Is there going to be another recession because of the debt deal?

iVillage Member
Registered: 02-15-2007
Is there going to be another recession because of the debt deal?
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Thu, 08-04-2011 - 3:39pm

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iVillage Member
Registered: 11-27-2009
There has been a lot of speculation pre-debt "crisis" that there was going to be another recession. It's too easy to blame the debt deal if there is one, but I am sure that for those politicians that can use the debt deal to their advantage if we do experience another recession, they will.

I don't know that investors are concerned about cutting being too much. Last I heard the S&P was suggesting that there still may be a down grade of the US rating due to not enough cuts.
iVillage Member
Registered: 02-15-2007

iVillage Member
Registered: 11-27-2009

"Sweetlyfe, I’m not sure what you mean by “It’s too easy to blame the debt deal if there is one . . .” so I can really comment on that."

It's something that is being speculated by leftist pundits. It's a way to blame Republicans for the economy. However, this deal isn't the impetus for a 2nd or double dip recession. That has been a possibility for a while now.

"When I was talking about investors being afraid that the government is cutting spending too much I was referring to the possible negative effect on the private economy of too little demand. If investors were really concerned about the government spending too much then I would expect them to be more optimistic about the debt deal, but today’s plummet in the stock market suggests otherwise (see here)."

Is it possible that for some industries the cuts are an issue. Absolutely, consider the medicare cuts- they are cuts to providers, there for I am sure that there are physicians and institutions concerned about that.
We must remember also, these "cuts" aren't cuts at all. They are a slowing of growth. The US budget is not a zero based budget. It starts with the previous numbers and adds a % increase. What the "cuts" in the debt bill do is decrease that % increase.


Economics is a difficult concept that I struggle to grasp. Rarely are results we see hinge on one event, or at least it's difficult to determine that results are related to only one event simply because there are so many other variables occurring at the same time. Consider other events going on in the world and the US yesterday. Consider this http://www.marketwatch.com/story/anxiety-grows-ahead-of-july-jobs-report-2011-08-04. What they were fearing in this article is what is expected to happen. The leaked job numbers are bad. But we can't ignore that along with the poor job data in the US there is the European market. More problems with Italy and Greece (?, can't remember the second country). They are talking more bail out. I heard yesterday the US loaned more money to Japan. How the heck do we, a country who's debt is now 100% of GDP as of yesterday loan money to another country?

iVillage Member
Registered: 11-27-2009

Tom
here's some articles I found on opinions regarding the economy right now. I need to make a correction, 2 of these articles note that the debt deal did not do anything about medicare, medicaid, and social security. I used an example of medicare cuts in the debt deal affecting providers not recipients. I need to look into this further, either that is exactly what they are talking about, or possibly the cuts to medicare only happen if the trigger is touched off.
http://www.msnbc.msn.com/id/44006076/ns/business-eye_on_the_economy/#.Tjq-y79fSSo
http://www.nationalpost.com/more+growth+kill+growth+killers/5202322/story.html
http://www.economist.com/node/21525405

http://www.cbsnews.com/stories/2011/08/05/opinion/main20088562.shtml

iVillage Member
Registered: 02-15-2007

iVillage Member
Registered: 11-27-2009
Tom
I do not believe that the debt deal is the cause of the growing possibility that there will be a second recession. There are just too many factors that are involved that were present before the deal was made. Also, as I noted, the cuts are not cuts at all, just slowing of growth. The economy is simply not that superficial to be so impacted by one event, and an event that really did not amount to much. I think the other articles will outline all the factors, including the debt deal, that are affecting the economy and why.

Here's the article with the faulty link:
Economic Outlook

Aug. 4, 2011, 4:28 p.m. EDT
Anxiety grows ahead of July jobs report
Another bad report could darken mood on Wall Street, Washington

By Jeffry Bartash, MarketWatch

WASHINGTON (MarketWatch) — The government’s report Friday on how many people were hired in July is a source of great angst in Washington and Wall Street.

After huge losses in the U.S. stock market over the past week, and Thursday in particular, investors and consumers are understandably a bit shell-shocked. More bad news in the monthly employment numbers could make matters worse.

The consensus on Wall Street, however, is that the economy probably added enough jobs in July to ease a sense of panic among investors — at least temporarily. What’s more, steep losses over the past week could put a floor under further stock declines on Friday, analysts say.

The U.S. likely gained 75,000 jobs last month and the unemployment rate remained at 9.2%, according to economists surveyed by MarketWatch.

“If the numbers come in around the estimate, markets may get a little relief,” said John Herrmann, senior fixed-income strategist at State Street Global Markets. “But we cannot rule out a bad number.”

A bad number — payroll gains near or below zero — could deepen losses in a stock market already reeling from worries about an economic downturn in the U.S. and a debt crisis in Europe.
ECONOMY AND POLITICS | Economy and Politics page
Click to Play

Shiller says U.S. in growth recession
Yale economist Robert Schiller says, even after a slight uptick in the July's employment numbers, economically "we're still in the same holding pattern". (Photo: Getty Images.)

