El Pais, Spain

Why There Won’t Be A Recession in the U.S.

"On the 16th of March 2003, even as Bush maintained his public demands for Saddam to 'disarm or it's war,' Bush, Blair and Aznar decided to replace the U.N. Security Council and usurp its functions to declare war on their own accord."

By Joaquin Estefania 

Translated By Fortunato Brown

January 21, 2007

Spain - El Pais - Original Article (Spanish)

It is a deceptive title. Nobody knows if the US will experience an immediate recession or if it’s already in the middle of it. Opinions are divided, though according to the latest polls, six out of 10 Americans feel that they are already suffering from the recession. More and more experts assert that recession is already present and what is argued is how deep and lasting it will be. In their latest presentations, both the Fed president Ben Bernanke and George Bush avoided the term. Who did not avoid using it was the, until recently prudent, Alan Greenspan who is now a national whistle blower. Recently hired by the high-risk Paulson fund (one the biggest beneficiaries of the crisis of the crazy mortgages, as in 2007 it gained 590% by betting on the weakening of the housing market and loss of value of mortgage assets), the former Fed president does not blush at repeating that the US is in a recession or in the verge of entering one.

The tendency is dark –it is estimated that in the last quarter of last year, the economy moved from growing 4,9% to 1%; unemployment went over the 5% mark for the first time in a long while; inflation is above 4%; the influx of $ 2 billion a day in foreign investment is needed to pay debts; a reduction in the price of assets is evident, along with an increase in defaults, and stricter credit conditions are in place as a result of the subprime crisis.  The trust index has been slowly falling until it reached its lowest level around Christmas. (Consumers are responsible for two thirds of the GNP.)

That is why economic difficulties have unavoidably entered the electoral campaign. In 1992, in a recessive environment a quite unknown Bill Clinton won the battle for the White House against senior George Bush, the winner of the first Gulf war. According to a study made, in the four periods in which the US economy entered a recession at the beginning of an electoral year (1920, 1932, 1960, and 1980) the incumbent party lost.

The US economy has had so far two types of stimuli: monetary and exchange rates. The Fed has already lowered the interest rate three times and it is expected that during its next meeting, two days after Bush´s State of the Union speech, it will lower it half a point or even three quarters of a point per cent. On the other hand, exports have increased to record heights because of the weakness of the dollar. 

There is unanimous consensus that more needs to be done, this time through the budget: a stimulus package to consumption, in which the participants are the White House, The Executive, the Legislative, the main presidential candidates, and the monetary authorities. The difference of opinion is in its composition - not in its amount –about $150 billion, or 1% of GNP.  Republicans are in favor of lowering taxes or the devolving some of the taxes collected; Democrats, according to tradition, prefer to combine a proportional rebate in taxes with an increase in public expenses, and subsidies to the unemployed.

It is yet unknown how the stimulus will turn out to be approved. But this week, at the annual Davos Forum, while Europeans and their central bank decide on orthodox, prudent economic policies in view of a slowing pace related to the control of inflation, Americans, once again Keynesians, will be recession risk fighters. Vice-president Cheney said, quoting Reagan, “the deficit doesn’t matter”.

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