The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories). Oh, and, yes, all those Census workers (who will be out on their ears in a month or so).”

Yes, it’s the end of the road for the “quick recovery” crowd. Now, the whole world has the Memphis blues.

“The hastily assembled stimulus packages were a throwback to naïve Keynesianism,” adds Jeffrey Sachs. “The relevant fact was that the US, UK, Ireland, Spain, Greece and others had over-borrowed for a decade, so a decline in consumption after 2007 was not an anomaly to be fought but an adjustment to be welcomed.”

But nobody welcomed the Great Correction. Except us. The others all pretended that it was a recession…even a Great Recession. They treated it like an invasion of cockroaches or a stopped up toilet. They thought they could get rid of it.

But it wasn’t that easy. Nope. Now, we’re looking at a “double-dip recession,” says the mainstream press.

Once again, they’ve got it wrong. You can tell by reading their advice. If they knew what was really going on, they wouldn’t have any advice. As Mr. Sachs himself put it, this is an “adjustment to be welcomed,” not fought.

But even Mr. Sachs cannot resist a fight. Especially one that others will pay for. Like everyone else, he has a can of Raid in his hands. The government should do this… The government should do that… He thinks the government should do all sorts of mischief, including “insist that the rich pay more in income and wealth taxes – indeed a lot more.”

We don’t have any doubt that the feds are going to hit the rich hard; but what kind of economist would advocate it?

Mr. Reich has his own foolish prescriptions too – similar to those of Mr. Sachs:

“We need a new New Deal that will bolster America’s floundering middle class.

“We have to get to the core problem: a middle class that doesn’t have the dough to buy the goods and services the economy is capable of producing. Where to start? Expand the Earned Income Tax Credit and extend it up through the middle class. Finance that extension through higher marginal income taxes on the wealthy, who have never had it so good.”

Let’s see. Both men must imagine themselves as Robin Hood, stealing from the rich in order to subsidize the middle classes. They don’t seem to understand that the story of Robin Hood may make a good movie. It makes goofy economic policy. If taking money away from the rich could make a society more prosperous, how come Venezuela is broke? And Cuba?

Here in Baltimore, after you add in state and local taxes to the federal toll, your editor surrenders almost half of every dollar earned. How much more can they take? Even socialist France has a rule that a person cannot pay more than half his earnings in taxes.

But in the new America, things that were taken for absurd a few years ago are now taken for granted. Driving around the Capitol beltway, for example, we see a sign that says “Report Suspicious Activity.” This is not in an airport. This is on a major highway.

You want to see suspicious activity? Just follow Pennsylvania Avenue to the Capitol Building! A few years ago, urging people to rat out their fellow citizens would have been suspiciously un-American…more in keeping with life in East Germany or North Korea. But the world turns. And now, the snitchers are right here in the USA!

But returning to the economy… Even if you add a dip, this is still not a recession. It’s not caused by Europe. And it’s not go away if we tax the rich or spend more money we don’t have on ‘stimulus.’

We’ve now reached the end of the recovery fantasy. We need to realize that we are in a correction…one with an attitude and an agenda. Trouble is, we don’t yet, what’s on the agenda.

Bill Bonner
for The Daily Reckoning