• U.S. job market’s weakness subsiding: analysts
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The Dow Jones Industrial Average has surrendered its entire gain for 2011, with most of the damage in the past week. The Dow on Thursday plunged more than 500 points and lost 4.3% of its value.

“Psychologically, a poor jobs report could be bad news for investors and consumers,” said Steve Bronars, senior economist at Welch Consulting, an employment advisory firm. “Even if we get a number that exceeds expectations, it still would be disappointing.”

How so? Because a healthy economy usually adds 200,000-plus jobs a month, with even larger gains during the recovery phase that follows a steep recession. So far such gains haven’t materialized — two years after the recession officially ended.
Darkening mood

The pessimism afflicting consumers and investors seemed contained just a few months ago. Although companies were not hiring as fast as they normally do in a recovery, the U.S. added an average of 215,000 jobs a month from February through April. The economy appeared ready to accelerate.

Yet a combination of what economists call “shocks,” such as high oil prices and a disruption in global supply chains tied to the Japanese quake, wiped out momentum.

The result: consumers had to spend more on gas and had less cash left over for other items, while many manufacturers could not get enough parts to produce an adequate amount of goods for sale.

Business leaders also blame government policies they characterize as harmful to expansion and hiring.

“Just a few months ago, everybody was expecting jobs reports in excess of 200,000 a month. But it’s just not there,” Bronars said.

Not surprisingly, economists have been busy trimming forecasts for 2011. Analyst Steven Leslie of New York-based Economist Intelligence Unit, for example, said his firm is likely to chop its estimate for U.S. growth this year to under 2.0% from a prior target of 2.4%.

“We are not forecasting a recession, but there is little prospect in the economy for an upturn,” said Leslie, pointing to weak consumer spending and falling confidence among business leaders.

Only 38% of chief executives, for instance, say they plan to hire more workers before the end of 2011, down from 58% in the first quarter, according to a survey conducted by the Corporate Executive Board.

The debt-ceiling fight in Washington didn’t help matters. “Businesses and consumers put spending on hold,” Leslie said.

Washington, for its part, anxiously awaits the jobs report. The lack of hiring and high unemployment has put a big dent in President Barack Obama’s ratings. Republicans are likely to pound the White House if the jobs data is poor.

The unemployment rate is the more important number to lawmakers since that’s what consumers — and voters — pay attention to most.

“If that rises more than a tick or two, it’s bad for consumer confidence,” said Bill Hampel, chief economist at Credit Union National Association in Washington.

In an odd twist, though, the unemployment rate sometimes declines even in a weak economy. That’s because discouraged job seekers who stop looking for work are omitted from government calculations used to determine the unemployment rate.

When that happens, the so-called U6, or underemployment, jobless rate tends to rise. The U6 includes people who have stopped looking for work or who can only find part-time jobs. In June, the U6 rate rose to 16.2% from 15.8%.
http://www.marketwatch.com/Story/story/print?guid=E29FC324-BEB8-11E0-8B3D-00212803FAD6
iVillage Member
Registered: 04-07-2002
Wall Street is run on emotion - regardless of what they state. They are so emotional about their money that I don't find them to be a reliable indicator of what's really going on.

I watched a very interesting NOVA the other night. It had to do with the brain & money...and how our psychological conditions determine how 'rational' we are about our spending/saving. The 'rationalists' insist that all investments are handled rationally & have no connection to any underlying emotional state (whether that is on an indivual or societal level). Reality is proving elsewise - a conclusion I came to years ago while following investment trends, etc.

The other thing that was interesting in this is that they found that our economy has 'built in bubbles'. It's because of our nature that our economy is this way (this is referring to humanity as a whole, not just the US & can be seen in the reactions in worldwide markets too).

Will we have a recession? I don't know. I tend toward the positive anyway so I'll say we'll be okay...I don't believe that gov't cutting spending is necessarily a bad thing - especially if they are cutting 'pork' that we can't afford right now. However, those tax breaks for the wealthy & the off-shore squirreling away of money by American companies (to avoid paying taxes), needs to be addressed right away & without prejudice by both parties.

Americans seem to have forgotten how to tighten our belts when needed. No one wants to acknowledge that some sacrifices might be necessary. It hurts, sure - there are things that I support that will most likely go by the wayside. But we must concentrate on what's truly needed & go from there.

 nwtreehugger  

iVillage Member
Registered: 02-15-2007

iVillage Member
Registered: 02-15-2007

iVillage Member
Registered: 03-03-2009
Get a load of this. http://www.nytimes.com/2011/08/04/business/sales-of-luxury-goods-are-recovering-strongly.html Clearly, there are people who don't NEED to tighten their belts. Hurting? Doesn't seem like it.

The rich spending is no big deal. But what I find nauseating is the assumption by some that the rest of the economy exists to provide for the wants and needs of those rich.

I am concerned that we could be slipping into an oligarchy, where those who have, have in excess. And those who do not have are truly hurting for the basics and lack a voice in either the malls or the halls of power. Hopefully we are not yet in such a situation.

A vibrant prosperous middle class is the backbone of the nation and its system of governance.

Jabberwocka

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