The second dip cometh? A Republican Recession?

So, the stock market sank faster than I can in water (yes, despite numerous attempts to learn, I can't even float, leave alone swim!)

The stock market plunged by more than 4 percent yesterday in its worst day in more than two years and investors flooded safe-haven investment alternatives, driven by escalating fears the wobbly global economy may stumble into a new recession.

While one swallow doesn't make a summer, the high probability of an economic catastrophe has always been talked and written about, even in this blog. And I am not even an economist or a banker!  So, it is not as if we are merely looking at this one day stock market event.

First, a recap of the nightmarish situation:

A Month of Awful News
June was a very weak month for the U.S. economy, and our data from July so far isn't looking good. Some quick highlights:

• Hiring was nearly stagnant in May and June.
• Real consumer spending fell from April through June.
• Small business optimism has been falling four months running. 
• Home sales continue to struggle. 
• The manufacturing sector is flirting with contraction.
• U.S. growth was less than 1% in the first half.

These would all be very bad signs in a healthy economy. In a weak recovery -- a time when business activity should be above average -- they're even worse. Although we appeared to climbing out of the abyss in early 2011, it no longer looks like we're even treading water. In fact, we may be drowning again.

Robert Reich is furious, and he is darn right:

Republicans repeatedly assured the nation that once the debt-limit deal was done – capping spending, cutting the budget deficit, and getting “90 percent” of what they wanted — the economy would bounce back.
 Just the opposite seems to be happening.
Call it the Republican’s double-dip recession.
Wall Street investors aren’t ideologues. They don’t obsess about budget deficits ten years from now, or the size of the government. One day doesn’t make a trend, but a giant sell-off like this is motivated by hard, cold realities.

Dr. Doom is on a spree of what essentially is "I told you so" ... like this one:

QE3 started in Japan & Switzerland via fx action &/or monetary easing. Fed will eventually get to QE3 but it will be too little too late

Oh, how I wish I had no interest in public policy issues at all; life will be so much without worries!

The Great Recession continues. Here comes the second dip

It is not because of all the brouhaha over the debt ceiling though.

My day started with this BBC news that Apple has a lot more cash than what Uncle Sam has in the treasuries.  It is a staggering billions of dollars that Apple has.  It is yet another statistic on the jobless recovery we have experienced the last two years--corporate profits not translating to job creation.

Commentators like Robert Reich have worried enough about this for all of us.  As Alan Blinder put it forcefully, we have a national job emergency. 

The situation is getting uglier, not because of the US default possibilities but:

Whatever fear global investors may have about a potential U.S. debt default, it's being trumped for the moment by another fear: that the economy could be headed back into recession.
Money is pouring into Treasury notes and bonds Friday, driving yields down sharply, after the government said the economy grew at a dismally weak annualized rate of 1.3% last quarter -- below even the lousy 1.8% consensus estimate of economists.

Be really, really worried :(

John Cassidy in the New Yorker dares to say it:

I think it is fair to say that the dreaded “double dip” recession is at hand.

And Cassidy is not even "Dr. Doom" ... Cassidy writes:

what we are going through looks suspiciously like the beginnings of another recession. Payrolls, after growing at a monthly rate of more than two hundred thousand jobs earlier in the year, have essentially been flat since the end of April, and the unemployment rate has crept up from 8.8 per cent to 9.2 per cent. The sharp falloff in job growth was a development that very few economists predicted. 

The Economist summarizes it all:

Time to crawl into a cave and hibernate until the end of the elections in 2012.

Scary chart of the day: unemployment

Actually the falling employment/population ratio:

David Leonhardt explains the graph:

By late 2010 and early this year, the situation was improving again — only to slide back again in recent months, this time because of gas prices, Europe (again) and general post-crisis uncertainty (again). The share of adults with jobs, 58.2 percent, is now tied with its low point since this recession began. It has not been lower since 1983. ...
Government officials, especially those at the Fed, have proven too optimistic again and again throughout the crisis. In recent months, they have been saying that they didn’t need to take further action because the economy would soon heal on its own. What do they do now?

What the heck can be done, right?

President Clinton's Chair of the CEA, Laura Tyson, writes:

pair temporary fiscal measures targeted at job creation during the next few years with a multiyear, multitrillion-dollar deficit reduction plan that would begin to take effect once the economy is closer to full employment. Pass both now as a package.
Current signals from Washington indicate that this way out will be not taken: instead, partisanship and politics will trump logic and premature fiscal contraction will undermine the already anaemic recovery. Even worse, a political stalemate over the debt limit could precipitate a financial crisis and necessitate immediate large cuts in government spending that would tip the economy back into recession, driving the unemployment rate into double digits.

