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.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV