Monday, June 28, 2010

Here it Comes: The Second Great Depression, and long term Joblessness

Think I'm over reacting? Not at all. I've been worried about the "deficit cutting," not the "spending our way out of a recession" plan for Europe, to pull themselves out of the last Great Recession. It's the exact opposite reaction we should have taken from the Great Depression.

Here's a post in the Huffington Post:

New York Times columnist Paul Krugman has issued perhaps the most frightening prediction for the future of the global economy … Krugman worries that a move toward austerity by world governments -- near-term budget-slashing to curb deficits -- will plunge the economy into a "third depression." On the heels of last week's G20 meeting in Toronto, where world governments pledged to halve deficits by 2013, Krugman is deeply concerned that there just won't be enough stimulus in the economy to recover from the prolonged downturn.

"We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost -- to the world economy and, above all, to the millions of lives blighted by the absence of jobs -- will nonetheless be immense. And this third depression will be primarily a failure of policy. Around the world -- most recently at last weekend's deeply discouraging G-20 meeting -- governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending."

Krugman isn't alone in his fear that the world economy is becoming increasingly precarious. The Wall Street Journal noted that members of the Federal Reserve are in private planning for the possibility of a double-dip recession in America -- a concern shared by MarketWatch's in-house economist. The job picture in America certainly isn't comforting, and the mounting ranks of the jobless may lend some support to Krugman's pro-stimulus thesis. This chart, from the Saint Louis Federal Reserve, shows that long-term unemployment is skyrocketing:

For political reasons, the GOBP will hold off on the tax breaks for small business and unemployment benefits to increase the chances of another recession and possible depression to gain seats in November. Winning elections is the name of their game and I fear they have already won that gamble in the mind of voters.

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