Paul Krugman echoes the same point:

The situation cries out for aggressively expansionary monetary and fiscal policy. Instead, however, all the political push is in the opposite direction.

A reminder on the magnitude of the problem:

The unemployment rate — measured by a different government survey, and based on how many people are without jobs but are actively looking for work — ticked up to 9.2 percent in June, compared to 9.1 percent in May (also not a statistically significant change).
There are now 14.1 million workers who are looking for work and cannot find it; the figure nearly doubles if you include workers who are part-time but want to be employed full-time, and workers who want to work but have stopped looking.

From the other end of the political spectrum, here is Reason's explanation:

The Great Recession, Part II. The second dip cometh?

Yakking blogging about Ecuador, it turns out, was a wonderful distraction from depressing stuff, like Joseph Stiglitz's column, in which he writes that instead of putting "America back to work by stimulating the economy; end the mindless wars; rein in military and drug costs; and raise taxes, at least on the very rich" the fanatical free market ideology of the right is instead:

pushing for even more tax cuts for corporations and the wealthy, together with expenditure cuts in investments and social protection that put the future of the U.S. economy in peril and that shred what remains of the social contract. Meanwhile, the U.S. financial sector has been lobbying hard to free itself of regulations, so that it can return to its previous, disastrously carefree, ways.

When Stiglitz writes thus, it is time to worry. To really, really, worry.

So, what are the Democrats and President Obama doing to counter this ideological offensive from the right?  Mark Thoma is utterly disappointed:

We can do better than this, but it takes leadership and a willingness to fight rather than acquiesce, traits that are far too short in supply in the current administration.

 Hmmm ... so, does this mean that Europe, which doesn't suffer from the ideological right, but is cursed by the ideological left, any better?  Yes, Professor Stiglitz?

But matters are little better in Europe. As Greece and other countries face crises, the medicine du jour is simply timeworn austerity packages and privatization, which will merely leave the countries that embrace them poorer and more vulnerable. This medicine failed in East Asia, Latin America, and elsewhere, and it will fail in Europe, too. Indeed, it has already failed in Ireland, Latvia, and Greece.

Oh, come on.  "Can't anybody here play this game?"

 Stigltiz says there is a way out, but that path is blocked by the ideologues from the right:

an economic-growth strategy supported by the European Union and the International Monetary Fund. Growth would restore confidence that Greece could repay its debts, causing interest rates to fall and leaving more fiscal room for further growth-enhancing investments. Growth itself increases tax revenues and reduces the need for social expenditures, such as unemployment benefits. And the confidence that this engenders leads to still further growth.Regrettably, the financial markets and right-wing economists have gotten the problem exactly backward: They believe that austerity produces confidence, and that confidence will produce growth. But austerity undermines growth, worsening the government's fiscal position, or at least yielding less improvement than austerity's advocates promise. On both counts, confidence is undermined, and a downward spiral is set in motion

I was positive Paul Krugman would have a succinct bottom-line, and he didn't fail:

what we now have is a political drive that will, in effect, undo all those institutional changes that prevented the Great Recession into turning into another Great Depression.

It is a good thing I do not have to worry about stuffing my money into the mattress--have nothing to spare after paying the bills!  Not complaining though--at least I have money to pay those damned bills ...

The Greek (debt) Tragedy: A Euro Sirtaki

And here is Nouriel "Dr. Doom" Roubini's take on the Greek events and the global economy:

If what is happening now turns out to be something worse than a temporary soft patch, the market correction will continue further, thus weakening growth as the negative wealth effects of falling equity markets reduce private spending. And, unlike in 2007-2010, when every negative shock and market downturn was countered by more policy action by governments, this time around policymakers are running out of ammunition, and thus may be unable to trigger more asset reflation and jump-start the real economy.
This lack of policy bullets is reflected in most advanced economies’ embrace of some form of austerity, in order to avoid a fiscal train wreck down the line. Public debt is already high, and many sovereigns are near distress, so governments’ ability to backstop their banks via more bailouts, guarantees, and ring-fencing of questionable assets is severely constrained. Another round of so-called “quantitative easing” by monetary authorities may not occur as inflation is rising – albeit slowly – in most advanced economies.
If the latest global economic data reflect something more serious than a hiccup, and markets and economies continue to slow, policymakers could well find themselves empty-handed. If that happens, the risk of stall speed or an outright double-dip recession would rise sharply in many advanced economies.

Opa!