The unemployment rate in the U.S. is again increasing. Interest rates for 10 year bonds are again down to 3%. The manufacturing index still shows some growth but less than in earlier months.
The U.S. is on its way back to into recession. One can fault the Obama stimulus spending for this. As it is running out, the economic activity it created declines. But to blame the stimulus would of course be stupid.
The real problem is that the underlying structural problems which created the recession in the first place have not been cleaned up. The high octane stimulus was supposed to restart the economic machine, but it is still broken and unrepaired. Even a bigger stimulus would not have helped, it just would have taken a bit longer for the decline to reappear. The structural problems underlying the mess have to be cleaned up for some generic, self driven economic growth to come back.
The main structural problem, at least in the U.S., is the indebtedness of the consumers. They were scammed, by professional marketing but also by self-illusion, into buying overvalued house with funny money the banks handed out like candy. The best, fastest and most painless way to correct the indebtedness is to write down the mortgage principles to some 80% of the real value of the houses the people bought. Additionally the structures of Wall Street that created the mess must be taken down to prevent a reoccurrence.
The banks and investment vehicles which bought funny money mortgage papers would suffer as they should. But consumer demand, now held back by too high debt, could then come back.
Instead we get talk about too much national debt which is somewhat idiotic. As a former econ professor of mine asked: "Who ever said that a state has to pay back its debt?" As long as a state can tax enough to pay the interest on what it owns there is no need to care for the debt level. There is also always the alternative of a national default – messy but doable.
The whole talk about U.S. national debt levels is just a scam to transfer social security and medicare programs to Wall Street. Those are the two biggest blocks of money that can be still be privatized and sucked up by Wall Street and it is seriously trying to get that done. If Obama continues on the path he has followed so far they have a very good chance to succeed.
So while the second leg of the double dip appears, watch out even further below. With privatized social security and medicare the general economic wellbeing can still get much worse than people today believe is possible.