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Economy Pointing Downward

Posted by Steve Markowitz on August 23, 2012

The Walls Street Journal published two articles yesterday on the economy that are ominous.  One titled Fiscal Cliff’ Has Many Perils concludes that if Congress does not maintain the current tax rates (not raise taxes) and also averts the spending cuts required under the last budget deal the President brokered, the economy will go into recession during 2013.  This is referred to as the “Fiscal Cliff”.

The other article, Fed Moving Closer to Action, referenced the just released minutes from the Fed’s (Federal Reserve’s) last meeting.  The Fed indicated that unless the economy picked up in the near future, it is prepared to act significantly to again try to stimulate it.  This means another round of Treasury bond purchases known as Quantitative Easing (QE).

The above are ominous on a various fronts.  First, the Fiscal Cliff was a known problem for over a year, but Congress and the President have not acted.  They will likely now wait until after the November elections fearing the political consequences of quicker action.

As for the Fed implementing what would be QE-3, their first two interventions failed and it is therefore unrealistic to believe a third one will be any more successful.  Further, this monetizing of the Federal debt will have serious negative consequences in the future including substantial inflation.

The problems that caused this prolonged economic downturn were excess debt and governmental interventions.  Only insanity could conclude that more of the same will cure the problems.

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