A recession is defined as “two economic quarters of negative economic growth”.
Think the possibilities of another recession are non-existent? Think again. There’s clear evidence, according to the Congressional Budget Office (CBO, that 2013 could mean yet another deep recession.
The CBO said in a report released on Tuesday that unless the tax increases are prevented, it’s very likely we could find ourselves in another recession as we ring in the new year. This all has to do with the Bush era tax rates that are slated for expiration on January 1.
This means automatic spending cuts totaling close to $110 billion triggered by last August’s debt-ceiling deal will hit full-force. Not only that, but payments to physicians under Medicare will be annihilated. This is devastating economical news and will have ripple effects not only around the globe, but in American households that are already struggling to pick up the pieces.
The CBO report lays out its belief that the gross domestic product (GDP) will contract by 1.3 percent between January and June of 2012 and after that, it should begin growing at the rate of 2.3 percent the remainder of the year. This averages out to just 0.5 percent growth in 2013.
The report reads, in part,
Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession.
This latest CBO report is important because the projections are being made even as lawmakers have resisted in saying the economy is at risk if they fail to step up to the plate.
So what does this mean for Americans? It’s simple – it’s time to do some financial housecleaning. It’s more important than ever to pay down credit card debt, get the house refinanced (if that’s something you were planning on doing because of the lower rates) and get the savings account back into good shape, say financial analysts.
Back and Forth Bickering
Fed Chairman Ben Bernanke has a lot to say, too. He’s issued dire warnings as far back as April,
It’s very important to say that, if no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that I think there’s absolutely no chance that the Fed could or would have any ability to offset, whatsoever, that effect on the economy.
Ensuring the the automatic cuts and tax increase remain in place would reduce the deficit by $607 billion between now and 2013, the CBO states.
Meanwhile, the Dems and Pubs are up to their usual antics and have opted to lay these very real and very substantial concerns aside in lieu of making noise for the upcoming elections. They remain in this vicious cycle with the American people and their futures at stake. By the time the elections are over, it could be too late.
The possibility of a new president walking into this imminent mess is unsettling, and for many, the current president walking back into it is even worse than unsettling. Those in the Obama Administration, however, insist Congress should “adopt President Obama’s overall budget plans”. And the cycle continues as Republicans continue to insist that’s not the answer.
The president has put forth his plan to keep the recovery going now and reduce the deficit by more than $4 trillion over the next decade. Congress should act to avoid the scenario CBO lays out by putting forth balanced deficit reduction that meets the test of fairness and shared responsibility,
Office of Management and Budget spokesman Ken Baer said.
Simultaneously, House Speaker John Boehner (R-Ohio) is doing his part and has called on all lawmakers to take a nonpartisan approach so that “long term solutions” could be found. If that doesn’t happen, he’s threatened to not raise the nation’s debt ceiling in 2012 until and unless the more and deeper spending cuts are enacted. In a very cutting editorial in USAToday, Boehner writes,
The president lost his courage, and the country lost its gold-plated triple-A credit rating for the first time…Since then, the president has been in campaign mode — playing small ball at a time when we need to address big challenges.
Naturally, Democrats are less than pleased with Boehner’s editorial. House Budget Committee ranking member Rep. Chris Van Hollen (D-Md.) said this latest CBO report only solidifies the belief that the Democratic plan is the only viable option. He then attacks Boehner’s editorial,
Given this report, Speaker Boehner’s threat to prevent the United States from paying its bills unless Republicans are able to impose additional economy-slowing austerity measures is especially reckless and irresponsible.
So, as the politicians continue to go back and forth with accusations, editorials and general nonsense, a movement is slowly taking place in American households. Bill are being paid, spending is being cut and strong decisions are being made in an effort to prepare for the uncertainties that 2013 is likely to bring.
It would come as little surprise to some if the second half of 2012 brought reports that credit card debt is being paid down, home refinances are up and bankruptcies are down. Maybe the politicians could learn a thing or two from the American people they are supposed to be serving.