This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

An Economic Nothingburger

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.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs