Is America Wading into a Pool of Stagnation?

After the long debate over raising the debt ceiling, the party politics and all the political posturing, one would think it would have had stronger consequence on the economy. Settling this issue should have investors breathing a deep sigh of relief and going back to business, status quo. That picture couldn’t be more false. The historic deal was shortly followed by the S&P 500 index suffering its biggest one day fall in over a year. Treasury bonds fell to their lowest rate in nine months, too.  So, what went wrong? What’s the matter here? We were led to believe that raising the debt ceiling was the panacea to all our economic problems.  Can it be that the debt ceiling has only helped set the stage for further economic stagnation? By refusing to cut entitlement programs and raising taxes on the highest earners, has the government simply placed a sloppy Band-Aid on wound that is hemorrhaging?

There are several factors at work:  government statisticians have recently revised their numbers to show that the 2008 recession was much deeper than originally thought and our recovery considerably weaker. Our GDP is weak:  over the past year it has grown at 1.6%, a pace that traditionally has led the country into a recession. These statistics leave consumers wondering if the recession ever really ended, or if perhaps we are about to enter into a new recession. Consumer confidence, as well as consumer spending, has dropped off this summer. Fears of a “double dip” recession grow daily. Our saving hope is that some politician from one side of the fence will come forward and tell the American people the truth, even if it hurts. That truth is this:  it’s going to take some tough cuts, at every imaginable economic level, if we are ever going to really kick this recession. The odds of that happening are slim:  both sides have their favorite children that they won’t abandon to the wolves.

There was some encouraging news today, however. The Labor Department’s numbers for July far exceeded the economists’ predictions of 75,000 added jobs. The actual number reported was 117,000. June’s number was also revised to add 46,000 jobs. The unemployment rate squeaked down to 9.1 & from 9.2% : job openings in the manufacturing industry and healthcare pushed the increase. And in a perversity of government accounting, those with expired unemployment benefits also helped lower the unemployment number. In the current economy, an old maxim holds true: the only certainty is uncertainty. Americans are uncertain and they have reason to be.

While we wait for the recession to lift, Americans can take the time to utilize some of the things that a sluggish economy offers. Low interest rates on mortgages and credit cards are an upside, for one. Low prices on new homes, especially when combined with the low interest rates, can add up to real savings in the long run- for those who can afford to make such a move at this time. The rest of us can just sit tight and hope that the only double dip we see is on our ice cream cones!