Tags: Reich | Europe | Double | Dip | US

Reich: Europe's Double-Dip Recession May Ripple Over to US

Friday, 27 April 2012 08:09 AM

Economist and former U.S. Secretary of Labor Robert Reich says the double dip recession in Europe could well cross the ocean to the United States.

"A recession in the world's third-largest economy, combined with the current slowdown in the world's second-largest (China), spells trouble for the world's largest," Reich writes in his blog.

Money moves across borders at the speed of an electronic impulse, notes Reich, a professor of public policy at the University of California at Berkeley.

Editor's Note: Obama’s Last-Ditch Effort to ‘Fix’ America Will Cause the Unthinkable

"Wall Street banks are enmeshed into a global capital network extending from Frankfurt to Beijing," says Reich, who served in three national administrations and was a secretary of labor under President Bill Clinton.

"That means that notwithstanding their efforts to dress up balance sheets, the biggest U.S. banks are more fragile than they've been at any time since 2007."

Meanwhile, goods and services slosh across the globe, says Reich, and if there’s not enough demand for them coming from the second and third-largest economies in the world, U.S. demand can’t possibly make up the difference. That could mean higher unemployment here as well as elsewhere.

Don’t blame Europe’s problems on the so-called “debt crisis,” advises Reich.

“There was no debt crisis in Britain, for example, which is now experiencing its first double-dip recession since the 1970s,” he says. “Blame it on austerity economics – the bizarre view that economic slowdowns are the products of excessive debt, so government should cut spending.”

“Germany’s insistence on cutting public budgets has led Europe into a recession swamp.”

Nobel laureate Joseph Stiglitz said Europe is “headed to a suicide” as euro-area leaders focus on austerity. “There has never been any successful austerity program in any large country,” Stiglitz told reporters in Vienna, Bloomberg reported.

The Montreal Gazette reports that a European backlash against austerity could force Germany to adjust its savings-first approach to the debt crisis, although political tumult and economic decline will still test the ability of eurozone leaders to hold their currency bloc together.

Editor's Note: Obama’s Last-Ditch Effort to ‘Fix’ America Will Cause the Unthinkable

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Friday, 27 April 2012 08:09 AM
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