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Big debt portends recession

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Saturday, Dec. 8, 2012, 9:00 p.m.
 

The “fiscal cliff” is no accident. Created by Congress, it reflects a near total inability of politicians to curb the ever-increasing size of government and the massive burden it places on the economy.

Already, a sputtering economy is invoking great economic uncertainty around the world. As a result, corporations are curbing spending plans or cutting employees, thereby fanning the flames of a recession that likely will cause widespread poverty and more intrusive government.

On the surface, households appear to have reduced their debt significantly. Feeling more secure financially, frustrated by personal spending curbs, believing official statistics and tempted by heavily discounted prices, consumers are starting to spend this holiday season. Attracted by historically low interest rates, some shoppers are even borrowing again.

In many parts of America, house values have turned upwards as buyers sink money into what they see as “real” assets despite official inflation of just 2.2 percent. Also, sales of consumables and automobiles are rising. Despite the perilous state of the economy, consumers are throwing caution to the wind, determined to enjoy the holiday season after a sustained period of retrenchment. GDP, a measure of economic output, rose by 2.7 percent last month.

Business executives, on the other hand, appear more cautious. In October, The Institute for Supply Management Factory Index, which measures business activity, fell to 49.5 percent, indicating contraction.

In addition, Census Bureau figures showed the growth rate of new orders of durable goods fell to 2.7 percent in October from an annualized rate of 4.07 percent, evidencing a serious decline in business confidence. Although nowhere near the lows of 2009, the direction is concerning and suggests the nation is approaching recession.

All this is despite massive injections of synthetic cash and historically low interest rates by the Federal Reserve.

The U.S. is the world's largest consumer market. Should it falter, it could well unleash recession in the vulnerable economies of its major trading partners. The world's largest economy, the European Union, is already heading for deep recession. Japan's economy is flat and China's economy looks increasingly fragile.

As if uncertainty was not cause enough for alarm, the U.S. government has engaged in a much publicized display of irresponsibility, further eroding economic confidence.

Taxation threats have stimulated over 100 companies to pay ‘special' dividends this year. Rather than invest in plants and jobs they have chosen and even borrowed to reward shareholders, anticipating increased taxation that encourages massive selling of securities, housing and precious metals.

Unable to agree on urgent cuts in overly intrusive and costly government, Congress postponed a decision by creating the pending fiscal cliff. Now, Congress appears paralyzed on that economic cliff while ignoring completely talk of any cuts in big government.

Clearly, the fiscal cliff protects big government — and it is big government that is the economy's greatest threat.

John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Total Trib Media. Email him at johnbrowne70@yahoo.com.

 

 
 


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