Joe Biden announced the “second stimulus” today.
In an interview on ABC news “This Week” he said the administration, “ ”misread how bad the economy was” and didn’t foresee unemployment levels nearing double digits.” While he went on to defend the stimulus plan, he did offer that the current unemployment rate was too high. So what’s he going to say when it ticks up another one or two percent?
The employment report Thursday pretty much sealed the deal. The more you look at it and think about it, the more dire it seems to become. Wage deflation fingerprints are all over the data and there’s little doubt that politicians at home over the holiday weekend are hearing the anecdotal evidence that you and I see every day. This is the sort of news that tends to put politicians into a panic mode. Unemployed people are not prone to reelecting their representatives.
Throw in a reaccelerating foreclosure trend, anemic bank lending and the likely implosion of the commercial real estate market in the next six months and you have an explosive mix. There may be an uptick in some numbers as depleted inventories are rebuilt, but with so much slack in the economy it’s likely unemployment could keep moving up even as output recovers at least for a little while.
The administration is getting painted into a corner. They cannot let the situation deteriorate further lest they open the door to a Depression scenario. Even if the economy stabilizes at this low level, it’s unacceptable politically so the only recourse is going to be to open the spigots wide. What this means for interest rates and the dollar is, of course, the wild card. Unintended consequences abound.
Welcome to Act ll of the Great Recession.