Debt Ceiling Deal Will Hurt The Economy

I have been saying for a while now that the debt ceiling "negotiations" were not going well and if the Democrats (and President Obama) didn't get tough and take a firm stand for job creation, new revenues, and protecting poor, working, and elderly Americans, they could wind up making the economy worse. Now that the debt deal has been made and signed into law, I see that my worst fears were justified. The Democrats knuckled under to Republican demands and agreed to a return to the "trickle-down" Republican policies that caused the recession in the first place.

There will now be more huge and disastrous cuts to the federal budget, with absolutely no new revenues (not even an elimination of the Bush tax cuts for the rich or the ending of tax subsidies for corporations making record profits). The president (and too many Democrats in Congress) have now climbed on board the "trickle-down" train, and agreed that budget cuts are more important than creating jobs, helping hurting Americans and protecting Social Security and Medicare. At a time when the economy needs a huge infusion of cash to fight the recession and create jobs, the government will now be taking money out of economic circulation.

This even has many on Wall Street worried. They wanted the debt ceiling to be raised so the government wouldn't go into default, but they didn't necessarily want less money circulating in the economy because of massive government budget cuts. Stocks on the NYSE had dropped a huge 7% in the last week or so. Although it finished up a weak 0.25% yesterday, it still rests well below the March high and currently rests below the 12,000 mark. Many investors believe the austerity measures imposed by the debt ceiling deal "will act as a headwind against growth".

The economic growth in the nation's GDP for this year was already a very weak annualized rate of about 1.4% for the first half of this year. Any further weakening of the economy could kill even this small growth, and might even throw the economy back into a period of negative growth -- a second dip for the recession (that is still hurting the folks on Main Street).

The major reason for the weak economic growth the nation is currently experiencing is because the consumers are not spending. With millions out of work and wages stagnant for most who still have jobs, the consumer simply doesn't have the money to spend this economy back into a healthy growth. And there is going to be even less spending with less money circulating in the economy now.

That would be bad enough, but a contraction of the economy will do more than just make less money available. It will also cost this country even more jobs. The Economic Policy Institute, a bipartisan think tank, says the the huge cuts accompanying the debt ceiling deal will cause this country to lose another 1.8 million jobs. There are already 14.1 million people in the U.S. who are out of work -- a 9.2% unemployment rate, not counting those who are underemployed (8.6 million) or have given up finding a job (2.7 million).

There has been recently some small job creation, but not enough to even keep up with the number of new people entering the work force. It would take 150,000 to 200,000 new jobs each month just to keep up with the growth in the workforce, and in June only about 18,000 jobs were created (the figures for July should be released next Friday). The nation simply cannot afford to lose another 1.8 million jobs.

That would boost the number of unemployed up to 15.9 million people -- and push the official unemployment rate back up into double digits (about 10.4%). Add in the 2.7 million who have virtually given up and the unemployment rate climbs to 12.1%. And if we count those forced to work part-time because they can't find full-time jobs the rate is up to 17.7%. And considering that the unemployment rate was already climbing (because we are not keeping up with the number of new workers), and you can see that we are again approaching numbers not seen since the Great Depression.

If the economy was already starting to stagnate with the current unemployment, you can imagine that it will be even worse with another 1.8 million workers losing their jobs. The new and massive government budget cuts can do nothing but make the recession even worse.

This is what happens when politicians follow an ideology rather than acting on real world needs. The only way out of the recession and the national debt is job creation. When enough people are back to work with good jobs, the economy will grow and the debt will be paid down. Without massive job creation, government budget cuts only exacerbates the nation's economic problems.

We can expect the Republicans to want a return to the "trickle-down" economic policies because that is what their party has believed in for decades. It didn't work for Herbert Hoover, and it failed just as miserably when tried by Ronald Reagan and George W. Bush. But at least in the 1930's the nation had a political alternative. They could, and did, turn to Franklin Roosevelt and the Democratic Party.

Sadly, instead of standing up for the poor and workers and elderly, today's Democratic Party and President Obama have become complicit in the economic crimes of the Republicans. Where are Americans to turn for a return to a sane economic policy?