The Great Recession of 2008 is looking more like the Great Depression of the 1930s. The economic crisis of U.S. (and world) capitalism is entering its fourth year.
And according to no less than Federal Reserve Chairman Ben Bernanke, “the recovery is close to faltering.” To think otherwise is wishful thinking.
In fact, a downward turn, also known as a “double dip,” is more likely than a surge upward – not to mention a resumption of sustained and robust economic growth.
The International Monetary Fund in a recent report underscored the shaky prospects for the economy:
“The global economy is in a dangerous new phase. Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing.”
One of those risks is the potential default and implosion of the countries in Europe’s southern tier – Greece, Portugal, Italy and Spain. Each is caught in a dense web of mounting sovereign (i.e., government) debt that makes them susceptible to defaulting on their obligations to various financial institutions in other European states.
If this occurs, financial and economic shockwaves in an interconnected global economy will roil first Europe and then the United States and the rest of the world.
Paul Krugman, New York Times columnist and economist, says the impact will be “catastrophic.”
In a similar vein, William Peck of Bloomberg News writes:
“China and the U.S. finally found something to agree on: Europe is doomed and might take the world’s two biggest economies down with it.”
“Neither officials in Beijing nor Washington are actually using the ‘D word.’ They don’t need to, not with Zhou Xiaochuan, China’s central bank governor, talking matter-of-factly about emerging nations bailing out the euro region and the U.S. Treasury Secretary warning of ‘cascading default, bank runs and catastrophic risk’ there.”
Gloomy, yes. And the sensible policy response to this threatening danger on both sides of the Atlantic should be a combination of fiscal expansion, monetary easing, and debt relief.
In other words, governments and supra-national institutions like the International Monetary Fund and the European Union should inject money into the veins of the economy, reduce interest rates and make credit easily available, and write down the debt of debt-strapped governments with no (read austerity) strings attached.
But that is not what they are doing. Austerity is the watchword and operative policy. And, as you would guess, the brunt of it, despite massive resistance, is falling first of all on the working classes.
Hopefully European and American leaders will come to their senses, reinflate their economies and restructure the debt of indebted governments.
A recent bright spot in this otherwise troubling picture is the jobs proposal presented by President Obama to a joint session of Congress. It would put people back to work as well as go against the bad logic of austerity.
It undoubtedly will meet stiff resistance from the Republicans (and a few Democrats) in Congress. Sabotaging the Obama administration no matter what the cost to the American people is the GOP’s stock in trade.
Thus a massive outcry of millions demanding the Jobs Act’s passage is necessary, not only to assure that Democrats get on board, but also to break away some moderate Republicans from their party.
Sound impossible? Believe it or not, stranger things have happened. Whoever thought Dixiecrats (Southern Democrats in Congress who upheld white supremacist rule) in the 1960s would support civil and voting rights? Many people at the time said it would never happen. But it did, thanks to a powerful civil rights movement and active pressure from President Johnson.
Similarly, millions in motion in today’s circumstances can compel a reluctant Congress to enact a jobs creation bill that is good for the unemployed and the economy.