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Loose Money and Deficit Spending Have Not Cured the Economy

12:00 AM, Jun 25, 2011 • By IRWIN M. STELZER
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It is not often that this sort of partisan dispute over something as arcane as a ceiling on the national debt can attract the attention of both consumers and the business community. But this is such a time. The failure to solve what voters think is a threat not only to themselves but to their children’s prosperity and way of life has some two-out-of-three telling pollsters that America is on “the wrong road,” an attitude that might sink the president if it persists into next year, and if the Republicans can select a candidate deemed capable of taking the country down “the right road,” “right” as in “correct” and, to some, as in a shift to the political right.

Contributing to the majority view that the country is headed in the wrong direction are: the 9.2 percent unemployment rate; the increasing number of workers who have been out of a job for an extended period, many having given up the job hunt; the continued fall in house prices and rise in foreclosures; the bleak future prospects of older workers who have been laid off, and younger people trying to get their first job; and extended political bickering that contributes so much to uncertainty.

Businessmen are no less nervous than consumers. The administration has made it clear that in any dispute with the trade unions, such as those now involving Boeing and Delta Airlines, businesses can expect the administration to put its weight behind the unions. Health Secretary Kathleen Sebelius has announced that after September 22 there will be no more waivers from the application of Obamacare, meaning a huge rise in health care costs for many firms, including small businesses that are counted on to hire us out of this recession. And the White House will not push for congressional approval of new trade agreements unless Congress votes billions for workers who might claim that they were thrown out of work by increased imports, the president’s way of claiming to favor free trade while at the same time assuring the trade unions that he really doesn’t.

Then there is Greece, like the deficit ceiling, not a subject that ordinarily engages Americans’ attention. Now it does, and not only because of fear that some of our financial institutions, especially money market funds that provide foreign banks with liquidity, might be exposed to a Greek default. These institutions need not be too big to fail, only too interconnected not to. Americans once confident of the ability of our economy to generate untold wealth now find comparisons with Greece not only frightening but demeaning.

For the next 17 months—until the November 2012 elections—the economy is in the hands of politicians. Businessmen will continue to hoard cash, using such funds as they want to invest to build facilities overseas. Consumers with jobs, and who are current on their mortgage payments, will continue to keep their credit cards holstered for fear they might be next on the unemployment or foreclosure lists.

But as bad as things seem, they are not bad enough to support the notion that a double dip is definitely in our future. After all, it is not beyond the realm of possibility that a deal on the debt ceiling will dispel the notion that the political process is broken and provide a bit of certainty as to future tax rates, encouraging consumers and businesses to loosen their purse strings.

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