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The political squabble in the United States over the federal debt ceiling has ended, but as the past few days have demonstrated, concerns about the health of the U.S. economy, the world’s biggest, have exacerbated, instead of calming down.... According to latest revisions, the U.S. economy shrunk by 0.3 percent in 2008, instead of the previously accepted “zero” growth. The contraction in 2009 was 3.5 percent, not 2.6 percent as estimated before. Throughout a long four years (2007-2010), the GDP contracted by 0.3 percent. Of particular note are the downward revisions for 2010’s last quarter (from 3.1 percent to 2.3 percent) and the first quarter of 2011 (from 1.9 percent to just 0.4 percent).
Evidently, the American economy, to which many other economies depend on, is in a much worse shape than previously thought....Reminding that Washington will be forced to cut spending as part of the debt deal, Dumas says: “This is the fiercest fiscal deflation applied to the U.S. economy since WWII, and comes at a time of zero interest rates when the offsetting impact of monetary policy is unavailable, and of likely sluggish world trade as China irons out its inflation and Europe deflates.”
“The fiscal crisis is further exacerbated by the compression of tax revenues resulting from decline of the real economy,” Michel Chossudovsky says in a recent article. “Unemployed workers do not pay taxes - nor do bankrupt firms. The process is cumulative. The solution to the fiscal crisis becomes the cause of further collapse.” I think this last sentence sums up the dilemma we are witnessing.
