Double Dip

A while back I worried that frequent, random, and unprecedentedly extensive Obama interventions in the economy and private commerce could well cause any economic recovery to stagnate as businesses sat on their wallets waiting for more clarity.   Though the ins and outs of the Great Depression are endlessly debated, there is good evidence that the Depression was extended by just this effect, in particular by the effects of the National Industrial Recovery Act, America's flirtation with Mussolini-style fascism.

Economist MaxedOutMama (who, to her credit, was sounding alarms last year long before most everyone else including me were) says that there is still a lot to be worried about and that businesses are indeed sitting on their wallets:

The rolling four-quarter change for GDP is now -2.5%. Far more frightening is the same figure for gross private domestic investment, which in Q1 was -23.6%, and has now been falling since fourth quarter 2006! Gross private domestic investment is the fundamental driver of this economy and just about every other economy, and at no time can one ever rack up a such a string of GPDI decreases in an economy without generating a pretty intense recession.

That is the first thing on which every realistic economist must stay concentrated. Talk about a credit crisis does not address the fundamental economic operator, and dumping a lot of stimulus money into the economy will not overcome a recession produced by collapsing GPDI unless it boosts domestic investment - which our stimulus package does not.

In fact, I would argue that government actions over the last 6 months, from executive compensation controls to Waxman-Markey to health care "reform" all do just the opposite -- suppress investment by increasing uncertainty.

By the way, the inflation I have been promising for a while has obviously not occured yet.    The Fed says they have it under control.

The Federal Reserve signaled Wednesday that the weak economy likely will keep prices in check despite growing concerns that the trillions it's pumping into the financial system will ignite inflation.

Fed Chairman Ben Bernanke and his colleagues held a key bank lending rate at a record low of between zero and 0.25 percent. And they pledged again to keep it there for "an extended period" to help brace the economy.

Inflation is this massive rock that takes a while to start moving.  The Fed has pushed the rock right to the top of the mountain but says not to worry, if it starts accelerating down the hill they will be able to stop it.   Don't believe it.


  1. Bertha:

    Been meaning to mention that your sidebar link to MaxedOutMama is broken.

  2. Bertha:

    Been meaning to mention that your sidebar link to MaxedOutMama is broken.
    OH! You're my new favorite blogger fyi