Obama Warns About “Double Dip” Recession

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The President is supposed to talk about how much the economy is improving, not how bad it could be. Mr. Obama broke with the approach by saying that “It is important though to recognise if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the US economy in a double-dip recession,” according to the FT.

What the President did not say is that the national debt is not the only threat to the economy.

The national debt is already causing a large part of the federal budget to go to debt service. Treasury borrowing is expected to increase for several years as the US tries to pay off the cost of pulling itself out of recession. The early numbers for an improved deficit are not encouraging. The government has done well sticking to its plans for spending. The receipts from taxes for both individuals and corporations have been weaker than forecast which should not be startling given the state of the economy.

The number of options open to the Administration for bringing down the deficit is extremely limited. Almost all of choices involve sharp cuts in government spending or sharp increases in taxes. Each of those paths carries the threat that the back of the modest recovery will be broken by too little stimulus or a tax burden that will undermine consumer and corporate spending.

The public is not going to take any comfort in the President talking about another economic downturn, but it is a sign that the chances of second recession are rising rapidly.

Douglas A. McIntyre