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Tags: us | recession | prepare | economy

The Atlantic: US Isn't Prepared for Next Recession

The Atlantic: US Isn't Prepared for Next Recession
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By    |   Tuesday, 31 October 2017 03:34 PM EDT

The next economic recession seems like a financial inevitability to many pundits, who say America is far from adequately prepared for it.

“A recession might seem like a distant concern, with the latest data showing that the current, extraordinarily long expansion just keeps humming along. But one will hit eventually, for some reason or another—that’s how economies work. And when it does, the country won’t be ready,” Annie Lowrey, a contributing editor at The Atlantic, recently explained.

The recovery from the last recession has been boom for some at the top end of the wealth scale, while it has been a bust at the other end.

“Roughly half of respondents to a Federal Reserve survey conducted in 2015 said that they could not come up with $400 in an emergency, with a third saying they could not cover three months of expenses, even if they sold assets, dipped into retirement accounts, and asked friends and family for help,” the Atlantic explained.

“Outsize wealth and income continue to accumulate at the very top of the scale, and the finances of millions of American families remain fragile. Americans are no worse off than they were when the last recession hit, in other words, but a decade of growth has not made them more secure, either,” the Atlantic explained.

The Atlantic also detailed a number of economic, social and political differences and chnages since the last recession.

To be sure, a mix of political and economic factors brewing on Capitol Hill right now just could trigger an economic downturn.

“In terms of global circumstances, political will, and fiscal and monetary firepower, then, the next recession seems in some ways more difficult to fight than the last. That need not mean that it would be worse than the Great Recession, of course. But it does mean that it will be worse than necessary,” the Atlantic explained.

For example, the White House promoted President Donald Trump’s tax cut plan last week with a forecast of faster U.S. economic expansion and wage growth, as independent analysts said the plan would swell the budget deficit and provide little spark to the economy, Reuters explained.

The rival projections reflected the many unknowns swirling around the plan, expected to be unveiled in legislative form on Wednesday. Republicans were still undecided on some of the hardest parts, such as how to pay for the costly cuts proposed.

Weeks and possibly months of debate lie ahead for a project that Trump promised to tackle in his 2016 election campaign. In September, he unveiled a rough framework for cutting taxes. Now he wants Congress to approve a bill, which would mark his first major legislative victory, before the end of the year.

The Trump plan for tax cuts of the sort normally reserved for times of economic recession is taking shape in Congress amid signs the economy is already growing briskly.

Gross domestic product increased at a 3 percent annual rate in the July-September period, supported by strong business spending on equipment, the Commerce Department said on Friday.

The economic recovery begun under former President Barack Obama after the 2007-2009 recession is in its eighth year and showing little signs of fatigue amid a tightening labor market.

“It’s hard to say that we need to have tax cuts at the individual level ... you don’t need to provide further fiscal stimulus when the economy is already strong,” said Bernard Baumohl, chief global economist at the Economic Outlook Group in Princeton, New Jersey.

Faced with improving economic prospects, Republicans have shifted their rhetoric on tax cuts away from getting the economy moving again to keeping it on an expansion track.

An analysis released by White House economic adviser Kevin Hassett said slashing the top federal corporate tax rate and letting businesses write off the full cost of most capital investments immediately, as proposed in the plan, would bring faster growth and higher wages.

Hassett’s projections envisioned a 3 percent to 5 percent increase in GDP that, over 10 years, could represent an additional $700 billion to $1.2 trillion in economic output.

But the Tax Policy Center, a nonprofit Washington think tank, released an analysis that concluded the Trump tax plan would not produce a significant, permanent economic boost.

The group said the plan would reduce federal tax revenue by roughly $2.4 trillion over the next decade and by over $3 trillion in the decade after that, adding significantly to a U.S. national debt that already exceeds $20.4 trillion.

The center said Trump’s tax cuts would drive new activity at first, but that the impact would be blunted in later years by rising deficits, forcing more federal borrowing to finance the tax cuts and driving up borrowing costs for the private sector.

Other experts also think America stands a fighting chance at surviving the next economic downturn.

“The U.S. is probably in better shape than much of the rest of the world,” said Mark Zandi, the chief economist at Moody’s Analytics.

“The European Central Bank has negative interest rates, and the fiscal situation in Europe is much more tenuous. The Japanese have absolutely no ammunition left. China used a lot of stimulus in the Great Recession, and debt and leverage is a big problem there,” said Zandi.

Meanwhile, the risk of a U.S. recession is “very low” in the near term so the Federal Reserve will likely continue to raise interest rates gradually over “the next few years,” New York Fed President William Dudley recently said.

“By the time that the next recession hits interest rates will be considerably higher than what they are, so I think we’ll have more room” to cut rates in response, he said. Dudley added that the economy is “at a good place” for the central bank to start shedding bonds, Reuters reported.

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The next economic recession seems like a financial inevitability to many pundits, who say America is far from adequately prepared for it.
us, recession, prepare, economy
Tuesday, 31 October 2017 03:34 PM
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