NEW YORK ( TheStreet) -- Let me start with a full disclosure: My investment account is sitting on a lot of cash.
That's because markets do not yet anticipate what policymakers on both sides of the Atlantic have baked in -- a recession starting on April 1.
The reason for the recession can be summed up in one word. Austerity.
Austerity with growth is a good thing. You want to hold the brakes on a boom so that you're ready for a bust.
But we are not experiencing a boom, despite what the markets are saying. Growth is very slow, even slower than in the last growth cycle during the 2000s. Unemployment remains stubbornly high.
Yet, we're about to take a 2.5% annualized hit to GDP, thanks to the political popularity of austerity.
Part of a Goldman Sachs Global report on the economy,
reprinted by Jared Bernstein
, tells the story. Tax hikes cut growth by 1% starting in January, other spending cuts are cutting it by another 0.5%, then the sequester provides another 1% hit, its impact set to maximum over the next two quarters.
It's the reverse of the stimulus effect seen in 2009-2010. Government is a big part of the economy, and changes to government fiscal policy do impact upon the economy. What do you think happens if you're taking 2.5% (at an annual rate) from an economy the Conference Board predicted in January
would grow at 1.6%?
Isn't 2.5% more than 1.6%? It is where I come from.
At the same time, Europe's economy continues to contract under austerity. The UK economy, for instance, contracted by 0.3% in the fourth quarter of last year, according to statistics
collected by the BBC.
The European Commission is forecasting anemic growth and rising unemployment
across the continent for this year
, with countries undergoing the most austerity doing worst.
Against this gloom we have to place the decade's biggest story -- growing energy abundance. Fracking works, if your aim is simply to extract oil and gas from played-out fields.
The Energy Information Administration expects U.S. oil production to average 7.3 million barrels/day this year,
up from 6.5 million barrels/day last year
, which Mark Green of
The Energy Collective
calculates could mean we'll be
exporting more crude than we import by the end of 2013.