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Are We on Our Way to an Economic Calamity? We May not Know until it’s too Late

Preparing for an economic calamity is not like preparing for a weather or man-made disaster. The latter are immediate and decisive, and, although some disasters hit with little or no warning, it is readily apparent as to what has happened and the extent of damage that is left in their wake.  Survival is predicated on effective emergency preparedness and recovery can begin once the danger has passed.

An economic collapse, however, is a much more sinister kind of disaster that manifests slowly, stealthily and painfully with the potential to cause an end to the world as we know it. It could take years, but the damage begins immediately and grows slowly until its full destructive force darkens the globe.

More disturbing is the complicity of the government and the media, either through their ignorance or their arrogance, in whitewashing the true extent of the damage by carefully spinning the data for the purpose of keeping public confidence from tanking, and it continues to this day. This blatant manipulation and biased interpretation of the data simply prevents the truth from being revealed, so the public is kept in the dark.

The question before us right now is, “Are we on our way to an economic calamity?” When the current economic downturn finally revealed itself in the spring of 2008, the data, albeit disconcerting, was inconclusive, which left everything wide open to interpretation by ideologically motivated politicians and economists.  For months, the public was told that it was not as bad as it seemed and that the massive stimulus bill would stop the recession in its tracks.

Declarations by the administration that the GDP is improving and the economy is poised to turn around are supported by government-generated data that belies the reality on the ground.  GDP growth numbers are consistently adjusted downward and the underlying components of manufacturing, retail and consumer spending paint completely different pictures.  Actual measures of job growth are muddled by the government’s insistence that a “saved job” counts as much as a newly created job.

The public has been told for over a year that the stimulus bill prevented an economic catastrophe and that it has set the stage for a slow recovery.  In the meantime, the data has been getting worse. Increasing jobless claims continue to confound the experts, housing starts continue their decline, and consumer confidence is at its lowest level in recent history.

The growing consensus among economists is that the recovery (and many doubt whether there has been a recovery) has stalled and indications are that the economy is on the verge of another recession with deeper and darker consequences.  At best, the economic future is clouded in “an uncertain time,” as Federal Reserve Chairman Bernanke has mildly put it.

It is this uncertainty that has consumers, business owners, and corporations frozen in their tracks. Consumer spending, which represents as much as 70% of GDP, continues to shrink, businesses are not hiring, and corporations are hoarding capital while cutting their workforces. The administration and the Congress have perpetuated the uncertainty by layering more regulations and bureaucracy on an already weakened private sector.

Presently, many economists believe that, as far as downturns go, this one has entered uncharted waters and that a new normal is emerging that portends a dour future for the millions of jobless and millions more who are on the bubble.  Hopes of a resurgent housing market which has historically led most of the economic recoveries, have dimmed.

Businesses are adopting productivity models that exclude the rehiring of millions of laid-off workers.  Those consumers who have managed to climb out from underneath their debt have become savers, not spenders. Companies are hoarding capital, not investing it.

Once the government stimulus spending stops (and it cannot continue indefinitely) there will be no private spending to replace it, which will force the government to continue its market manipulation through currency devaluation or interest-rate hikes, fueling fears of a stagflation that was last felt in the 1970s.

Consumers, investors and businesses are the troops in the trenches bearing the brunt of this new reality.  The generals continue to deliver garbled reports on the progress of the battle, leaving the troops to fend for themselves.  And as we, the troops, continue to wonder if we are on our way to an economic calamity, the first meaningful answer we might ever get is the economic mushroom cloud that plumes overhead.

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