Just in time for summer

Mike Whitney provides a tale of economic doom and gloom:

The slowdown has begun. The economy has started to sputter and unemployment claims have tipped 400,000 for the last seven weeks. That means new investment is too weak to lower the jobless rate which is presently stuck at 9 percent. Manufacturing — which had been the one bright-spot in the recovery — has also started to retreat with some areas in the country now contracting. Housing, of course, continues its downward trek putting more pressure on bank balance sheets and plunging more homeowners into negative equity.

The likelihood of another credit expansion in this environment is next-to-none. Total private sector debt is still at a historic high at 270% of GDP which augurs years of digging out and painful deleveraging. Analysts have already started slicing their estimates for 2nd Quarter GDP which will be considerably lower than their original predictions.

Help will not be forthcoming:

This is more than just a “rough patch”. The economy is stalling and needs help, but consumers and households are not in a position to take on more debt, and every recovery since the end of WW2 has seen an increase in debt-fueled consumption. So, where will the spending come from this time? That’s the mystery.

And:

When spending slows, the economy contracts. It’s that simple. Without emergency stimulus, commodities will fall hard and stocks will follow. Look out below.

We have a demand-constrained economy, a macroeconomic limit or effective constraint placed upon economic growth by presence of insufficient effective demand for the goods produced by that economy. If neither the government nor consumers can purchase finished goods, the effects produced by this incapacity will produce a recession or worse. Yet, although knowledge of this problem is common, these days, official Washington does not care much about the plight of common Americans — Alan Simpson’s “lesser people.” If it cared, it would promote and even achieve full employment and living wage policies. It would promote these goals if only to overcome a demand-constrained deceleration of America’s economic growth. It cares instead about appeasing finance capital. It cares a lot. As we have seen over the past year, the primary goal of both parties is to adopt a Federal deficit reduction plan, with the Republicans still taking the lead on the issue and using chicanery to finesse the matter:

In a bit of political stagecraft, House Republicans plan to bring to a vote on Tuesday evening a measure that President Obama and the Democrats were demanding not so long ago: a clean increase in the national debt ceiling, unencumbered by any requirement that spending be cut.

Given that all Republicans and more than a few Democrats oppose any debt-limit increase that is not accompanied by some commitment to future fiscal restraint, the measure is doomed to fail. And for all the talk of economic crisis should Congress fail to raise the debt ceiling by August, the financial markets are likely to yawn at this vote — if only because Republican leaders have privately assured Wall Street executives that this is a show intended to make the point to Mr. Obama that an increase cannot pass absent his agreement to rein in domestic programs.

“Wall Street is in on the joke,” said R. Bruce Josten, executive vice president of the U.S. Chamber of Commerce.

Finance capital does not care much for an economic stimulus program. It is only weakly interested in the real economy. It does not care for full employment and a living wage, about a fair distribution of risks, rewards and labor. The well-being of the lesser people is just not one of its concerns. Finance capital wants targeted tax cuts, low inflation and a Federal deficit reduction. And this is what it will get, more or less, while cash-strapped Americans will try to make do with what they have. Sadly, America’s weakly democratic political system is rigged to produce this very outcome. This outcome is a conspicuous feature of its identity. It is what the market fundamentalists refer to when they talk of letting the market do its work.

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